If you’re an NRI (Non-Resident Indian), understanding the difference between NRE and NRO accounts is crucial for managing your finances efficiently in India. Let’s begin.
What is an NRE Account?
NRE (Non-Resident External) Account is designed to hold your foreign earnings in India. It is maintained in Indian Rupees, and both the principal and interest are fully repatriable, meaning you can send the money abroad without restrictions.
Key Features:
1. Held in INR but funded with foreign currency.
2. Freely repatriable: No limits on outward transfers.
3. Tax-free in India: No tax on interest earned.
4. Directly affected by the change in exchange rates.
5. Regulated under the FEMA Act (Notification No. FEMA 5(R)/2016-RB).
6. Boosts India’s foreign exchange reserves.
7. No senior citizen/staff extra interest benefit.
Fixed Deposit (FD)/Term Deposit (TD):
1. Tenure: 1 year to 10 years
2. Premature withdrawal allowed if deposit is below ₹1 crore
Cash Deposit/Withdrawal Rules:
1. INR Cash Deposit: Not allowed (FEMA prohibits INR credit into NRE)
2. Foreign Currency Cash Deposit: Allowed, but requires Currency Declaration Form (CDF) if deposit exceeds USD 5,000
3. Cash Withdrawal at Branch: Not permitted; only via ATM, debit card, cheque or online
Conversion:
On change in residential status, conversion of SB account to NRE account and vice versa is not permissible. The account has to be closed or Re-designated to an RFC (Resident Foreign Currency) account, if the individual is eligible and wishes to retain foreign currency funds in India.
Example:
Ravi, working in the UAE, sends his salary to an NRE account in India. He earns tax-free interest and can use his debit card during visits to India or abroad.
What is an NRO Account?
NRO (Non-Resident Ordinary) Account is meant to manage your Indian income, such as rent, pension, dividends or interest. It is held in INR.
Key Features:
1. Holds Indian-sourced income
2. Regulated under FEMA
3. Interest is taxable in India, whereas DTAA (Double Taxation Avoidance Agreement) allows an NRI to cut down on their tax implications on the income earned in India.
4. Neutral to change in exchange rates.
5. Repatriation limit: For principal amount, Up to USD 1 million/year with Form 15CA (self-declaration)/15CB (CA’s certificate) and Form A2. Whereas Interest amount is fully repatriable.
6. No senior citizen/staff extra interest benefit
FD/TD:
1. Tenure: 7 days to 10 years
2. Premature withdrawal allowed if deposit is below ₹1 crore
Cash Deposit/Withdrawal Rules:
1. INR Cash Deposit: Allowed
2. Foreign Currency Cash Deposit: Not allowed (must come via inward remittance or traveller’s cheques only)
3. Cash Withdrawal at Branch: Generally not allowed; ATM, debit card, cheque preferred
Conversion:
On change in residential status, conversion of NRO account to SB account and vice versa is permissible. While conversion (re-designation) is allowed, it is not automatic. The account holder must inform the bank and submit relevant documentation (passport, visa, overseas address, etc.). Failing to do so is a violation of FEMA, and penalties may apply.
Example:
Meera, an NRI owning property in India, receives rent in her NRO account. She files taxes and repatriates the funds abroad as per limits.
What is Repatriation?
Repatriation means sending money from your Indian bank account to a foreign account (outside India). This is especially relevant for NRIs who wish to transfer funds earned or held in India back to their country of residence.
1. NRE Account: Fully repatriable- no limits or approvals required.
2. NRO Account: Repatriation is limited to USD 1 million per financial year, and requires:
Form 15CA & 15CB (tax clearance from a Chartered Accountant)
Form A2
Proof of source of funds
Can You Use NRE/NRO Debit Cards Abroad?
1. NRE Debit Card:
International usage allowed
Use at ATMs, stores, or online abroad
2. NRO Debit Card:
Can be used abroad only if enabled for international usage
Charges include forex conversion + international fees
Can You Transfer Funds Between Accounts?
| From → To | Allowed? | Notes |
| NRE → NRO/NRE | Yes | No limits |
| NRO → NRE | No | NA |
| NRO → NRO | Yes | No limits |
Both accounts can also be used to send money to individuals, companies or pay bills in India, subject to the source of funds and tax status, to avoid misuse of the account.
Summary Table
| Feature | NRE Account | NRO Account |
| Purpose | Foreign income | Indian income |
| Currency | Only foreign currency | INR and Foreign currency |
| Repatriation | Fully allowed | For principal amount, Up to USD 1 million/year (with compliance). For interest – No limit |
| Taxation in India | No tax | Yes (TDS applicable) |
| FD/TD Tenure | 1 to 10 years | 7 days to 10 years |
| Premature Withdrawal | Allowed < ₹1 crore | Allowed < ₹1 crore |
| Senior Citizen/Staff Rate | Not applicable | Not applicable |
| INR Cash Deposit | Not allowed | Allowed |
| Foreign Currency Deposit | Allowed (with CDF) | Not allowed |
| Branch Cash Withdrawal | Not allowed | Generally, not allowed |
| Debit Card Usage Abroad | Freely allowed | Limited (enabled separately) |
Both NRE and NRO accounts serve different purposes and come with their own set of rules. Use NRE for foreign income and tax-free growth and NRO to manage Indian income with regulatory compliance. Understanding the RBI and FEMA rules ensures you use them legally and efficiently.
Have questions? Drop a comment or reach out!