When you move to a foreign land to build a life for yourself, there are tons of changes that come into place. One of them is a change of an existing account to an NRI account. An NRI account can be opened by any non-resident Indian (NRI) with any authorised Indian bank. Once a person gains the NRI status, they cannot continue with their normal savings account in any bank in India. According to the Reserve Bank of India, it is mandatory to open an NRI account for any transactional needs in the country.
So, what type of account is used for managing your foreign earnings and which one is used to manage your Indian earnings? This article outlines the difference between NRE and NRO account options for NRIs.
What is an NRE Account?
Suppose your business is flourishing in a foreign country and you have a dependent person in India. What will you do if you have to send money back home?
In this case, you will need an NRE account.
An NRE (Non-resident external) account is a type of account that is used to manage foreign earnings in India. You can transfer your foreign earnings to India using an NRE account. Most NRIs use this account to park their foreign earnings in India to earn lucrative interest rates.
What is an NRO Account?
Suppose you have an existing property in India and you get monthly rent from that property. As an NRI, how will you manage those earnings?
The answer is the NRO account.
An NRO account is a type of account used to manage Indian earnings by an NRI. This income can be in the form of monthly rents, a pension, or other sources. This account is suitable for all kinds of Indian earnings.
Both of these accounts come with a variety of features and benefits. Let's see the key points of difference between an NRE and an NRO account.
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NRE Account |
NRO Account |
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Taxability |
The balance, as well as interest earned on this account, is tax-free in India. |
The interest earned on this account is taxable as per the Income Tax Act 1961. |
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Repatriation |
The amount deposited in this account is fully repatriable. This is the best way to use foreign earnings in India. |
There is a repatriation limit of up to USD 1 million in a financial year. |
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Exchange Rate Risk |
The amount deposited in an NRE account is prone to risk as it varies as per the currency fluctuation rate. |
The amount deposited in an NRO account is protected against any exchange rate fluctuation as the deposited amount is maintained in Indian rupees. |
The Closing Note
Both NRE and NRO accounts are the types of accounts offered by authorised banks that serve different purposes. If your total earnings have Indian as well as foreign earnings, you should open both accounts to manage the respective earnings. An NRE account is suitable for managing foreign earnings in India with tax-free benefits. An NRO account is suitable for managing your Indian earnings. You can choose according to your requirements as both of these accounts cater to the financial needs of NRIs.