NRE Vs NRO Account – Which is Better for NRIs?

As an NRI, if you wish to save your money in Indian denominations (or in India), you may open either an NRE account or an NRO account. Read further to know how the two accounts differ and which must be preferred by you being an NRI.

If you are an NRI but still holding a savings account in India, you must be ready for some heavy penalties. According to the FEMA (Foreign Exchange Management Act), once your residential status changes to NRI, you cannot have a savings account in your name in India. If you wish to hold your money in Indian currency (earned abroad or in India), you must open an NRE or NRO account.

NRE (Non-Resident External) Account:

An NRI can open an NRE account to park his foreign currency earnings in the Indian currency. You can easily transfer the deposited fund to your overseas account without any restrictions. These accounts are useful for business purposes, personal banking, or investments.

NRO (Non-Resident Ordinary) Account:

An NRI can open an NRO account to manage his funds or income earned in India. Such income may include interest, dividend, rent or pension, etc. You can jointly hold an NRO account with an Indian resident or an NRI also.

NRE Vs NRO Account:

 

Factors	NRE Account	NRO Account
Source of Earnings	NRE Account helps you to manage your foreign currency earnings in the Indian denomination.	NRO Account helps you to manage your earnings made in India, in the Indian denomination.
Taxation	NRE account deposits, both principal and interest amounts, are tax-free.	The interest earned from the NRO account is subjected to TDS.
Deposit Currency	You can deposit money in foreign currency to withdraw in INR.	You can deposit money both in foreign currency or Indian rupee. You can make withdrawals in INR only.
Repatriability of Funds	The principal and the interest amount are fully repatriable and can be done without any restrictions.	In the case of NRO accounts, you can repatriate only the interest amount. However, for the principal amount, remittance of money only up to 1 million USD in one financial year is allowed.
Joint Holding	You have the option of opening an NRE account jointly with another NRI or a close relative residing in India (Only on a 'former or survivor' basis).	You can open an NRO account jointly with another NRI or any Indian resident.
Transfer of Funds to Other NRI accounts	Transferring funds from your NRE account to another NRO account is permissible. However, you can transfer funds to another NRE account.	Funds from an NRO account can be transferred to another NRO account but not from an NRO account to an NRE account.

 

Which Account – NRE or NRO Suitable for You?

It is important to choose between an NRO and NRE account based on your requirements. Both the accounts serve different purposes, and your choice must depend on the source of income (Indian or overseas) that you wish to maintain in these accounts.  If you only wish to hold your overseas earnings in the Indian denomination, you must open an NRE account. It will also help you maintain the liquidity of your funds. But if you have income sources in India such as rent, interest, pension, income from the sale of a property, etc., opening an NRO account is a suitable option for you.