NRO vs NRE Account

by Manshu on April 18, 2011

in NRI

Updated on Jan 9 2012

A few days ago I wrote about how you could open a NRE / NRO account while still abroad, and some people had a question on which is the better among the two.

Like most other things – it depends on what your specific needs are but now the big difference in NRO and NRE accounts is that the fixed deposits that you open in your NRE account are tax free in India. Here is a list of some of the best NRE fixed deposits with Indian banks.

Here is a post with differences between the two accounts, and you can go through these main points to see which one suits you most.

Difference between NRO NRE  Accounts

1. Interest on NRE account is tax free where NRO is taxable in India: It used to be that NRE accounts paid a lower interest than NRO accounts, but recently RBI allowed banks to set up their own NRE rates, and as a result now NRE fixed deposits pay as much as a NRO fixed deposit.

The big difference is that there is no tax in India on the interest on this NRE account, so it makes much more sense to open a fixed deposit using a NRE account instead of a NRO account.

2. NRE accounts are tax free whereas NRO accounts are not: You don’t have to pay any taxes on your NRE account, but interest income on the NRO deposit is taxed in India. There was a comment the other day from a reader stating that NRO tax rates have gone down, but I can’t find confirmation of that anywhere, so if you have any information on that then please leave a comment.

3. Up to a Million Dollars is Repatriable in NRO Account: Repatriable in this context means money transferred from India to another country, and it used to be that money from a NRO account wasn’t repatriable at all.

However, RBI has made some changes and now up to a million dollars can be repatriated from a NRO account in a year. However, a friend who was trying to do this told me that it’s a bit of a hassle transferring money from NRO account when compared with a NRE account.

If you foresee the need to repatriate more than a million dollars then you should opt for a NRE account.

Conclusion on NRO NRE Comparison

A lot of NRIs need a bank account back in India because they plan to return some day in the future or they have to maintain their family still in India. So you need something back in India – either a NRO or a NRE account.

I’ve seen the rules change in such a way for these accounts that for a long time it made sense to have a NRO account but not a NRE account, and now the situation has been reversed.

When you open an account – the bank gives you an option to choose if you want to open one or both, and you should choose both at the time so that you don’t have to go through the lengthy process of submitting documents and opening a new account in case the rules change again.

Update: Deleted the tax saving line as pointed out by Satie below.

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{ 116 comments… read them below or add one }

Vijay December 7, 2012 at 12:17 pm

Hi, I have a NRE Savings account & also a resident savings account (that i had opened in the past prior to going overseas. I should have ideally converted in into NRO Savings account but i didnt do it then). What i wish to know is, am i allowed to transfer funds from my resident savings account into my NRE savings account & repatriate the funds..? I am not a Indian citizen anymore. Thanks much if you can answer my query.

Reply

Manshu December 8, 2012 at 10:58 pm

To the best of my knowledge, if you’re not an Indian citizen then you shouldn’t even have a NRE or NRO account. You need to check this with a CA or lawyer who is an expert in this area to get an accurate answer.

Reply

Venkat March 20, 2013 at 8:05 am

My understanding is that Person of Indian origin (PIO) can still open NRE/NRO accounts.

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Srinivas January 30, 2013 at 7:26 am

I have NRO and NRE accounts. I want to buy a property in India. Can I issue NRO accountd for doing the same…

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Yeshwanth Kota February 5, 2013 at 1:22 am

Hi,
I am a citizen of India and I recently came to US on work visa. I will be working here for about an year. I want to transfer money to India to support my family. Can I transfer the money to my personal/salary account in India using any of the e-transfer sites such as a Xoom.com ? Is it against the law ?

Thanking in advance for your response.

Regards,
Yeshwanth

Reply

Akhil February 5, 2013 at 6:51 am

Hi Yeshwanth:

I did some home work and spoke to a CA this time when I went o India for vacation. This is the information I gathered:

Qucik answer: It is not illegal .. based on the info I got, disclaimer :)

NRI account:
1. Money will be in your name.
2. Easy to get money back to USA if required.
3. Advantage over taxing funds in account with respect to your relative/friend account in India.
4. Not advise to keep more than $10,000 as there are some new IRS rules.

