NRO vs NRE Account

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.

131 thoughts on “NRO vs NRE Account”

  1. I have an account in India before I came to US. Now I have been in US over 5yrs. And transferring money to India account (money2india). Do I have to change my Indian account to NRE or NRO account?

  2. My Army pension now gets deposited every month in my NRE (rupee) a/c every month as per the RBI circular dated 07 May’12. This has been possible after I did lot of correspondence with them.

    But what do I need to do to get my pension from my NRE A/c to my US bank in USD?

  3. Dear sir,
    I have a one quation, this NRE or NRO accounts in depasit only faren curency or including India curency.

    Please clarify my requist sir..

    Thank you
    Obulesu

    1. You have to deposit money either from another NRI account, a foreign account or deposit cash in person. As far as I know you can’t deposit from a domestic account to a NRE or NRO account.

      Can anyone else confirm this please?

      1. Hi Manshu,

        NRI is the status.A person is a NRI when he has gone abroad for the indefinite period of time such as Education or Employment or vocation or deputation.It is nothing to do with 182 days as per income tax law.

        Hence if you are abroad for such indefinite period either you need to change the status of the account as Resident to NRO or close the account.

        For such cases you cannot hold resident account.Hence money cannot be deposited to your NRO account vide cheque from your Resident account.Money can be deposited from others resident account to your NRO account.but yes there is a tax liability on interest earned out of the money deposited which is called as withholding interest which is 30.9%

        Secondly money can be transfer from NRE to NRE,NRE to NRO,NRO to NRO.NRO to others resident account(not self as you cannot hold resident account)

        Money van be also transfer from NRO to NRE now.Please refer RBI circular which was issued on May 07,2012.

  4. Hi Manshu,

    Is it MANDATORY (or optional) to show all the inward remittances to an NRE account if only FD’s are done from the money, while filing returns.

  5. Hi ,
    I am working in merchant ships which means i am outside india for more than 6 months and presently i have an nre account .Now i plan to open an nro account will that be taxable even if i work abroad for more than 6 months

  6. QUESTION: Do I need to submit my Permanent Account Number (PAN) to the Bank?

    ANSWER: From April 1, 2010 Permanent Account Number (PAN) shall be mandatory for Non-Resident Indians to avail benefit of lower tax deduction under Double Taxation Avoidance Agreement (DTAA) treaty. Hence it is advisable to submit your PAN to the Bank.

    Please note that it is also essential to update your PAN number with the bank for repatriating funds from NRO account as well as getting tax credit in your tax pass book for TDS deducted on your NRO accounts.

  7. Hi

    Please can you advice on how to get back the taxes back which was deducted from my NRO a/c. for the fund transfered from Overseas. For info., I don’t have any incomes from any source in India.

    Regards
    Baiju

  8. Hi Manshu,

    I had a resident savings account before I moved out to Singapore.I have the following questions
    1) The account will be automatically converted to NRO account or do I need to close it and open a new one?
    2) I have a fixed deposit. What is the minimum interest accrued to which the tax rate (30.1%) is applicable. eg: even for Re 1 the tax will be applicable or there is some limit eg: Rs 10000 till which no tax is applicable.
    3) If my income in India is only via interest and it is less than the income tax slab (200,0000 INR)then do I need to pay any tax at all.

    Regards,
    Aditya

    1. Hi Aditya,

      1. It isn’t automatic, you will have to go through a very elaborate process to get the account opened.
      2. NRE account is tax free so that is better and you should rather open that.
      3. I don’t know.

  9. Hi Manshu, I have three Questions?
    1. Is there any limit on maximum deposits in NRE Accounts? I have a NRE Account with HDFC Bank and am transferring from my British Bank to HDFC Bank and later opening online Fixed Deposits? Is there any Maximum Limit for FD`s?
    2. My Fixed Deposits that i created from my HDFC NRE Account no where states its a NRE Fixed Deposit. Is that OK?
    3. Do i still need to file returns in India for the FD`s in HDFC NRE Account? I haven`t visited India for the last 3 years.
    Thank you all the info, its been really helpful.

