NRE vs NRO Account: Difference, Tax Treatment, and Which to Use
Every NRI must understand the difference between NRE and NRO accounts. This comparison covers tax treatment, repatriation limits, what income goes where, and FBAR disclosure requirements.
Last updated: 2026-05-12 · CA-reviewed
NRE Account (Non-Resident External)
Holds foreign earnings — fully repatriable, tax-free
- Interest income is completely tax-free in India
- Principal and interest fully repatriable (no limit)
- Can be held jointly with another NRI
- Balances protected from exchange rate risk if repatriated as earned
- Can be used to invest in India (stocks, MF, property)
- Can only receive foreign-origin funds (remittances from abroad)
- India-source income (rent, dividends, salary from Indian employer) cannot be credited
- FBAR disclosure required for US persons if balance > $10,000
- No tax benefit for Indian tax purposes (interest exempt, not deductible)
Parking overseas salary, foreign income, and savings. Making investments in India. Repatriating back to your country of residence.
NRO Account (Non-Resident Ordinary)
Holds India-source income — partially repatriable
- Receives India-source income: rent, dividends, pension, interest from Indian investments
- Can receive foreign remittances also (in addition to India income)
- Tax deducted at source by bank at 30% TDS on interest
- TDS can be reduced if DTAA benefit claimed (provide TRC + Form 10F)
- Interest income taxable at 30% + surcharge + cess (TDS @30%)
- Repatriation limited to USD 1 million per financial year
- Requires CA certificate (Form 15CA/15CB) for repatriation above certain limits
- Cannot be joint with a resident Indian (can be with another NRI)
- More complex compliance vs NRE
Collecting rental income, pension, dividends, and any India-source income. Managing Indian financial affairs.
NRE Account (Non-Resident External) vs NRO Account (Non-Resident Ordinary): Feature Comparison
| Parameter | NRE Account (Non-Resident External) | NRO Account (Non-Resident Ordinary) |
|---|---|---|
| Currency | Foreign currency converted to INR on deposit | INR |
| Income credited | Foreign-origin funds only | India-source income + foreign remittances |
| Interest taxability in India | Tax FREE | Taxable at 30% (TDS deducted) |
| Repatriation of principal | Fully repatriable — no limit | USD 1 million per FY (with CA certificate) |
| Repatriation of interest | Freely repatriable | Within USD 1 million limit |
| Joint holding | With another NRI only | With another NRI only |
| FBAR (US persons) | Required if > $10,000 | Required if > $10,000 |
| Best use | Foreign savings, investment, repatriation | India income collection, local expenses |
Expert Verdict: Which Should You Choose?
Most NRIs need BOTH accounts: NRE for parking foreign earnings and tax-free returns, and NRO for collecting India-source income (rent, dividends, etc.). There is no 'one is better' answer — they serve different purposes. For US persons (H1B, Green Card, Citizens), both accounts must be reported in FBAR annually if aggregate balance exceeds $10,000.
Frequently Asked Questions
Yes, but with conditions. You can transfer up to USD 1 million per financial year from NRO to NRE account after paying applicable taxes in India. This requires a CA certificate (Form 15CA/15CB) certifying that all taxes on the funds have been paid. Submit Form 15CB from your CA to your bank, and then the bank processes the transfer. This transfer converts previously taxable India-income funds into freely repatriable NRE funds.
NRE account interest is exempt from Indian income tax as long as you are a non-resident (NRI) for Indian tax purposes. Once you return to India and become a Resident under Indian tax law (staying 182+ days), your NRE account interest becomes taxable. The exemption under Section 10(4)(ii) applies only during the period of non-residence. For US tax purposes, NRE account interest is always taxable by the US regardless of Indian exemption.