Relative/friend Account:
1. That relative/friend has to worry abt “gift tax”.
2. Tough to get the money back to USA. More parer work, not exactly tough but time consuming.
3. I think you can send max $13,000 per year. Limit is more/infinite to NRE acc I guess.
4. Hope your relative/friend returns the money to you :)

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Akhil February 5, 2013 at 7:16 am

Also, once you become nri you should not transfer money to your savings account in India. You can send it to your friend or relative

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sundararajan February 20, 2013 at 1:09 am

Hi,
I have a question, kind of know the answer. But still would like to confirm. I have NRE account and we opened a regular FD on my wife’s name by issuing a check from NRE account. Is there a way to get back the money to NRE account by any chance? OR once the money is gone from NRE can’t be put it back ? Please let me know. Thanks,

Regards,
Sundar.

Reply

Manshu February 20, 2013 at 1:17 am

I haven’t encountered this situation but the rule is that you can fund the NRE account with money that’s repatriable in nature, so somehow you have to prove that the funds in your wife’s FD are repatriable. I don’t know how you could do that. I wish I had a more concrete answer but I don’t know much more beyond this.

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dirty boy March 22, 2013 at 12:23 pm

dear one this is query wee bit out of the topic,
how is money parked in safe havens across india such as cayman islands and swiss bank accounts.

Reply

Manshu March 26, 2013 at 6:11 am

Sorry I’m not familiar with how this is done.

Reply

Amit May 14, 2013 at 11:11 pm

Hi
I am employed abroad for two years. Can I open NRE account and take out the money from the bank in INR in India.

Reply

Rashmi May 17, 2013 at 12:40 am

Hi,

My husband is an NRI residing in USA for the past one year. He has not opened any NRO or NRE account. He transfers money to India from his US account to his Indian account. Is t in anyway illegal or wrong? Please suggest.

Reply

ranjith November 30, 2013 at 8:46 pm

HI RASHMI,

no problem but you have to explain the purpose of each remittance to the bank and rbi.
the amount in saving account is taxable.
so better open one NRE account and save your all income from USA. It is completely free from tax in india and you can get the same amount to USA in to Dollars.

Reply

Himanshu May 18, 2013 at 11:29 pm

Thanks for sharing.. please do share such topocs of economics and banking sectors.. Thanks

Reply

Satyendra nath June 6, 2014 at 2:38 pm

I have NRO & NRI desposits in India and would like to purchase US$ in India. Is it possible. Please advise.

T&R

Reply

Satya June 15, 2014 at 4:18 pm

I have Saving Account in India and I wanted to covert it into NRO Account. My queries are,
1) I have RD running in my account from last 3 years and it is going to finish in next year. After maturity, do I need to pay tax as per NRO tax regulation?
2) I have few MF SIPs connected to my account. Will they be connected after converting to NRO account.

Thanks

Reply

Umesh Kumar June 27, 2014 at 12:47 am

Hi There,

Can you please throw some light on my below questions:-

Suppose I transferred $1000 to NRE account say today, first time it will be converted to INR as per exchange rate & it will be credited to my NRE account. After 6 months, suppose i need money in INR, will that time currency conversion rate will come into picture again?

2. Can we withdraw money in India from NRE account? If yes, what will the how will the currency conversion handled?
3. Can we transfer money from NRE account to (say) a friend in India? or to my other self account? Please confirm.

Thanks.

Reply

nitesh July 23, 2014 at 10:27 am

hi manshu,

I have earned interest from my nro account and bank deducted tds from that interest amount. can i get back refund by filing ITR ,though i have not income more than basic exemption limit in india. i have only interest income which is from nro account and which is less than basic exemption limit.

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