An NRE or Non-resident External Account is an account that can be opened by an NRI to deposit his foreign earnings while an NRO or Non-Resident Ordinary Account is an account opened by the NRIs to deposit their Indian earnings. The withdrawal money from both the accounts is in Indian Currency.
NRE vs NRO
The main difference between an NRE account and an NRO account is that an NRI can deposit their money earned from any external source other than Indian, preferably the current country of Residence in an NRE account while in NRO accounts, an NRI can only deposit the money earned from an Indian source.
NRIs can use their Non-Resident External (NRE) account to transfer their foreign currency earnings to India. This account is extremely liquid, with all deposits fully and readily repatriable to the NRI’s home country. Furthermore, the interest earned on these accounts is tax-free in India.
A Non-Resident Ordinary (NRO) account is one that assists non-resident Indians in managing their money received in India. The account can accept deposits in foreign currencies as well as Indian currency. Withdrawals, on the other hand, are only made in Indian rupees. Furthermore, all deposits in this account are not freely convertible into foreign money.
Comparison Table between NRE and NRO
| Parameters Of Comparison | NRE | NRO |
| Full form | It stands for Non-Resident External Account. | It stands for Non-Resident Ordinary Account. |
| Definition | It is a type of bank account that can be opened by the NRIs to deposit their amount which has been generated from any external source. | It is a type of bank account that can be opened by the NRIs to deposit their income which has been generated from any sort of Indian source. |
| Rate of Interest | Comparatively low. | Comparatively High. |
| Tax Implication | The interest earned from an NRE account is a tax-free account. | The interest earned from an NRO account is taxable. |
| Permission of joint Account | An account can be opened by two NRIs together. | An NRI can open the account jointly with an Indian Resident. |
| Deposit | Foreign Currency. | Both in Foreign Currency and Indian rupee. |
| Transfer of Funds | Fund transfer to NRO is allowed. | Fund transfer to NRE is not allowed. |
What is NRE?
The full form of NRE is Non-Resident External Account. This type of account allows an NRI to deposit their savings that have been earned from an External source that is the current country of residence of the NRI. It allows the person to deposit the amount in the currency of his or her present country of residence but the withdrawal will always be in the Indian rupee. It gives one the complete freedom of repatriation along with the benefit of tax-free income. One can earn up to a maximum of 4.35 percent interest per annum from an NRE account.
Money can be withdrawn from an NRE account at the point of the day with the help of an international debit card. NRE accounts provide complete security which can be opened in any form like the savings, recurring, current, or fixed deposits. Moreover, NRE accounts can be opened jointly with another NRI. The main uses of NRE accounts are personal banking, business, and investments that are to be made in India. An average monthly balance of RS 75000 is required for managing an NRE account. The account allows the transfer of funds to an NRE account as well as an NRO account.
What is NRO?
The full form of NRO is a Non-Resident Ordinary Account. Just like an NRE account, even an NRO account requires a minimum of Rs 75000 monthly balance to maintain the account. An NRO account accepts deposits from NRIs where the money earned is from an Indian Source and also helps to hold the amount in Indian Currency. Withdrawal from an NRO account is only available in Indian Currency and it deals with the money only earned from Indian sources. No money earned from foreign sources can be deposited in an NRO account.
It gives one higher interest rates that are up to 5.5 percent interest per annum which is comparatively more than what an NRE account offers, but the interest earned from an NRO account is taxable. For repatriation, the limit per year is 1million US dollars. NRO accounts only allow the transfer of funds to another NRO account but not to an NRE account. One can simply open a joint NRO account with any Indian Citizen who is a close relative which has been mentioned in the Companies Act in 1956 under Section 6. An NRI can deposit the amount in both Foreign currencies as well as in Indian Rupee in an NRO account.
Main Differences Between NRE and NRO
- NRE stands for Non-Resident External Account while NRO stands for Non-Resident Ordinary Account.
- NRE is a type of account that can be opened by NRI’s to deposit their income which has some external source as its origin whereas that of an NRO account is used to deposit the income generated from an Indian source.
- Two NRIs can jointly open an NRE account but one NRI can jointly open an NRO account with another Indian citizen.
- The interest earned from an NRE deposit is tax-free but that of NRO is taxable.
- Fund transfer to NRO is permitted in the case of an NRE account but fund transfer to NRE is not permitted in the case of an NRO account.
- The rate of interest is comparatively low in NRE than NRO account.
- The deposit has to be made in foreign currency in an NRE account but can be made in both foreign currency and Indian Rupee in an NRO account.
Conclusion
An NRE account is best suited for people who want to transfer their foreign income to India without the taxation liabilities. An NRO account is for that NRIs whose total income includes a part of Indian income and want to manage it within their country. For those who want to keep their savings in liquid form, NRE is the best option. NRO is best suited for those who want to save their Indian earnings in Indian currency form. Moreover, NRE accounts give the complete freedom of repatriating funds from their account fully whereas for an NRO account it is limited to USD 1 million annually.
References
- https://www.researchgate.net/profile/Jayati-Ghosh/publication/316788440_Banking_on_Debt/links/5911a35fa6fdcc963e651d48/Banking-on-Debt.pdf
- https://www.taylorfrancis.com/chapters/edit/10.4324/9781351114271-22/intercropping-sustainable-maize-cultivation