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. Thanks Manshu for prompt Response.

    In my case, NRI is incorporating a new Pvt. Limited Company with 2 Lac Capital and his contribution would be 35% i.e. INR 70,000/-. Main object would be liquor Trading ( i.e. Multi Brand Retail …i suppose which is not allowed as of now).

    So my question is can he subscribe/purchase shares or Rs. 70,000 of this pvt ltd Company.
    Also can he give a loan of Rs. 35 Lac to the Company from his NRE Account, i.e. money got from abroad.

    Thanks in Advance…

    1. Subhra – I’m sorry but I’m not familiar with the nuances of this type of transaction and won’t be able to answer your question.

  2. Hi Manshu,

    Can you please tell me that if a person holds an NRE account and his earnings are deposited on that account, if he doesnot completes his NRE period it 182days outside India then is he liable for income tax.

  3. Can a NRI invest for purchase of shares of company which is running departmental store i.e. multi brand retail through his nro account i.e. from local income.

    will this be treated as FDI or local investment and does requiring any reporting norm to RBI.

    Plz advice

    1. This is not FDI but then I’m not sure what you’re trying to do….you want to buy shares in a listed company right? If you have a trading account linked to the NRO account and the trade is getting executed through that then yes you can do this.

  4. Hi Manshu,

    I am in Oman and I don’t have a NRE or NRO Account. I want to know that is there any deduction or tax on the amount transferred to a normal saving account from abroad?

    1. There won’t be any deductions apart from the regular charges that the bank or money transfer agent charges but if you are looking to stay there long term you should look to open a NRO or NRE account as NRIs aren’t supposed to hold resident accounts.

  5. Dear Sir, I am an NRI, I have a normal bank account in India attached with my demat account and trading shares online. I did not change it to NRO. Is it illegal? is there any penalty for this? what are the docs i need to submit to my bank and to my stock broker?

    1. Jaison,

      As per law an NRI cannot have a resident savings account and all investments in India are dne as an NRI. For equity trading you need to open a seperate PIS account with a bank and transact through It. Also the taxability is different and funds repatriation are permitted with permission from RBI.Hence, it will be good if you update your status with your bank and they will let you know the procedure.

  6. Hi,

    I am in USA and I have NRO account with SBI. Bank is suggesting me to apply for PAN. Is it possible for me to apply for PAN in USA? I am not understanding why I would PAN, is it needed to pay taxes from interest earned in NRO account? please advice.


    1. Sunny,

      Funds in NRO account are primarily income earned in India and hence taxable. You can repatriate these funds only after paying required income tax. Hence, you need to apply for PAN for any transaction in India and paying Income Tax.

  7. hi
    I am an oci and my parents want to give me some money. what is best option for me. can they “gift” me money and will i be taxed in india. should i open nre account and they can put money in it. please help.


  8. Hi Manshu,

    Is it possible to give donation in India via transfer by overseas bank account. please suggest me how to take forward in easy way.

  9. Hi,

    I am an NRI living in the UK and have opened an NRE account in India. I understand that I am not liable to pay any tax in India for the interest I get on the NRE FD. However, if I transfer the capital and interest back to UK (after converting to GBP), will I pay any tax in UK for it?

      1. Prady,

        It depends upon the prevailing laws in UK for NRIs staying there. In probable case you will have to pay income tax in your country as the funds you are repatriating were derived from the income you earn abroad.You will get more clarity from Tax Expert in UK.

  10. Hi

    I was in UK for three years and returned to India for good 2 years back. I hold NRE & NRO accounts with HSBC. Last week I went to the bank to convert both these accounts to Resident Indian accounts. They asked me to fill a form (account opening form). I was told that the account numbers will remain same upon conversion but NEW debit cards and cheque books would be issued and the ones I am holding will not longer be valid. I have normal Resident Accounts with various other banks. My question is can I simply transfer all my money from NRE and NRO accounts to Resident accounts of other banks and close the NRE & NRO Accounts for good. Or I might get into IT deptt. net asking me where did the money come from. I wouldnt be able to explain if I closed NRE & NRO Accounts. Also I hold some pounds in HSPC UK Bank account. Is there any law which states that I cannot continue to hold foreign currency in foreign banks beyound certain period after returning to India. Thanks.

      1. ranprakash,

        its better to close both the NRE & NRO a/c, if you have finally shifted to India. Go for a fresh a/c. I guess your banker might have suggested you the same.

        1. Hi Jyoti,
          The problem with closing the NRE/O Accounts and opening a new one is, how do you explain to the IT authorities the source of the money in this new account?

