20+ Differences between NRE account and NRO account (Explained)

If you are an NRI figuring out where to deposit your hard-earned money and are confused between an NRE account and an NRO account, then this article is for you. Due to various similarities, both accounts are often confused with one another.

However, the significant difference between an NRE and an NRO account is that the former lets you deposit your income earned in a foreign country while the latter lets you deposit your income earned in India. 

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Key Differences

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• It is an abbreviation for a Non-Resident External Rupee account. It is best described as an account only NRIs can open to deposit or keep money earned in a foreign country. 

• Money in this account generally is deposited in foreign currency, but if the person wants to withdraw money, it will come out in Indian currency. 

• One of the other notable features of this account that helps differentiate this from an NRO account is that the interest received in this account is entirely tax-free. 

• Typically, the interest rate associated with this account is lower than that associated with NRO accounts. 

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• It is an abbreviation for a Non-Resident Ordinary Rupee account. It can be best described as an account that NRIs can open to deposit or keep the money earned in India. 

• This account accepts deposits in both foreign and domestic currency, but withdrawal is only possible in Indian currency. 

• Unlike NRE accounts, the interest received in these accounts is taxable. 

• Generally, the interest rate associated with this account is higher than that associated with NRE accounts.

Comparison Between An NRE Account And An NRO Account

Parameter	NRE Account	NRO Account
Initials	It is an initialism for a Non-Resident External Rupee account.	It is an initialism for a Non-Resident Ordinary Rupee account.
Meaning	It refers to an account that is associated with NRIs depositing their money that has been earned in a foreign country. A resident of India can not open this account.	It refers to an account that is associated with NRIs depositing their money that has been earned in India. Just like NRE accounts, this account also can not be opened by a resident of India.
Deposition and withdrawal	The deposit of money into these accounts takes place in the form of foreign currency as the money has been earned in the foreign country. The money from this account is withdrawn in Indian currency.	The deposit of money into these accounts takes place in the form of a foreign currency or Indian currency, or both. The money from this account is withdrawn in Indian currency.
Joint account	One can open a Joint account under the category of these accounts with another NRI. However, an NRI can not open a joint account with a resident of India.	One can open a Joint account under the category of these accounts with another NRI or a resident of India. Due to this reason, this account offers more flexibility than NRO accounts when it comes to opening a Joint account.
Taxability	The interest earned on the deposits stored in these accounts is entirely tax-free as the income has been earned in a foreign country, not India.	The interest earned on the deposits stored in these accounts is taxable as the income has been earned in India and not in a foreign country.
Interest rate	Interest rates associated with these accounts are typically lower than NRO accounts.	Interest rates associated with these accounts are generally higher than NRE accounts.
Repatriability	There is no limit on the transfer of funds, whether the total amount or the interest rate. Therefore, funds can easily be transferred under these accounts.	There is no limit on the transfer of interest earned on these accounts. But when it comes to transferring the actual amount, more than 1 million dollars can not be transferred.
Charges on Repatriability	There are generally no charges for making a transfer under the category of these accounts.	There are typically some charges that are associated with the transfer of funds from these accounts to some other accounts.
Transferability	Money can easily be transferred from one NRE account to another and from one NRE account to an NRO account.	Money can easily be transferred from one NRO account to another NRO account. However, transferring from an NRO account to an NRE account is impossible.
Currency fluctuations	A higher degree of risk is involved in these accounts regarding currency fluctuations and exchange rates. This is because this account accepts deposits in only foreign currency and allows withdrawals in Indian currency. Hence, the burden of risk caused by currency fluctuations is more.	A lower degree of risk is involved in these accounts regarding currency fluctuations and exchange rates. Unlike NRE accounts, these accounts accept deposits in both Indian and foreign currency but only allow withdrawals in Indian currency. Thus, those individuals depositing money in foreign currency would have to bear the risk caused by currency fluctuations. Still, those depositing in Indian currency would not have to worry about it.
Ideal for	These accounts are highly suitable for NRI individuals whose only income source is in a foreign country, not India.	These accounts are suitable for those NRI individuals who have a source of income situated in India or a foreign country along with India.

Differences Between An NRE Account And An NRO Account

It is critical first to understand the distinction between NRE and NRO accounts to understand who precisely an NRI is. 

Who exactly Is An NRI?

It is an abbreviation for Non-Resident Indian. It can be best described as an individual who is an Indian citizen but is living in a foreign country. To qualify as an NRI, a person should live in a foreign country for at least a hundred and 83 days. 

What exactly is an NRE account? 

It refers to a bank account that allows NRIs to keep their money that has been earned in a foreign country. Non-NRI individuals can not open this account. It should be noted that if anyone has to deposit their money in this account, then they must do so in foreign currency, and when they want to withdraw money, they receive the amount in Indian currency.

Interest received in these accounts is tax-free, and the interest rate is also considerably low. If anyone wants to open a joint account, then they may do so with another NRI. 

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Key takeaways: NRE Account

• It is an acronym for a Non-Resident External Rupee account. 

• It refers to a bank account where an NRI stores his money earned in a foreign country. 

• The residents of India can not open this account. 

• Money is deposited in this account in foreign currency while it is withdrawn in domestic or Indian currency. 

• The money stored in this account is tax-free, and the interest rate associated with the same is typically low. 

