NRE vs NRO Account: Key Differences
Neha Navaneeth
Marketing & Content Associate
Nov 11, 2025
NRIs can open both NRE and NRO accounts with Indian banks. But, what is the right choice for overseas and local income management?
Using the wrong type of account may attract unnecessary tax, limit repatriation, or even violate FEMA guidelines. This guide defines both accounts, explains the NRE and NRO account differences, and helps you decide which one aligns with your income and investment plans.
NRE Account Meaning
An NRE account, or Non-Resident External account, is a bank account in which NRIs can deposit their foreign earnings in India. The money is kept in Indian Rupees, and both the principal and interest can be freely repatriated abroad.
NRO Account Meaning
An NRO account, standing for Non-Resident Ordinary account, is needed to manage income that an NRI generates in India from sources such as rent, dividends, or pension. According to the RBI, through this account, local earnings are kept in rupees and can be repatriated up to USD 1 million every year after deducting all applicable taxes.
Why Does India Have NRE and NRO Accounts?
Under the Foreign Exchange Management Act (FEMA), the RBI differentiates between resident and non-resident accounts to track and regulate foreign exchange movement. An NRI (Non-Resident Indian), PIO (Person of Indian Origin), and OCI (Overseas citizen of India) can open NRE and NRO accounts.
Indians are considered non-residents when they relocate to foreign countries for more than 182 days in a financial year. Keeping a normal savings account even after that is considered a violation under FEMA.
For compliance, NRIs need to move onto either NRE or NRO accounts. These accounts allow them to repatriate funds legally, maintain transparency in cross-border transactions, and comply with tax obligations in India and abroad.
All transactions in NRE and NRO accounts are under the purview of FEMA, which deals with the ways of holding non-resident assets and earnings in India. This NRE and NRO account difference and structuring enable NRIs to manage their foreign and local income in a tax-compliant manner.
NRE And NRO Account Difference: How Do They Compare?
NRE and NRO accounts are different in terms of purpose, tax, and the ways through which money can be transferred in or out of India. The table below shows the main NRE and NRO account differences:
Parameter | NRE Account | NRO Account |
Source of funds | Foreign income earned in a foreign country and repatriated to India | Income earned in India in the form of rent, dividends, or pensions. |
Repatriation | Repatriation is fully exercisable, i.e., both principal and interest may be repatriated abroad at any time | Repatriation is limited to USD 1 million per financial year after applicable taxes |
Taxation | Tax-free interest in India | Interest is taxable at 30% TDS; it is liable to income tax laws |
Joint holding | Only allowed with NRI/OCI or resident Indian relative (former or survivor basis only). | Allowed with NRI/OCI or resident Indian |
Currency risk | High, since deposits are being changed from foreign currency to INR | Moderate, as funds are already in INR |
Use case | Best to save overseas earnings in India | Best to handle Indian earnings when overseas |
Fund transfer between accounts | NRE → NRO transfer without restriction | NRO → NRE transfer allowed up to USD 1 million per FY |
Currency of deposit and withdrawal | Deposited in foreign currency, sustained and withdrawn in INR only | Deposited and withdrawn in INR only |
Key benefits | Tax-free profits and convenient repatriation | Streamlined control over Indian-based earnings and assets |
Account operation | Jointly or separately operated by NRIs | Can be jointly operated with a resident for local needs |
NRE and NRO Account Difference: Which One to Choose?
The right account depends on where your income comes from and how you plan to use it. Here are three simple examples that show when to choose an NRE or NRO account.
NRI Working Abroad: If you earn a salary in a foreign country, then an NRE account can be the best option for you. You can deposit your foreign income into it, hold it in rupees, and repatriate both the principal and interest without restriction. It's ideal for saving abroad-earned money and converting it into Indian assets when needed.
NRI Earnings in India (Rent, Dividends): If you earn money from renting out property, stock payouts, or retirement funds in India, set up an NRO account. This helps gather and handle those earnings in rupees, while staying aligned with local tax laws. The interest earned gets taxed. Also, if sending money abroad beyond the allowed amounts, tax is taken off first before moving it.
Returning NRI: When you're set on returning to India, switch your NRE and NRO accounts into a resident or Resident Foreign Currency (RFC) account. That way, your money stays fully compliant with the law, easy to reach, and accessible for your updated local standing.
Read more about choosing between NRE and NRO DEMAT accounts.
Taxation in India: NRE and NRO Account Difference
An NRE account offers full tax benefits in India, as both the principal and interest earned are not taxable. So it's a solid choice for overseas Indians making money abroad and looking to stash or grow that cash back home without extra tax headaches.
The NRO account gets taxed completely under India's rules. On interest earnings, banks take out 30% as TDS - along with extra charges - before putting what’s left into your account. You might get a tax exemption or cash back on foreign earnings (Foreign Tax Credit FTC), provided the source country has a Double Taxation Avoidance Agreement (DTAA) with India.
Conclusion
Many overseas Indians see value in opening both NRE and NRO accounts after knowing the NRE and NRO account differences. This helps handle earnings at home and overseas without hassle. Before you open or change your account type, go through the updated RBI and FEMA guidelines so you don’t run into trouble later.
Switching to NRI banking doesn’t need to be a hassle. With Rupeeflo, setting up your NRE or NRO account and handling cash and documents just got smoother. Download the app today!
Frequently Asked Questions
What is NRE and NRO full form?
NRE stands for Non-Resident External account (to deposit foreign earnings in India), and NRO stands for Non-Resident Ordinary account (to manage income earned in India).
Can I have both NRE and NRO accounts?
Yeah, plenty of overseas Indians hold two accounts just to make life easier. When money comes from outside India, send it to the NRE account. For income earned locally, go with the NRO option. Keeping them in different accounts helps with tax savings while letting funds move smoothly.
Can I send money from abroad to both NRE and NRO accounts?
Yes, you can send money earned abroad to both NRE and NRO accounts. However, NRE account holdings are not taxed in India, while interest from NRO account funds is taxable.
Is it okay to transfer money from an NRE to an NRO account?
Yes, you can transfer funds from NRE to an NRO account. However, interest on funds in an NRO account is taxable and non-repatriable.