          1. I think Jyoti is correct,as once the account is closed the bank should give a closure letter along with the closure chque saying the proceeds are through the closure of accounts.Than the amount can be deposited to resident account.It will prove that the money has come from the closure of NRE account.

            Please convert your NRO account to resident account as the conversion is possible from bank side.

  11. Hi Manshu

    I am a NRI living in dubai. i have purchased a huge amount property and paid through cheques from my NRI Account in India. now do i have to file return and pay taxes as i have NRI Account inIndia.

    Thanking you in advance


    1. Hi calany,

      In case of purchase of property in India,first of all the NRI can only purchase 1 property in India not more than one.Secondly if the property purchased is done through NRE account,only those money which are invested through NRE account is repatriable and other amount(appreciated value) is transfered to NRO account whereby you need to pay tax on the sale of property.
      The money is than repatriable or can be transfer to NRO account as per FEMA circular MAY edition up to 1 million USD dollar in one financial year.The documents in that case require as below
      15CA,15 CB.Source of fund,Purchase deed,sale deed,statement of account (These are imp. documents),the bank can ask for other docs too.But these are the basic documents needed to transfer or repatriate the fund.

    2. HI CALANY,

      There is no tax on buying of property. However, if you have rented your premises, then income derived cannot be transferred to your NRI Account. You will have to open an NRO Account and get your rent income transferred into the same. Tax shall be levied on your rent income from property.

  12. Hi Manshu,

    I had made some investments 3-4 years ago from my NRE account in a one time pension plan. I’m about to break that policy and the money will be transferred back to my NRE account.

    I want to transfer most of this money to my Dads NRE account. I wanted to know if this is possible to transfer through a cheque? If yes, what is the maximum amount I can transfer through cheque as RTGS/NEFT will allow me only 5 lakhs.

    Thanks and Regards,


      1. Hi Tushar.

        There is no limit to transfer money from NRE to NRE account.Hence money invested through NRE account as in your case will come back to NRE account and u can transfer the same money to your DAD account without any documentation except chque.

  13. I am having NRE and NRO account with SBI bank.

    My problem is I can only VIEW these accounts online and not transfer money from NRE to NRO account.
    I was informed otherwise while enrolling.

    Any way, can you tell me whether is it possible for me to transfer money from one to another while being abroad.

    Many Thanks


    1. Pranav,

      You can transfer funds from NRE to NRO account but not vice versa as fund sin nRO account are non-repatriable. An NRO account is primarily for income (like rent, dividend, pension) in India and to make local payments in Indian Rupees for genuine needs in India.I am not sure why SBI is not permitting this transfer.

      Income arising in foreign currency, remittances received through proper banking channel or from NRE account and any past dues from India can be deposited in NRO account.
      But money once deposited in this account can only be withdrawn for local payments including investments.

  14. Dear Manshu

    I currently have British citizenship and also OCI. I am confused as to what is the best account to open as I received literature stating bank FD in India offer 9.5% tax free interest. I will coming to India next month to carry out sale of ancestry land. I have been told I would need to pay capital gains on the entire sale price but am free to invest the remaining as I like. I would appreciate guidance on the issue.



    1. I think a NRE account which allows you to get high interest rates but is tax free (at least in India, not sure about UK) will be a good option for you. They won’t allow you to open a regular FD since you are not a resident but a NRE account will be fine for you. Talk to the bank managers and explain to them a little bit about your situation. They may give you a better answer, but based on what you describe a NRE account sounds like it will work for you.

      1. Thanks for the reply.. I checked and I am entitled to a NRO account but am told I will be taxed ? I am told the tax free account is only for NRI ? Can you clarify and if possible forward me the link as I will have money from the sale. Also I found more information regarding capital gains and have been told I would need to pay 20% – I explained the ancestry land was a commercial property and they weren’t sure as they said on sale of residential property – I could re-invest in another residential property. Can you please advise and how to invest as I should get 2cr and already have flats in my name in India.

        1. Okay, so first you need to understand that Non Resident External (NRE) and Non Resident Ordinary (NRO) accounts are two types of accounts that Non Resident Indians (NRI) can open. I think it’s a bit confusing and you don’t have this distinction straight in your mind yet.

          NRIs can open either NRO or NRE account and what they’ve told you is true in the sense that NRO account attracts tax whereas NRE doesn’t and you should open a NRE account because of that reason.

          I’m not a tax expert and not current with details but as far as I know there are two ways to save tax in this manner, one is to buy 54EC bonds, and the second is to buy another residential property. I’m afraid you will have to consult a practicing CA for more precise knowledge on this. I’m simply not current on all these rules.

          Also, what was the link you wanted?

