What is the difference between an NRE and NRO bank account?
A Non-Resident Indian (NRI) cannot open a regular savings bank account in their name in India, and can only either open a Non-Resident External Account (NRE) bank account or a Non-Resident Ordinary Account (NRO) bank account. Continuing to use the savings account in the home country can attract hefty penalties as per the Foreign Exchange Management Act (FEMA) guidelines under RBI. The differences between an NRE and NRO bank account are as follows:
|Basis||NRE bank account||NRO bank account|
|Uses||Park or transfer foreign earnings with complete repatriability back to the foreign country.||Manage the income earned in India.|
|Repatriability||Can repatriate both principal and interest.¹||Can repatriate the entire interest amount, but the principal amount can be repatriated only within the set limits.²|
|Joint account||Can be opened only if all the account holders are NRIs.||Can be opened by an NRI along with an Indian citizen or another NRI.|
|Deposits and withdrawals||Only foreign currency deposits are allowed. Withdrawals are allowed only in Indian currency.||Can deposit in foreign as well as Indian currency and withdraw in Indian currency, subject to applicable TDS.|
|Taxability||Interest earned is tax-free.||Interest earned is taxed at 30.9% (30% tax rate + education cess and surcharge if any).|
|Inter transfer||Funds cannot be transferred from an NRO account to an NRE account.||Funds can be transferred from an NRE account to an NRO account.|
NRE bank account can be used to open an NRE PIS account, and an NRO bank account can be used to open an NRO non-PIS account with Zerodha. To know the difference between PIS and non-PIS accounts, see How can I open a Zerodha trading and demat account as an NRI?
¹Funds in the NRE account can be converted into foreign currency and can be transferred back to the foreign account along with the interest earned. This ability of money to be moved from a foreign country to the investor’s home country is called repatriability.
In an NRE bank account, both the principal and the interest earned can be repatriated. Foreign currency can be transferred from the foreign bank account, which gets converted to INR when it is deposited into the NRE account.
²NRO has restricted repatriation, where principal and interest only up to $1 million per year can be repatriated.