NRE vs NRO Account: Which One is Right for You?
NRE and NRO accounts are among the most popular and widely used by NRIs for saving and investing money in India. Whether you live abroad and want to invest in Indian assets or simply need to send money to family back home, having the right NRI account can simplify your financial transactions.
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Qualified Policybazaar expert will assist you What is an NRE Account?
An NRE account is for NRIs who wish to manage their income earned abroad while keeping their finances connected to India. The key feature of an NRE account is that it allows you to deposit foreign currency, which is then converted into Indian Rupees (INR) at the time of deposit. The balance in the account is held in Indian Rupees (INR), and the funds are fully repatriable to your country of residence.
What is an NRO Account?
An NRO account is used by NRIs to manage income earned in India. This could include rental income, dividends, or business earnings in Indian rupees. Unlike an NRE account, an NRO account can receive both foreign currency credits and Indian rupee deposits. However, the repatriation of funds from NRO accounts is subject to certain limits. It is ideal for NRIs who need to manage income from Indian sources or pay for expenses in India.
NRO vs NRE Difference
Here’s a quick comparison of the two types of NRI accounts: NRO vs NRE bank account based on important factors —
| Basis | NRE Accounts | NRO Accounts |
|---|---|---|
| Definition | An account to park your foreign earnings in India, in Indian currency | An account to park your earnings from India in Indian currency |
| Deposits and Withdrawals | Can deposit foreign currency and withdraw in Indian currency |
Can deposit both foreign and Indian currency, and withdraw in Indian currency |
| Taxation | Tax-free in India; both principal and interest earned are exempt from tax | Interest earned is subject to TDS (Tax Deducted at Source) |
| Transfer of Funds | Funds can be transferred to another NRE or NRO account | Funds can only be transferred to another NRO account, not to an NRE account |
| Suitable Conditions | Ideal for maintaining overseas earnings in Indian currency; also suitable for liquid savings | Ideal for saving income from India (e.g., rent, dividends, business income) in Indian currency |
| Holding Structure | Can be opened with another NRI or a close resident Indian relative | Can be opened with an NRI or a resident Indian |
| Effect of Exchange Rate | Subject to exchange rate fluctuations and possible conversion loss | No exposure to exchange rate risk, as funds are held in Indian currency |
Which Account Should You Choose? NRO vs NRE Bank Account
The choice between an NRE vs NRO account depends on your specific needs —
- If you want to remit foreign income to India: An NRE account is the best choice due to its tax advantages and repatriation benefits
- If you have income sources in India (e.g., rental or business income): An NRO account is essential, as it allows you to manage Indian income and pay Indian taxes.
- For tax-free interest: Choose an NRE account for tax-exempt interest income.
In some cases, NRIs may choose to open both NRE and NRO accounts to manage their finances more efficiently.
Why Do NRIs Need to Open an NRE or NRO Account?
According to RBI regulations, NRIs cannot open a regular savings account in India.
Therefore, depending on your financial needs, you may opt for either an NRE or NRO account or both accounts.
Here’s why opening an NRE or NRO account is important —
| Facilitating International Transfers | Managing Indian Income |
|---|---|
| Both NRE and NRO accounts allow NRIs to transfer money to and from India. However, an NRE account is particularly beneficial if you want to remit foreign income to India as it allows easy transfer without worrying about currency exchange. | If you earn income in India (e.g., from property rental or business), you’ll need an NRO account to manage and repatriate those funds. |
Frequently Asked Questions
No, an NRI (non-resident Indian) is a person who lives outside of India, whereas an NRE (non-resident external) is a kind of bank account that serves as a means for NRIs to handle their foreign earnings within India.
NRE accounts are better for managing foreign income and offer tax-free interest and full repatriation. NRO accounts are suited for managing Indian income and allow both foreign and Indian currency deposits, but with repatriation limits.
The main disadvantages of an NRE account include its inability to accept Indian income, limited joint account options, and exposure to exchange rate fluctuations when repatriating funds.
PIOs (Persons of Indian Origin) and NRIs (Non-Resident Indians) are both eligible to open these accounts. You can choose either NRE vs NRO based on your requirements.
It is possible for NRIs to simultaneously have both NRE and NRO accounts, each one of them serving a distinct financial function.
If an NRI has any income source in India, then opening an NRO account is mandatory for conducting any banking transactions.
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