Difference between NRE and NRO account

Posted by Samantha Kennedy on November 1st, 2018

Carrying your business abroad is a lucrative endeavour. That is needless to say. Placing your business in a developed economy earns you more profits than a developing economy would have. More often than not, however, you would have certain members depending on you all the way back in India.

Transferring money to your members is not that much a task considering the ease that comes with a Non-Resident External (NRE) account. But quite often you may have heard of people having a Non-Resident Ordinary (NRO) account also.

And those these two types of accounts sound similar; they quite aren’t. This is a dilemma that gets to a lot of people who have either settled their businesses out abroad or are working there with the intention of supporting livelihoods back home.

Today, we finally try to understand the difference between NRE and NRO account. Knowing the difference will not only help you manage your money better, but it will also help you plan things out for yourself in the future.

First things first, what do each of the accounts mean?

An NRE, that is, Non-Resident External account is held by a Non-Resident Indian. Such an account is made to transfer foreign earnings to India. As mentioned before, those who are earning abroad to finance their families back home use this account more often. The key features that come with holding a Non-resident External account is as follows:

1. You can park the income you earn outside India
2. You get to transfer money for free at competitive exchange rates
3. You earn tax-free interest India
4. You also get full repatriation of your money
5. Joint handling with another NRI

Well, that tells you about an NRE account which aids those who earn to support their families back home. How different is an NRO account then?

An NRO account, basically, is an account NRIs have to manage the income they earn in India. It so happens that people end up earning in India even when they don’t reside they really. Let’s say for example renting out an apartment. There is a monthly deposit of rent amount. NRO accounts made by NRIs are for income of this nature.

As opposed to an NRE account, the income in an NRO is taxed owing to the simple fact that it is earned in Indian currency. This makes it liable to be taxed as per the Indian taxation structure. In terms of repatriation, an NRO account holder can only repatriate the interest amount. The principal amount, however, can only be repatriated within the set limits.

Even when it comes to joint account ownership, an NRI would have to open an NRO account with an Indian citizen or another NRI.

Coming down to the main difference, that is the deposits and withdrawals, NRE accounts allow deposits in foreign currency and withdrawals in Indian currency. On the other hand, NRO account allows you to deposit and withdraw in Indian currency itself.

Knowing the difference between NRE and NRO account can help you manage your finances far better, in case you are working outside of India.