NRE vs NRO Account: Which One for What? Complete Guide

What is the difference between NRE and NRO accounts?

An NRE (Non-Resident External) account holds foreign earnings in Indian rupees and is fully repatriable and tax-free. An NRO (Non-Resident Ordinary) account holds Indian-sourced income and is taxable with limited repatriation. Every NRI needs both — NRE for overseas earnings, NRO for Indian income.

Under FEMA (Foreign Exchange Management Act) regulations, NRIs must maintain appropriate accounts for different types of funds. Using the wrong account can lead to FEMA violations with penalties up to 3x the amount involved.

NRE vs NRO: Side-by-side comparison

Feature	NRE Account	NRO Account
Full form	Non-Resident External	Non-Resident Ordinary
Source of funds	Foreign earnings only	Indian income (rent, dividends, pension)
Currency	INR (converted from foreign currency)	INR
Repatriability	Fully repatriable — principal + interest	Limited — up to USD 1 million/FY
Tax on interest	Tax-free in India	Taxable — 30% TDS
Interest rate (savings)	3-4%	3-4%
Interest rate (FD)	6-7% (varies by bank)	6-7% (varies by bank)
Joint account	Only with another NRI/PIO	With NRI or Resident Indian
Loan against deposit	Yes (in India and abroad)	Yes (in India only)
Can receive	Foreign inward remittance, transfer from another NRE/FCNR	Any Indian income, foreign remittance, transfer from NRE
On returning to India	Redesignated to Resident or RFC	Redesignated to Resident Savings

What goes into which account?

NRE Account — overseas earnings

• Salary received abroad
• Foreign business income
• Foreign rental income
• Investment returns from overseas assets
• Remittances from abroad
• Transfer from FCNR account

NRO Account — Indian income

• Rental income from Indian property
• Dividend from Indian companies
• Interest on Indian FDs and bonds
• Pension received in India
• Sale proceeds of Indian property
• Maturity proceeds of Indian insurance policies
• Any income earned or arising in India

Common mistake: Depositing Indian rental income into NRE account. This is a FEMA violation — Indian-sourced income must go into NRO only.

Repatriation rules

NRE → Abroad: Unlimited

You can repatriate the entire NRE balance (principal + interest) at any time, in any amount, to any country. No RBI permission needed, no CA certificate required.

NRO → Abroad: USD 1 million per financial year

Repatriation from NRO requires:

1. Cap: USD 1 million per financial year (net of taxes)
2. Form 15CA/15CB: CA certificate confirming tax compliance
3. Documentation: Source of funds, tax payment proof
4. Bank processing: 3-7 working days typically

The USD 1 million limit covers all NRO remittances combined — including sale proceeds, rent, dividends, and any other Indian income.

Tax treatment

NRE: Completely tax-free

Interest earned on NRE savings and FDs is exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act. No TDS is deducted. You don’t even need to report NRE interest in your Indian tax return.

NRO: Taxable at 30% TDS

Interest on NRO accounts is subject to 30% TDS (plus applicable surcharge and cess, effective ~31.2%). This TDS applies regardless of your total income or tax slab.

DTAA relief: If your country has a DTAA with India, the TDS rate may be lower. For example:

• India-US DTAA: Interest taxed at 15% (Article 11)
• India-UK DTAA: Interest taxed at 15%
• India-UAE DTAA: Interest taxed at 12.5%
• India-Singapore DTAA: Interest taxed at 15%

To claim lower DTAA rates, you need to submit Form 10F and a Tax Residency Certificate (TRC) to your bank before the start of the financial year.

FCNR account: The third option

FCNR (Foreign Currency Non-Resident) accounts hold deposits in foreign currency (USD, GBP, EUR, JPY, CAD, AUD) — not converted to INR. Key features:

• No currency risk — deposit and withdrawal in same foreign currency
• Interest rates: Lower than INR FDs (3-5% depending on currency)
• Tax-free in India (like NRE)
• Fully repatriable (like NRE)
• Only term deposits — no savings account option
• Minimum tenure: 1 year, maximum 5 years

Best use: Park large foreign currency amounts when you expect INR to depreciate. Avoid INR conversion risk.

Common mistakes NRIs make

1. Using NRE for Indian income — Depositing rent, dividends, or sale proceeds into NRE is a FEMA violation. Indian income must go into NRO.

2. Not converting resident accounts — When you become an NRI, existing resident savings accounts must be redesignated to NRO. Failure to do so is non-compliant.

3. Ignoring DTAA for NRO TDS — Banks deduct 30% TDS on NRO interest by default. If your DTAA allows 15%, you’re overpaying unless you submit Form 10F.

4. Not repatriating from NRE before return — Once you return to India, NRE accounts are redesignated to resident. You lose the repatriation benefit. Repatriate what you need before returning.

5. Holding too much in NRO — NRO has limited repatriation (USD 1M/FY) and is taxable. Keep minimum necessary in NRO; route foreign earnings through NRE.

Opening NRE and NRO accounts

Documents required

• Passport (with valid visa)
• PAN card (mandatory for NRO; recommended for NRE)
• Overseas address proof
• Passport-size photographs
• FEMA declaration forms (provided by bank)

Can you have both?

Yes — and you should. Most NRIs need both NRE and NRO accounts operating simultaneously. Some banks offer linked NRE-NRO accounts for easy inter-account transfers.

Best banks for NRI accounts

Major banks with strong NRI services: SBI, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank. Choose based on:

• Branch network near your Indian address
• NRI-specific digital banking features
• Forex rates for inward remittance
• FD interest rates

How ZenoWealth helps

Our NRI services include end-to-end account management — from opening NRE/NRO accounts to DTAA-optimized TDS, repatriation support with Form 15CA/15CB, and FEMA compliance reviews. We ensure your money is in the right account, at the right tax rate, with maximum repatriation flexibility.

Request a consultation to review your NRI banking setup, or explore our NRI Services.