NRE and NRO Account: Understanding the Key Differences for Indian Expats 

If you are an Indian living abroad, it is important to know that RBI regulations prohibit Non-Resident Indians (NRIs) from maintaining regular resident savings accounts. This makes managing money across countries tricky. But these two banking options make this easier: NRE and NRO accounts. These accounts help NRIs handle their funds while staying overseas. 

However, many people get confused about which account to use for what purpose. Let us break down the difference between NRO and NRE accounts and how to transfer money from an NRO to an NRE account. 

What is an NRE Account?  

NRE (Non-Resident External) accounts are meant for NRIs to keep their foreign earnings in Indian rupees. When you send money earned abroad to India, an NRE account is your best choice. The key benefit is that all funds in NRE accounts can be sent back abroad without any limits.

These accounts come as savings, current, or fixed deposits. The interest earned is tax-free in India, which makes NRE accounts very appealing to NRIs who want to save in India while working elsewhere. 

What is an NRO Account? 

NRO (Non-Resident Ordinary) accounts help NRIs manage income earned in India. This includes rent from property, pension, dividends, or any other money made within India. Unlike NRE accounts, funds in NRO accounts face limits when sending money abroad.

NRO accounts also come as savings, current, or fixed deposits. The big difference is that interest earned on NRO accounts gets taxed in India. These accounts are must-haves for NRIs who still earn money in India or need to pay bills there. 

What is the Difference Between NRE and NRO Account? 

Here’s a side-by-side comparison to help you clearly understand the difference between NRO and NRE accounts:  

Feature	NRE Account	NRO Account
Meaning	It is meant for NRIs to keep their foreign earnings in Indian rupees	This account helps NRIs manage income earned in India
Types of Accounts	Savings, Current, Recurring, Fixed Deposit	Savings, Current, Recurring, Fixed Deposit
Deposits and Withdrawals	Can only deposit foreign currency, but they can withdraw in Indian currency	Can deposit both in Indian and foreign currency but can withdraw only in Indian currency
Repatriability	Fully repatriable (both principal and interest)	Restricted repatriation (up to $1 million per financial year)
Taxation	Interest is tax-free in India	Interest earned is subject to Tax Deducted at Source (TDS)
Exchange Rate Risk	Yes; due to conversion from foreign currency to INR	Minimal; especially when funds are deposited in INR
Best For	NRIs with income abroad wanting tax-free savings and easy repatriation	NRIs with income in India who need to manage and remit funds with compliance

How to Transfer Money from NRO to NRE Account? 

First of all, you can transfer money from NRO to NRE account after paying the required taxes and meeting specific conditions set by the Reserve Bank of India (RBI).

NRO to NRE Transfer Limit

The RBI allows a maximum transfer of $1 million per financial year. 

NRO to NRE Transfer RBI Guidelines

To make this transfer, follow these steps:

1. Ensure the source of funds is legal and tax-paid.
2. Obtain Form 15CA and 15CB from a Chartered Accountant. This certifies that taxes have been paid. 
3. Submit these forms to your bank, along with a written request to transfer the funds. 

Only then will the bank process the transfer. Funds that haven’t met tax obligations or come from unclear sources are barred from being moved to the NRE account.

The reverse NRE to NRO transfer is also permitted. That means you can transfer funds from NRE accounts to NRO accounts.

Conclusion

Now, you might have understood the comparison between NRE account vs NRO account. 

Both NRE and NRO accounts are essential tools for NRIs managing money between India and abroad. The difference between NRO and NRE accounts lies in their usage, tax treatment, and repatriation rules.

To summarise:

• Use NRE if your income is from abroad and you want tax-free, repatriable savings.
• Use NRO if you have income sources within India and need to manage and remit them.

Many NRIs opt to maintain both NRO account and NRE account for easier tracking and full financial flexibility.

FAQs

1. What is the difference between NRO and NRE accounts?  

The difference between NRE vs NRO accounts is that the former handles foreign income and is tax-free, while the latter is used for Indian income and is taxable with repatriation limits.

2. Can I have both NRE and NRO accounts?

Yes. You can open and operate both the NRE account and the NRO account simultaneously.

3. Can we transfer money from the NRO to the NRE account?

Yes, you can transfer up to $1 million per year after paying taxes from an NRO account to an NRE account.