  15. Hello Manshu,
    I have a question about the NRO account. Last 2-3 years the NRO was paying good interest and hence I sent USD into NRO account (through an NRE acccount). What are the exact rules on the repatriability of the money to USA from an NRO account? I have read that the interest is repatriable, then I have read that upto USD 1 million is allowed to be repatriated, but I have also read that the principal is not repatriable. Is that correct? So if I want to repatirate my principal under the NRO account, what are my options?

    1. Anand,

      Funds from NRO account are non-repatriable.You have to first pay income tax and then you can repatriate from NRO account.The primary reason is that NRO account is mainly for income earned in India by NRIs for e.g. property selling, rental income etc.
      Hence you have to first file your returns, pay the income tax and then can repatriate up to the specified limit as declared by RBI.

  16. I am planning to put some money on fixed deposit to earn better interest. I want to deposit ($) but most important I want my investment back in $ hassel free. Now NRE vs NRO. I know now NRE now offers good rate of interest and it is easy to get that back in $ and its tax free. So what’s the advantage of NRO now or is it still offers higher than NRE.

    Q1) If NRE is tax free, does that mean only india. What are guidelines from tax perspective to move it back in U.S. Bank?
    Q2) Does opening both a/c help as far as conversion is concerened. For example, Get better NOR interest in RS and then move to NRE and convert to $, is it possible?

  17. hi Raja,
    I possess the salary saving a/c with bank in Mumbai which is linked to Home loan and car loan a/c. I am getting transferred to Malaysia from Mumbai for 3 years after which I am planning to come back to India. My co. gives me facility to split the monthly salary (USD) into two a/c. So I am planning to offload some portion of salary to Indian bank and remaining portion in Malaysian bank. In fact I would like to convert my existing a/c into NRO a/c to get rid of managing paperwork for 2 accounts. Is it possible?

    My existing bank recommends me to open the NRE a/c instead of NRO and then transfer money from NRE to existing saving a/c. Is it necessary to open an NRE a/c?

    Many thanks in advance.


  18. Hi Manshu,

    Does that mean there are different rules on how NRI’s can invest in shares & mutual funds here in India ?

    Do you mind pointing me to some resource which deals with this topic in little more detail.
    Basically i want to understand how do people who travel abroad for few years deal with their investments here in India.
    With few more questions like:
    1. Do we have to close all the resident accounts then before we travel abroad ?
    2. How does one deal with the EMI payments for existing home loan accounts?
    3. What’s the right way to invest the money earned abroad, here in India for future.
    4. Any more things to take care, before traveling ?


  19. Hi Manshu,

    I don’t have much idea about the NRE & NRO stuff. But i had one question in mind(may be little foolish 🙂 ). Aren’t the people living abroad allowed to transfer this money from their NRE/NRO account into some account that may be in their name as resident’s here.

    That way they can earn better interest rates, right ?

    Also one more related question, can the NRI’s invest this money from abroad (lying in NRE/NRO account) into shares and mutual funds here ?


    1. Hi Raja – It’s illegal for NRIs to hold resident Indian accounts and invest in stocks and mutual funds as if they were residents.

      What they can do is transfer money in their parent’s name or something, but opening a NRO account is better because you need that (or any other NRI account) to buy mutual funds, shares, or if you want to buy property or something then having this will help with the bank you’re approaching for a loan.

      1. Hi Manshu,

        I figured out few more thing’s with regard to direct equity investing for NRI’s and thought of leaving a comment here for the benefit of others.

        1. For an NRI to invest directly in equities, he has to open an account called PIS (portfolio investment scheme). These are opened by only few banks like HDFC, Kotak, ICICI etc..the banks have good documentation on their site. google it, again there have 2 types here too NRE/NRO…
        2. Even after opening this account, the NRI is restricted to invest only in a handful of companies because of a list which is released by RBI. So, basically RBI regulates the companies in which a NRI’s can invest directly through PIS.
        3. The list is so restrictive that it doesn’t make sense for a serious investor to go through the above route.
        4. One of the meaningful option for an NRI to invest in direct equities is through a trusted blood relative like mother, father, siblings . Tax rules are in favor of gifts to these blood relatives and they in turn can invest into direct equity. This route should be favorable if the NRI has plans to come back to India. He then can take the equities back into his name as a gift.
        5. For investing mutual fund is a lot easier. open the NRE/NRO account, update your KYC as NRI and ready to invest into MF’s.
        6. Tax rules also dictate that if you are staying in India for more than 60 days in a particular year and have been resident for more than 365 days in the past 4 years, you are still a resident for that particular year. This rule is worth checking out in more detail, if one is travelling temporarily and will fall in this category.

        Hope this helps.


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