NRE vs NRO Accounts: The Biggest Differences

For Indians working and living abroad, the acronyms NRE and NRO may be familiar.

But what exactly does each account offer and how do they differ?

In this article, we’ll compare and contrast the features of each type of account so that you can choose which one best accommodates your own situation. 

There are two kinds of savings accounts available in India for NRIs (non-resident Indians) that are allowed by the Reserve Bank of India.

Authorized dealers and banks can offer both NREs and NROs, following guidelines from the Foreign Exchange Management Act. 

What is an NRE Account?

NRE stands for Non-residential external and is an account that allows Non-resident Indian citizens to deposit foreign earnings into a rupee-dominated account.

It allows for remittance of funds without limitation.

An excellent choice for someone working outside of India who wants to send money back to assist the family. 

What is an NRO Account?

A non-resident ordinary rupee account (or NRO) is an account for NRIs meant to manage funds that are accrued in India.

For example, you may own properties, earn a pension, or have investments in India.

These funds can be invested in an NRO account. 

So the big picture takeaway is that an NRE account is meant to hold investments sent from foreign countries by an NRI.

NROs are for NRIs who, while abroad, are also earning money in India.

The NRO is for handling the money earned in India.

Now let’s drill down a little further into what each type of account offers for clients. 

Features of an NRE Account

An NRE account may only be opened by an NRI themselves, not by a second party or power of attorney.

With this account, you may deposit foreign currencies (personal checks, traveler’s checks, and bank drafts of any currency) in person while in India.

You may also transfer money from another NRE or from an FCNR (Foreign Currency Non-Resident) bank account. 

If you are visiting India you may keep your NRE as is while you are in the country.

However, if you become a resident of India again, you must redesignate your NRE to a resident or an RFC (Resident Foreign Currency) account. 

Features of an NRO Account

An NRO account will accept foreign currency and convert it to INR.

You are also able to withdraw funds from your account in rupees.

With an NRO, you can also enjoy the convenience of managing your account online from anywhere worldwide. 

NRO accounts are not tax-exempt, however, an account holder can avoid double taxation due to the DTAA (Double Taxation Avoidance Agreement).

Under this, the money earned in India will be taxed by the Indian government.

However, the Reserve Bank of India has an existing agreement with several countries to avoid being taxed again by the country the account holder is residing in. 

The countries included in the DTAA agreement include the following:

• Canada
• United States
• Russia
• Germany
• New Zealand
• UAE
• United Kingdom
• Oman
• Qatar
• Singapore
• South Africa
• Thailand
• Kenya
• Malaysia
• Sri Lanka

Similarities Between NRE and NRO Accounts

• Are available to NRIs (Non-resident Indians)
• You may deposit income originating from outside of India 
• Require the following paperwork to open: Proof of NRI status (employment/student visa), copy of valid passport, copy of Indian PAN card or Form 60, recent color photograph (passport size), current work contract, and copy of CDC along with FEMA declaration and last page of disembarkment stamp (for seafarers only). 

Differences Between NRE and NRO Accounts

• NREs are tax-exempt, while an NRO is not. 
• You may open a joint NRE account only with another NRI. With an NRO you may open a joint account with NRIs or Indian citizens. 
• While both an NRE and an NRO may receive deposits originating outside of India, only an NRO can take deposits from income generated within India. 
• An NRO account has no exchange rate IF both deposit and withdrawal are made in INR. With NREs, currency fluctuation can affect exchange rates. 
• An NRE is a place to put foreign earnings, while an NRO is for managing income earned in India. 
• The principle and accumulated interest in an NRE is open to repatriation. In an NRO, the interest can be repatriated, but the principle you can only remit up to 1 million USD in a financial year. 

Who is Eligible for an NRE or NRO Account?

The short answer is NRIs or Non-resident Indians.

But this can be broken down into several categories:

• Indian nationals who are employed with overseas airlines, working on oil rigs, or in the merchant navy
• Indian citizens in foreign countries on student or business visas, or employed outside of the country
• Any person who has ever held an Indian passport
• Spouse of an Indian citizen or PIO
• Indians working in the public sector, or the UN, or deputed abroad for the Indian government

While both of these accounts are available for NRIs, they have very different functions.

Essentially, the NRE account is a tax-exempt account for depositing funds earned outside of India.

This is ideal for someone who is working outside of India and wants to open an account for their earnings.

This is often done to support dependent family members living in India.

The NRO is an account for NRIs who want to manage money that is earned within India.

This includes investments, properties, and the like.

This may be taxed by India, but in many cases not double-taxed by the country of residence.

You may access this account online from anywhere in the world. 

While both types of accounts are available to non-resident Indians, they have very different functions.

NREs are for parking foreign earned money, tax-free.

NROs are for managing money earned in India and are subject to Indian taxation.

Feel free to use the information from this article to help decide which type of NRI bank account best fits your personal needs. 

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