Mahesh is a Non Resident Indian (NRI) living in the UK. He is doing well in the business that he set up there. He has a dependent brother in India to take care of. He transfers money to his Non Resident External (NRE) account regularly. Also, his Non Resident Ordinary (NRO) account is credited on a timely basis.
Mahesh’s affection towards his brother made his co-worker, Andrew, inquisitive. Andrew wanted to know more about these accounts that Mahesh was handling despite being abroad. Here’s how Andrew’s queries were addressed:
| Basis |
NRE Account |
NRO Account |
| Acronym |
Non Resident External Account |
Non Resident Ordinary Account |
| Meaning |
It is an account of an NRI to transfer foreign earnings to India |
It is an account of an NRI to manage the income earned in India |
| Taxability |
Interest earned is tax free |
Interest earned is taxable |
| Repatriability |
Can repatriate |
Can repatriate the interest amount, the principle amount can be repatriated within the set limits |
| Joint Account |
Can be opened by two NRIs |
Can be opened by an NRI along with an Indian citizen or another NRI |
| Deposits and Withdrawals |
Can deposit in foreign currency, and withdraw in Indian currency |
Can deposit in foreign as well as Indian currency, and withdraw in Indian currency |
| Exchange Rate Risk |
Prone to risk |
Not prone to risk |
However, Andrew still wasn’t satisfied with Mahesh’s answer. So, Mahesh explained further:
The difference between NRE & NRO accounts
- An NRE (Non-Resident External) account is a banking facility provided in India for Non-Resident Indians (NRIs) to deposit their earnings from abroad. On the other hand, an NRO (Non-Resident Ordinary) account is also a banking option for NRIs in
India, designed specifically to manage their income generated within India, such as rental income, dividends, pensions, interest, and other forms of revenue.
- NRE accounts are exempt from tax. Neither the balance, nor the interest earned on these accounts is taxable. The interest earned on an NRO account is however taxable at 30% according to the Income Tax Act 1961.
- The principle amount in an NRE account, and the interest accumulated thereon is open to repatriation. In other words, you can transfer these amounts to a foreign account in case of an NRE account. In case of an NRO account, the interest amount
can be repatriated; however, in case of the principle amount, you can remit only up to USD 1 million in a financial year.
- An NRI can open a joint NRO account with one or more NRIs or Indian citizens. However, there can be a joint NRE account only with another NRI.
- [Also Read: Which bank account should you open as an NRI?]
- Income originating outside India can be deposited into any of these accounts. However, income originating within India can be deposited only into the NRO account. Withdrawals from both the accounts can be made only in INR.
- In case of an NRO account, if the deposit as well as the withdrawal is made in INR, there is no exchange rate risk involved; whereas, in case of an NRE account, currency fluctuations make you prone to exchange rate risks.
The Bottom Line
If your total income includes income earned in India and you want to manage it within the country, you can opt for an NRO account. An NRE account can be opened if you want to transfer your foreign income
to India and want to avoid taxation liabilities. They are both a variation of savings account.
