NRE & NRO Accounts - Meaning, Comparison, Benefits, Taxation

Non-resident Indians (NRIs) often face challenges in managing their finances between India and abroad. However, the ideal solution to this problem is to have an NRE (Non-Resident External Account) and an NRO (Non-Resident Ordinary Account). While an NRE account allows NRIs to manage their foreign income with zero tax implications and unrestricted repatriation of funds, an NRO account enables NRIs to manage income earned in India, which is subject to tax.

This blog will provide you with all the information you need to know about NRE and NRO accounts, including their key features and which account to choose based on your financial needs.

Why Do NRIs Have NRE and NRO Accounts?

Under the Foreign Exchange Management Act (FEMA), a Non-Resident Indian cannot open a savings account in India in their name. Hence, to send remittances to India, NRIs need a bank account; therefore, NRE and NRO accounts exist.

What Is a Non-Resident External (NRE) Account?

A Non-Resident External account is a type of account at an Indian bank where an NRI can deposit foreign currency in Indian rupees. In simpler terms, it is an Indian rupee–denominated account that converts your foreign currency into INR at the time of deposit. One thing to note is that any amount deposited in an NRE account must be earned outside India.

As with any other bank, there are various types of NRE bank accounts, including current NRE accounts, recurring NRE accounts, fixed deposit NRE accounts, and savings NRE accounts. An NRE account can be opened either individually or jointly. However, to open it jointly, you need to open it with another NRI, not an Indian resident.

One thing to keep in mind about NRE accounts is that, since they convert foreign currency into Indian rupees, this process is prone to currency exchange fluctuations.

To illustrate this concept, let's assume Mr. Sharma deposits a certain amount of US dollars on June 1, 2025, and withdraws it on June 20, 2025. Now, he will either withdraw more or less, depending on how the currency has been fluctuating.

What Is a Non-Resident Ordinary (NRO) Account?

Non-Resident Ordinary accounts enable NRIs to deposit income earned in India from sources such as rent, dividends, and pensions. There are limitations on repatriating funds from an NRO account; moreover, the interest earned on an NRO account is subject to tax deducted at source (TDS).

Just like the NRE account, NRIs can also open an NRO account jointly, but this time it can be done with an Indian Resident on a survivor or former basis only. However, you can also open an NRO account jointly with an NRI. You can also use this account to easily transfer funds from your current non-resident external account to your non-resident ordinary account.

Difference Between NRE Account and NRO Account

The table below will help you understand the key features of NRE and NRO accounts, enabling you to determine which account best suits your financial needs.

Benefits of NRE Account and NRO Account

There are various benefits associated with NRE and NRO accounts for an NRI. Knowing this will help you avoid missing anything in that account.

NRE Account

• One of the most significant benefits of an NRE account is that it is exempt from any tax implementation, which means that both the original amount and the interest you earn are tax-free.
• Another significant benefit of this account is that it enables the repatriation of funds without any restrictions.
• These accounts are used to make direct investments in India, so you can either use an NRE account for personal reasons or to carry out your business financial transactions in India.

NRO Account

• Allows easy fund transfers between an NRO and an NRE account, with limited outward remittances.
• NRO accounts offer competitive interest rates on fixed deposits and savings accounts.
• This account allows for flexibility in opening it jointly with either an Indian or an NRI.
• However, an NRO account is subject to the applicable income tax bracket, whereas an NRI can avail of tax benefits under the Double Taxation Avoidance Agreement (DTAA).

What Type of Fund Should Be Deposited in an NRI Account?

As we know, there are two types of NRI accounts, namely NRE accounts and NRO accounts, and you can make deposits of funds in either of them. There are strict guidelines regarding what to deposit in which account.

Funds to Deposit in an NRE Account

• Fund remittance from your foreign account or transfer from an NRE or FCNR (Foreign Currency Non-Resident) bank account.
• Funds from your NRO account, but only up to 1 million USD.
• Interest earned in an NRE account.
• Proceeds from investments made using funds from the NRE account, like fixed deposits or other schemes.

Funds to Deposit in an NRO Account

• The income you have earned in India.
• Proceeds from the sale of assets.
• Interest earned on an NRO account.
• Investment proceeds from investments made with funds from the NRO account, such as fixed deposits or other schemes.

Documents Required to Open an NRI Account

As with any other account, you will need to provide the required documents to open an NRI account in India. Below is a list of the documents you need and to whom those documents must be attested by.

• ID Proof: Valid copy of passport, copy of Permanent Account Number (PAN). If you do not have a PAN, you can submit a copy of Form 60.
• Proof of Your NRI Status: Copy of a valid visa, resident card, or work permit.
• Address Proof: Passport, permanent driving license, or voter identity card.
• Recent Passport-sized Photographs.
• Proof of Indian Origin: If an NRI has Indian origin, they must provide either an OCI (Overseas Citizen of India) card or a PIO (Person of Indian Origin) card.

How to Open an NRI Account

As they say, no one size fits all. The same applies to an NRI bank account. Depending on your financial needs and income sources, you need to choose whether an NRE or NRO account is ideal for you. However, you can open both NRE and NRO accounts. Ultimately, the choice is up to the account holder.

However, one thing that is guaranteed is a seamless process of opening an NRI account. Yes, SaveTaxS has been helping NRIs open NRI accounts for over two decades, whether NRE or NRO. Our experts bring over 30 years of experience to the table, ensuring you can count on us to open your account with the utmost precision while adhering to all FEMA and RBI regulations.

Savetaxs has ties with leading, trusted banks in India; hence, your account-opening application will be processed without any hassle.