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. |
Notes
¹You can convert funds in your NRE account into foreign currency and transfer them back to your foreign account along with the interest earned. This ability of money to be moved from a foreign country to your home country is called repatriability. In your NRE bank account, you can repatriate both the principal and the interest earned. You can transfer foreign currency from your foreign bank account, which gets converted to INR when you deposit it into your NRE account.
²NRO has restricted repatriation, where you can repatriate principal and interest only up to $1 million per year.