Difference Between NRE and NRO Accounts

Difference Between NRE and NRO Accounts

The NRE account is used to keep the foreign currency earned in the Indian rupee denomination. It is referred to as an Indian rupee-denominated account that offers complete security.
NRE account can be in the form of current, savings, fixed deposit and recurring. This account plays the role of converting foreign currency to INR. A person depositing foreign money in his NRE account will be converted to INR quickly.
They also can transfer the interest or principal amount to a foreign account from an NRE account without any restrictions.
However, a person must clarify that amount deposited into the NRE account must be earned outside India. This account can also be opened jointly, but the joint account holder must be an NRI.
Also, the interest earned on the deposit of the NRE account is tax-exempt, which makes the principal as well as interest amount tax-free.
Depositors have all the rights to repatriate any amount deposited in an NRE account. The primary benefit of an NRE account is international debit cards that enable a person to transact and withdraw money 24*7.
Also, the investment becomes more accessible if a person links their NRE account number to the investment account. NRE account is majorly used for carrying out personal banking, business account or making investments in India.

An NRO account is basically a savings or a current account held by NRIs in India to manage their Income earned from several sources in India like pension, dividends, rental Income, etc.
Account-holders can deposit and manage their collected rupee funds without any trouble. The primary benefit of an NRO account is it allows you to receive funds in foreign or Indian currency.
A person can open an NRO account jointly with an Indian resident or with an NRI, and also they can transfer money from their current NRE account.
However, the significant difference between NRE and NRO account is the withdrawal currency. An NRO does not allow to transfer of funds without restrictions.
Unlike an NRE account, the interest earned on the deposits in an NRO account is a 30% taxable rate deductible at the source. A person residing outside Indi can send up to $1 million in a year after paying the applicable taxes.
The NRO account is suitable for people who have a source of Income coming from India.

  • Taxation
  • An NRE account is tax-free, and a person does not have to pay wealth tax, income tax, or tax gift in India. On the other hand, the interest accumulated from the NRO account and credit balances comes under the respective tax bracket.
    The people having an NRO account are subject to applicable gift and wealth tax. However, a person can avail of the reduced tax benefit under the Taxation Avoidance Agreement.

  • Transferability
  • The money kept in NRE accounts, i.e. both the interest earned and the principal amount is freely transferrable.
    Whereas funds transferred from the NRO account can be $1 million in a financial year and pay applicable taxes for post-payment.

  • Holding Structure
  • A person can open an NRE account and another NRI person or a close relative, Resident Indian. On the other hand, a person can open an NRO account with the NRI and any Indian resident.

  • Deposit and Withdrawal Currency
  • In an NRE account, a person can deposit in foreign currency and withdraw in rupee without any trouble. Whereas in the NRO account, both have to be in the Indian rupee denomination.

  • Deposit Rules
  • The Indian income generated cannot be deposited into the NRE account, whereas the overseas income generated cannot be deposited in the NRO account.

  • Suitable Conditions
  • A person can opt for an NRE account if they want to hold or maintain their overseas earning in Indian currency. They are also suitable to keep your savings in liquid.
    On the other hand, a person can opt for NRO accounts if they want to save their earnings from India in Indian currency. These earnings include the sale of property, dividend, income, rent etc.

  • Transfer of Funds
  • An NRE account allows the person to transfer funds to another NRE account and an NRO account. In contrast, an NRO account enables the person to transfer the funds from one NRO account to another but does not allow to transfer of funds from an NRO account to an NRE account.

  • Exchange Rate Fluctuations
  • NRE accounts are subject to conversion loss and changes in the currency value against a foreign currency. Whereas in the NRO account, there are no risks involved in conversion.

  • What is the primary role of NRE account?
  • An NRE account plays the role of converting foreign currency to INR. A person depositing foreign money in his NRE account will be converted to INR quickly.

  • What are the deposit rules in NRE and NRO account?
  • The Indian income generated cannot be deposited into the NRE account, whereas the overseas income generated cannot be deposited in the NRO account.

  • What is the significant difference between NRE and NRO account?
  • The significant difference between NRE and NRO account is the withdrawal currency. An NRO does not allow to transfer of funds without restrictions.
    Unlike an NRE account, the interest earned on the deposits in an NRO account is a 30% taxable rate deductible at the source. A person residing outside Indi can send up to $1 million in a year after paying the applicable taxes.

Final Thoughts

Though there are several other major differences between NRO and NRE account, to manage their funds without any hassle. However, a person has to select between both accounts depending upon their needs.
If a person has income earned from overseas, they have to open an NRE account, while income earned from India should have an NRO account.
All Indian and private sector banks offer the option of opening NRE and NRO accounts to all NRI’s. The laws regarding these banks are almost the same, but a person will need both NRO and NRE account to maintain their funds.