NRE VS NRO: Selecting the Right Bank Account for NRIs

Non Residents and their bank accounts have been a constant point of introspection. The bank accounts maintained by NRIs in India serve different purposes. Time and again, there has been this research to select the right bank account and benefit from it as an NRI. Weighing out the pros and cons considering NRE VS NRO Account and understanding their fundamentals is essential to have a seamless banking experience in India as an NRI. In this article we will explore the basics of NRE Account and NRO Account while sketching out the differences between them. Ultimately, concluding which bank account is best for you as per your needs.

NRE VS NRO: Selecting the Right Bank Account for NRIs
NRE VS NRO: Selecting the Right Bank Account for NRIs

NRE VS NRO Account

The Non-Resident External (NRE) and the Non-Resident Ordinary (NRO) Account are fundamentally very different. Let’s start with understanding their definitions in a very simple way.

  • Non-Resident External (NRE) Account: The NRE Bank Account is used to maintain the income earned outside India. The account is maintained in INR and is subject to currency conversion/ exchange rate fluctuations as you will be depositing money in foreign currency. The interest earned on the deposits is tax-free in India and is completely and freely repatriable.
NRE Account Overview

Also Read: Latest NRE FD Interest Rates

  • Non-Resident Ordinary (NRO) Account: The NRO Bank Account is used to maintain the income generated in India. This account is also maintained in INR. Since, you deposit your income that is generated in India, the interest earned is taxable at 30% along with surcharge and cess which is deducted at source (TDS). This deduction is refundable as per your tax slab. There is a limit of US$ 1 million per financial year for repatriation. 
NRO Account Overview

Check Out: Process of repatriation from NRO Bank Account

Difference between NRE and NRO Account

Check out the grid to understand the differences between NRE and NRO Bank Accounts:

Factors to considerNon Resident External (NRE) AccountNon Resident Ordinary (NRO) Account
PurposeFor income earned outside IndiaFor income earned from India (pension, rent etc.) 
TypesCurrent, Savings and DepositCurrent, Savings and Deposit
Tenure of Deposits1 year to 10 years7 days to 10 years
InterestUp to 7.50%*Up to 7.30%*
Joint Account HoldingOnly NRIsBoth NRIs and Residents
Repatriation(transfer of money from Indian bank account to foreign bank account) Both Principal (money invested initially) and Interest completely repatriableUp to a maximum of 1 million USD per financial year
Tax DeductionsNo tax on interest earnedTax on Interest earned (not on principal amount): 30% tax + surcharge + education cess will be deducted at the source of interest earned in India
NRE VS NRO Account

Did you Know? You will have to open a new NRE Bank Account but you can convert your resident savings account into an NRO Account. The process to convert your resident savings account into an NRO Account is simple. 

Also, as NRIs you can’t hold a resident account. Therefore, you must inform the bank about the change in your residential status. 

Steps to convert Resident Savings Account into NRO Account

NRE to NRO Fund Transfer

Transfer of funds can be done from NRE to NRO Account. An NRE account allows you to transfer funds to another NRE account as well as an NRE to NRO fund transfer. There are no taxes on NRE to NRO Transfer. You can transfer money to NRO Account without any hassle.

Check out the details here: NRE to NRO Fund Transfer: Ultimate Guide 2020

NRO to NRE Fund Transfer

Transfer of funds can be done from NRO to NRE Account. An NRI can transfer funds from NRO to NRE account after providing proper documentation stating that all the taxes are paid on the funds being transferred to the NRE Account because both the principal and interest earned on NRE Deposits are fully and freely repatriable.

Check out the details here: NRO to NRE Fund Transfer: Ultimate Guide 2020

NRE VS NRO Account: Which one to choose?

Choosing the perfect NRI Account is completely driven by purpose. Here are pointers for you to make it simpler.

Choose an NRE Account if:

  • You have a source of income abroad
  • You want to maintain your earnings from abroad in INR
  • You want to earn tax-free interest on deposits (up to 7.50%*)
  • You want to invest in Indian markets on a repatriable basis
  • You want to open a joint account with another NRI
  • You want free and complete repatriation to any currency
  • Your repatriation amount exceeds US$ 1 million per year

Choose an NRO Account if:

  • You have a source of income in India
  • You want to earn interest in deposits (up to 7.30%*)
  • You want to hold your Indian earnings with no plan to utilize them in your country of residence
  • You want to invest in Indian Markets on a non-repatriable basis
  • You want to open a joint account with another NRI or Resident Indian
  • Your repatriation amount per year is less than USD 1 million USD
Overview of NRI Bank Accounts

Also Read: NRI Investment in India: 5 Best Investment Options for NRIs

Can I hold both NRE and NRO Account as an NRI?

Yes. You can hold both NRE and NRO Account as an NRI if you have the need for it. Both these accounts offer flexibility and serve their purposes. As an NRI, it is essential to understand and plan your banking and investments. At SBNRI, we understand your needs and cater to them end to end.

Visit our blog or Youtube Channel for more details.

Click on the button below to instantly open an NRE or NRO Account through SBNRI at the comfort of your homes.

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Also, if you need further assistance and need to connect with an expert for end to end query resolution, click on the button below.

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Which account is best for NRI?

NRIs can opt for NRE, NRO or FCNR Bank Accounts based on their needs as each of these accounts cater to different requirements and purposes.

Why is it important to have a NRE NRO account for an NRI?

NRIs can’t legally hold a Resident Savings Account in India, therefore, it is important that they carry out their banking and investment needs in India through NRI Bank Accounts (NRE, NRO & FCNR)

Is NRI account taxable?

The interest earned on both NRE and FCNR Bank Accounts are tax-free in India. However, there is a tax deducted at source at 30% along with surcharge and cess on the interest earned on NRO Bank Accounts.

Can my friend deposit money in NRO account?

Yes. Your friend can deposit money in NRO Account as gifts in INR from any resident or NRE/NRO account holder is allowed in an NRO Account.

How many days NRI can stay outside India?

As per the current Income Tax Act, if an Indian citizen stays out of the country for more than 182 days, he becomes non-resident.

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