What is the Difference Between NRE Account and NRO Account?

The main differences between NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts are their purposes, taxation, repatriation, and deposit/withdrawal features. Here's a comparison of the two types of accounts:

1. Purpose: NRE accounts are used by Non-Resident Indians (NRIs) to park their foreign earnings in India, in Indian currency. On the other hand, NRO accounts are used by NRIs to manage income earned in India, such as rent, dividends, pension, and interest.
2. Taxation: NRE accounts are exempt from tax, meaning neither the principal amount nor the interest earned on these accounts is taxable. In contrast, the interest earned on NRO accounts is taxable at 30% according to the Income Tax Act 1961.
3. Repatriation: Both the principal amount and interest earned in NRE accounts are freely repatriable, meaning they can be easily transferred outside India. However, funds from NRO accounts can only be repatriated after fulfilling certain conditions and with the approval of the Reserve Bank of India (RBI).
4. Deposits and Withdrawals: NRE accounts can accept deposits in foreign currency and allow withdrawals in Indian currency. NRO accounts can accept deposits and withdrawals in both foreign and Indian currency.
5. Exchange Rate Risk: NRE accounts are prone to exchange rate risk due to fluctuations and conversion losses/gains. NRO accounts are less likely to be affected by daily exchange rate fluctuations.
6. Joint Account Holders: NRE accounts can be opened by two NRIs, while NRO accounts can be opened by an NRI along with an Indian citizen or another NRI.

In summary, NRE accounts are designed for NRIs to deposit their foreign earnings in India, while NRO accounts are meant for managing income earned in India. NRE accounts offer tax exemptions and easy repatriation, whereas NRO accounts have tax implications and restricted repatriation.

Comparative Table: NRE Account vs NRO Account

Here is a table summarizing the differences between NRE and NRO accounts:

An NRE account is used by Non-Resident Indians (NRIs) to park their foreign earnings in India, while an NRO account is used to manage the income earned by them in India, such as rent, dividend, pension, interest, etc. The interest earned on an NRE account is tax-free, whereas the interest earned on an NRO account is taxable at 30%. The principal amount and interest earned in an NRE account are freely repatriable, while funds in an NRO account can be repatriated after paying taxes. Additionally, NRE accounts can only be opened by NRIs, whereas NRO accounts can be opened by both NRIs and resident Indians.