Difference Between NRE & NRO Account – Which One is Better
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No, you cannot convert an existing NRO account to an NRE account. You can either close your NRO account and open a new NRE account, or open a new NRE account, and continue to hold both NRO and NRE accounts.
No, you cannot convert an existing NRO account to an NRE account. You can either close your NRO account and open a new NRE account, or open a new NRE account, and continue to hold both NRO and NRE accounts.
Yes, both the principal and interest earned in an NRE account are exempt from tax in India. This makes it a tax-efficient option for parking foreign earnings.
Yes, you can have a joint NRE account with a resident Indian. However, the holding can only be on a “former or survivor” basis, meaning the resident Indian can access the account only in the event of your demise.
While there is no limit to repatriate current income (rent income, interest, dividends, etc.) from your NRO account, you cannot repatriate more than USD 1 million if the source of income is deemed capital (proceeds from sale of immovable property, etc.). Contact a tax expert to know if the repatriation limit applies to your case.
Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein
Difference Between NRE & NRO Account – Which One is Better
As a Non-Resident Indian (NRI), managing your finances across borders can be complex. One of the first decisions you will face is whether to choose a Non-Resident External (NRE) account and a Non-Resident Ordinary (NRO).
Both serve distinct purposes, and the right choice depends on where you earn, how you earn, and how you plan to use your funds.
This guide breaks down the core differences, tax implications, and repatriation rules to help you make an informed choice.
Table of Contents
What Is an NRE Account?
A Non-Resident External (NRE) account is designed for NRIs to park foreign earnings in India. The account is denominated in Indian rupees and is primarily funded through transfers from abroad.
The primary advantage of an NRE account lies in its tax-free status. Both the principal and the interest earned are fully exempt from tax in India.
Additionally, funds in an NRE account are freely repatriable, which means you can transfer the money back to your country of residence without any restrictions.
What Is an NRO Account?
A Non-Resident Ordinary (NRO) account is meant for managing income earned within India. This includes rental income, dividends, pension, and other India-sourced earnings.
Interest earned on an NRO account is taxable in India under applicable income tax regulations. Tax Deducted at Source (TDS) is applied on the interest, which you may later adjust against your overall tax liability.
Repatriation from an NRO account is permissible but subject to an annual limit, based on the source of funds. If the funds being repatriated abroad are classified as current income (rent, interest, dividend, etc.), there is no limit for the outward remittance. However, in cases where the funds originate from capital income (sale of immovable property, etc.), a maximum of USD 1 million can be remitted abroad. Contact a tax expert to determine whether the repatriation limit applies to your case.
What Are the Key Differences Between NRE and NRO Accounts?
To choose the right account, you need to consider factors such as the source of funds, tax treatment, repatriation rules, and your financial goals. The table below highlights the core distinctions between NRE and NRO accounts.
Feature
NRE Account
NRO Account
Source of Funds
Foreign earnings
India-sourced income or foreign funds
Tax on Interest
Tax-exempt in India
Taxable with applicable TDS
Repatriation
Fully repatriable
Limited to USD 1 million (for capital income)
Joint Account Holder
NRI/PIO or Resident Indian
NRI/PIO or Resident Indian
Best For
Foreign income (salary, savings, or investments)
Income earned in India (rental income, dividends, or pensions in India)
Which Account Should You Choose?
The choice between an NRE and NRO account depends on the nature of your income and your financial objectives. Here are practical scenarios to guide your decision.
Choose an NRE account if:
Choose an NRO account if:
Many NRIs maintain both accounts to optimise their financial strategy. An NRE account can handle foreign salary and savings, while an NRO account manages income earned in India. This dual approach ensures compliance with regulations and maximises the benefits of each account type.
Conclusion
Choosing between an NRE and NRO account is not about which is universally better, but about which suits your income source and financial goals.
NRE accounts offer tax-free interest and full repatriation, making them ideal for foreign earnings. NRO accounts provide a practical solution for managing India-sourced income, though with taxable interest and repatriation caps.
Kotak Mahindra Bank offers comprehensive NRI banking solutions designed to simplify cross-border financial management. If you need guidance on setting up the right account or structuring your finances, consider reaching out for expert support.
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