NRE and NRO accounts – Meaning, Comparison, importance

NRE and NRO accounts: An NRI (Non-Resident Indian) with earnings both abroad and in India often faces difficulties in managing their finances. They also find it challenging to track bank accounts in a different country, and even when trying to repatriate money to their home account. NRE and NRO accounts help with this. 

Opening an NRO or NRE account can help NRIs in two ways. One, they can send their foreign earnings to India at any point. Two, they can also retain their income from India (via any assets) in the home country itself.

What is an NRE account? 

An NRE account is a bank account opened in India in the name of a Non-Resident Indian (NRI), to park his/her foreign earnings. An NRE Account converts into Indian Rupee or INR at the time of deposit. This means that one can deposit money in any foreign denomination, e.g. US Dollar and withdraw it in Indian Rupees.

NRE accounts can be Savings, Current, Recurring or Fixed Deposit accounts. It can either be opened individually or jointly. However, if one wishes to open a joint NRE Account, individuals can only open it with another NRI. 

Important thing to note is NRE Accounts are prone to risk of exchange fluctuations. This means that they do not offer any protection against currency fluctuations, which are very volatile and prone to change on a daily basis.

What is a NRO account? 

Opening a NRO account helps Non-Resident Indians (NRIs) to manage their deposits or income earned in India such as dividends, pension, rent, etc. This account allows NRIs to receive funds in either Indian or foreign currency. However, only Indian currency can be withdrawn as NRO accounts are kept in Indian currency and cannot be freely repatriated into any foreign currency.

One can apply for an NRO account jointly with an Indian resident on Former or Survivor basis only. An NRO account can also be opened with another Non-Resident Indian. 

Also, one can very easily transfer money from their current NRE account to their NRO Account. However, the interest earned in this account is subject to Tax Deducted at Source (TDS). In short, an NRO Account helps an NRI to manage their income earned in India.

Difference between NRE and NRO account

Parameters	NRE account	NRO account
Taxation	Deposits in NRE accounts are Tax-Free, i.e. the principal amount, and the interest earned thereon, is exempt from tax.	The interest earned in NRO accounts is subject to TDS or Tax deductible at Source.
Repatriability i.e. Transferability	Money from NRE accounts is freely repatriable i.e. both the Principal amount and interest earned are freely and completely transferable.	Funds from the NRO Accounts can be repatriated post payment of applicable taxes with a limit of USD 1 million in a financial year.
Suitable Conditions	One should opt for NRE Accounts if they want to hold or maintain their overseas earnings in Indian currency. NRE Accounts are also suitable for one who wishes to keep their savings liquid.	One should opt for NRO Accounts if they want to save your earnings from India in Indian currency itself. These earnings could include rent, income, dividend, sale of Property etc.
Holding Structure	One can open an NRE account with another NRI and close relative Resident Indian.	One can open an NRO account with an NRI as well as any Indian resident.