    1. Hi Nanda,

      1. I’m not familiar of a limit but then the maximum I have heard is just 2 so you can’t really take my word for this.

      2. It should specify that someplace, the statements or the online account or some other place which has the description.

      3. The people that I know have been filing returns in a similar situation just so when they eventually return they have everything in order and there aren’t any hassles for things like home loans etc. I do not however know if this is mandatory to do or just a good practice to follow.

    2. Hi Nanda,

      1.There is no limit of opening NRE FD,These aare taxfree deposit.
      2.That is OK
      3.No you dont have to file tax in india

  10. I migrated to Canada in 2009. Prior to 2009, I had purchased some shares. I am on vacation in India now. Can I sell those shares and buy foreign exchange draft with the proceeds and take it with me to Canada?
    Would appreciate advice.
    Thanks
    Melwyn

  11. i have 2-3 NRO Depoists accounts prior to increase of interest on NRE deposit, as resident in UAE NRO Deposit carry 12.5% TDS till 31-03-2012. We have now been advised that effective 01-04-2012 applicable TDS will stand at 30.12%. please advise how can I transfer my maturity proceeds of NRO deposit to NRE account or i can pre-mature NRO deposits. Is it correct that we have to opt CA certificate to do so. FYI all NRO FD are raised by debiting amount from our NRE account funds remitted from abroad. please advise.
    thanks and best regards

    1. To the best of my knowledge, TDS of 30.9% has remained effective for a long time now and you should have been charged that earlier as well. Can you check your statements to verify that this has happened?

      Also, you can break your NRO deposit and then transfer that money to open a NRE account, I don’t think there is another way to deal with this situation.

  12. I wish to know as my sister in law based in dubai she wish to transfer funds to india in her NRE account via money exchanger in INR can she do also is her money in NRE account is 100% repatriable

  13. Hi,
    My son has a NRO account in India.How can he send money from US into this account?
    Can he Gift money to his close relatives from this NRO account ? If so what is the limit and tax liability on receiver of gift.

    Thank you

  14. hi!! i have one question…wede it is possible to transfer funds from one nre a/c to another nre a/c through internet banking..coz im holding 2 nre a/c in different bank n i want to tranfer some from one a/c to another thru internet banking….plz reply me..thx 🙂

  15. Hi Manshu,

    Could you please elaborate more about your below point?

    “Even if the NRO interest is taxed at 30% – it still gives you a higher interest income than the NRE account. So if you’re primarily looking to earn interest income then NRO is the way to go for you .”

    I wanted to open NRI account (NRE or NRO), i read multiple blogs and found that NRE is the better option bcoz a key benefit is, it is tax free.

    Can you please help me to understand why NRO is better than NRE?

    Thx, Satie

    1. Hi Satie,

      Thanks for your comment. That is a mistake and I’ve removed that line now. This article was written much before the NRE accounts became liberalized and at that time they had lower interest rates and even with the tax the NRO accounts used to be better.

      That is no longer the case now, and NRE accounts are better as you point out. When I edited the article last time, I didn’t remove that line which I should have.

      Thanks for pointing it out and I’ve made the correction now. My apologies!

      Manshu

  16. Just wanted to leave a comment here on the interest rate – spoke to ICICI customer service today, the tax rate on the interest for NRO FD is 30.1%.

  17. I am an NRI living in USA. I started stock investmen with my money under my father’s name couple of years ago . And i also had him open a bank account under his name for this purpose. And now i want to transfer that investment under my name and so is bank account so that i can use that money in future. So is there any way that i can do this? Please note that i am getting dividend from my investment regularly.

  18. Hi Manshu,

    Just wanted to check as how secure their NRE CD accounts, I am an NRI and not happy with the CD rates we get in US.

    Can you also explain how it works, to my understanding is that they convert the $ to rupee with the prevailing rate of that day and upon maturity they convert the rupee to USD whatever the rate is on that day and give it to you. Correct, we loose money if the rate of USD is up against rupee and gain more if vice versa.

    Thanks for all your help on this.

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