• This account demands two NRIs to fulfill the concerned purpose of opening a joint account. 

What Exactly Is An NRO Account? 

It refers to a bank account that allows NRIs to keep their money earned in India. This account can also be not opened by individuals who are not an NRI. When money is deposited into this account, it can be deposited in foreign and Indian currency.

However, when money has to be withdrawn from the account, it usually comes out as Indian currency. This is because the interest rate associated with this account is comparatively higher, and the interest is also taxable. To open a joint account, one may do so with either an NRI or an Indian citizen. 

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Key takeaways: NRO account

• It is an acronym for Non-Resident Ordinary account. 

• It refers to a bank account where an NRI deposits money that has been earned in India. 

• The residents of India can not open this account. 

• Money in this account can be deposited in foreign or Indian currency. However, money is withdrawn from this account in Indian currency. 

• Interest in this account is taxable, and the interest rate is comparatively higher. 

• One can open a joint account with either another NRI or a resident of India. 

Contrast Between An NRE account And An NRO Account:

Meaning

• NRE – It is an initialism for Non-Resident External Rupee accounts. It can be best described as an account allowing NRIs to store, keep, or deposit their money earned in a foreign country. Residents of India can not open this account. 

• NRO – It is an initialism for Non-Resident Ordinary Rupee accounts. It can be best described as an account allowing NRIs to store, keep, or deposit their money earned in India. Just like NRE accounts, this account also can not be opened by the residents of India. However, a resident of India can jointly own this account with an NRI. 

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NRE And NRO Accounts: A Contrast

Basis	NRE Account	NRO Account
Deposition	Foreign currency	Foreign/Indian currency
Withdrawal	Indian currency	Indian currency
Taxability	Tax-free	Taxable
Joint account with a resident of India	No	Yes
Limit on Repatriability	Yes	No
Degree of risk: currency fluctuations	Higher	Lower

Money Deposition And Withdrawal

• NRE – To deposit money in this account, one must do so with the money being in foreign currency, not Indian currency. This is primarily because of the fact that the income in this account has been earned in foreign currency and not in Indian currency. However, it should be noted that the money can be withdrawn from this account in only Indian currency. 

• NRO – There is greater flexibility in depositing money in this account than in an NRE account. This is because one can deposit their money into this account in foreign or Indian currency. This is because the income has been earned in India. However, just like an NRE account, money is withdrawn from this account only in Indian currency. 

Joint account

• NRE – If anyone wants to open a joint account under this category, then they can do so with another NRI. They can not open a joint account with a resident of India. 

• NRO – When it comes to opening a joint account of this type, then yet again, this account offers more flexibility than an NRE account. One can open a joint account with another NRI and a resident of India. 

Interest and interest rate

• NRE – The interest rate of this account tends to be lower than that of NRO accounts. Along with this, the primary benefit of these accounts is that the interest that is earned through these accounts is entirely tax-free as the income has been earned in the foreign country. 

• NRO – The interest rate of this account tends to be higher than the interest rate of an NRE account. Unlike NRE accounts, the interest that is earned on these deposits is taxable as the income has been earned in India. 

Repatriability

• NRE – Repatriability refers to how easily the funds can be transferred. Under the category of these accounts, funds can easily be transferred. There is no limit on the amount or the interest earned for transfer. 

• NRO – Repatriability under this account has some limits. It should be noted that generally, there is no limit on the Repatriability of the interest earned, but there is one on the amount. Funds under this account can not be transferred if the amount is over 1 million dollars. 

Charges On Repatriability

• NRE – There are typically no charges associated with Repatriability under these accounts. 

• NRO – THere are generally some accounts associated with Repatriability under these accounts. 

Transferability 

• NRE – When it comes to transferring money from one account to an NRO account, this account offers more flexibility than an NRO account. For example, funds or money can be transferred from one NRE account to another NRE account and from an NRE account to another NRO account. 

• NRO – This account does not offer much flexibility when it comes to transferring funds. Transferring money is also possible from an NRO account to another NRO account and some other foreign account, but transferring funds or money from this account to an NRE account is generally impossible. 

Currency fluctuations or Exchange rate risk

• NRE – This account and people depositing money in these accounts are more prone to the risk caused by currency fluctuations or exchange rates because this account does not take deposits in Indian currency. Instead, all the deposits are made in foreign currency but withdrawn in Indian currency. Hence, currency fluctuations play a more significant role in these accounts. 

• NRO – This account is also prone to the risk associated with currency fluctuations or exchange rates, but the degree of risk is lesser in these accounts than in NRE accounts. Because, in these accounts, one can deposit money in Indian and foreign currency but is withdrawn in only Indian currency. Those depositing in foreign currency would have to follow the rules as per currency fluctuations. However, those depositing in Indian currency would not have to worry about currency fluctuations or exchange rate risk. 

Ideal for

• NRE – These accounts are mainly suitable for those individuals whose source of income is only in the foreign country itself. 

• NRO – These accounts are mainly suitable for those individuals whose source of income is not only in a foreign country but also in India. 

CONCLUSION

People often get confused when they hear the terms NRO and NRE accounts, especially those without a financial background. The significant difference between an NRO and NRE account is that the former allows depositing money earned in a foreign country. In contrast, the latter enables the deposition of money that has been earned in the domestic country, i.e., India. 

FREQUENTLY ASKED QUESTIONS (FAQs)

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