10/5/2020 Difference Between NRE & NRO Account - Which Account Best Suits Your Needs

Difference Between NRE & NRO

Account
4 mins April 15, 2017

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) accountregularly. 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 Non Resident Ordinary

External Account
Account

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10/5/2020 Difference Between NRE & NRO Account - Which Account Best Suits Your Needs

Meaning It is an account It is an account of an

of an NRI to NRI to manage the
transfer income earned in India
foreign
earnings to
India

Taxability Interest earned Interest earned is

is tax free taxable

Repatriability Can repatriate Can repatriate the

interest amount, the
principle amount can be
repatriated within the
set limits

Joint Can be opened Can be opened by an

Account by two NRIs NRI along with an
Indian citizen or
another NRI

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10/5/2020 Difference Between NRE & NRO Account - Which Account Best Suits Your Needs

Deposits and Can deposit in Can deposit in foreign

Withdrawals foreign as well as Indian
currency, and currency, and withdraw
withdraw in in Indian currency
Indian
currency

Exchange Prone to risk Not prone to risk

Rate Risk

However, Andrew still wasn’t satisfied with Mahesh’s answer. So, Mahesh
explained further:

The difference between NRE & NRO accounts

An NRE account is a bank account opened in India in the name of an
NRI, to park his foreign earnings; whereas, an NRO account is a bank
account opened in India in the name of an NRI, to manage the income
earned by him in India. These incomes include rent, dividend, pension,
interest, etc.
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
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10/5/2020 Difference Between NRE & NRO Account - Which Account Best Suits Your Needs
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: Income Tax Slabs for 2020-21]
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 raterisk 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.

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