We often hear about the two types of Non-Resident bank accounts – NRE and NRO. We also keep hearing about the restrictions each has, like restriction on repatriation. This article clarifies the difference between NRE and NRO accounts, and explains their characteristics.
All Non-Resident Indians (NRIs) face a dilemma at the beginning of their NRI status – What kind of bank account should they maintain back home in India? Should it be an NRO account, or should it be an NRE account? Can you have both? What can each be used for? Let’s understand these things in detail.
Non-Resident External (NRE) Account
An NRE account is a Rupee denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account.
NRE accounts can be opened by NRIs.
Funds can be repatriated from an NRE account. This means that the funds can be freely sent to any other country.
An NRE account can contain funds remitted from abroad, or obtained from another NRE / FCNR account maintained in India.
Funds can be transferred from an NRE account to an NRO account without any restriction.
An NRE account can be held jointly, provided the other person is also an NRI.
The interest earned on deposits in an NRE account is exempt from tax in the hands of the NRI.
A resident power of attorney holder can not open an NRE account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
Nomination is allowed for NRE accounts.
If the NRI holding the NRE account returns to India and becomes a resident of India, the NRE account is converted into a regular resident account.
Non-Resident Ordinary (NRO) Account
An NRO account is a Rupees denominated account. That is, funds in an NRE account are maintained in Indian Rupees. It can be a savings, current or a fixed / term deposit account.
NRO accounts can be opened by NRIs. Regular bank accounts of a person, who becomes an NRI, also get converted into NRO accounts.
Funds can not be repatriated from an NRO account. These funds have to be used only for local (within India) payments in Indian Rupees.
An NRO account can only contain funds received from within India.
Funds can not be transferred from an NRO account to an NRE account.
An NRO account can be held jointly with another NRI or with a resident Indian.
The interest earned on deposits in an NRO account is taxable in the hands of the NRI as per the applicable income tax slab rates.
A resident power of attorney holder can not open an NRO account on behalf of an NRI. But the resident power of attorney holder can make local, rupee payments on behalf of the NRI.
Nomination is allowed for NRO accounts.
If the NRI holding the NRO account returns to India and becomes a resident of India, the NRO account is converted into a regular resident account.
A quick comparison between NRE and NRO accounts
| Non-Resident External (NRE) Account | Non-Resident Ordinary (NRO) Account | |
| Currency | Rupee denominated | Rupee denominated |
| Type | Savings, Current or a Fixed / Term Deposit | Savings, Current or a Fixed / Term Deposit |
| Who can open? | NRI | NRI, Resident before becoming an NRI |
| Is repatriation allowed? | Yes | Usually no |
| What can be the source of funds? | Funds remitted from abroad, Funds from another NRE / FCNR account | Funds received from within India |
| Can funds be transferred to another account? | Funds can be transferred from an NRE account to an NRO / NRE / Resident account | Funds can be transferred from an NRO account to an NRO / Resident account |
| Can it be opened jointly with an NRI? | Yes | Yes |
| Can it be opened jointly with a resident? | No | Yes |
| What is the income tax treatment of the interest earned? | Tax free | Taxed as per applicable slab rate |
| Can power of attorney holder open the account? | No | No |
| Can power of attorney holder operate the account? | Yes, can make local rupee payments | Yes, can make local rupee payments |
| Is nomination allowed? | Yes | Yes |
| What is the status of the account when NRI returns to India for good? | Converted to resident account | Converted to resident account |
| Can you achieve all your financial goals? | |
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Nice summary. I had to go through the pains of understanding this from a surprisingly stupid ‘officer’ at HDFC earlier this year. I feel you should take this forward. Also suggest which banks offer the best SUITE of NR(E/O) accounts in terms of flexibility, usability and lack of red tape. By red tape I imply having to fill a PAPER form for every stupid thing you want to do (e.g.: Linking your NRE and NRO accounts to transfer funds from NRE to NRO).
My small contribution towards this is that HDFC sucks. Everything is paper based and still they tell you that you can do everything online.
Another small tip – Always open your NR accounts in the early days of your India trip & make sure that accounts work the way you want them before leaving. Otherwise you will end up feeling that SBI express remit was the best thing to ever happen to you.
Best,
Bhalchandra
Nice work..
An officer from HDFC Bank tells me that my son who is
an NRI and has a NRE as well as a NRO a/c with HDFC
Bank can not open a D-mat a/c as long he is in US.
Whereas my son would like to invest his current savings
which he regularly tranfers from US to his NRE a/c at
HDFC Bank , in the shares in India so that his savings multiply
by the time he returns. Please advise whether it is legally
permissible for my son to open a d-mat a/c and link it
with his existing NRO a/c with HDFC Bank..
sunil
Hi Sunil,
I believe there is some dispute regarding taxation / double taxation between the Income Tax Department and the Internal Revenue Service (IRS) of USA.
Due to this, NRIs in USA can not invest in shares or Mutual Funds (MF) in India.
Thanks for clarifying that NRI in US can not invest in shares or MFs in India.
Please suggest as to what investments should be done by an NRI ( in US ) , in India , so that when he returns to the country after about 3-4 years , he gets the best benefit.
Sunil
Hi Sunil,
This is a great idea for a separate article – I would write about it soon. Thanks for suggesting this!
I am a NRI and have invested 10 lacs INR in my wife’s name in bank to get MIS for her monthly expediture.
Do I need to decalre it somewhere or it is not necessary. Is it legaly ok?
Hi Kaly,
The information you have provided is not enough – is your wife also an NRI? What do you mean by MIS – post office MIS, or some other monthly income scheme?
In any case, it would be better if you confirm with a practicing chartered accountant (CA).
Is there any development on the treaty between IT Deptt. and US IRS.
Please update.
Also , have you been able to work on the topic of Best Investment in India by NRIs in US .
regards,
sunil
I am researching the most optimal and user friendly way for NRIs to invest in the Indian market. NRIs can invest in Indian market. I have provided info on my website:
http://www.profitshastra.com
Please let me know if there are any questions.
–
Shashank
Hi Sunil,
I don’t think there has been any update on the issue between the income tax department and the IRS… Very unfortunate…
I haven’t been able to work on “Best Investment in India by NRIs” yet. But it would be available in a couple of months’ time
Dear Sir,
I am a NRI in the UK and I wish to send money to India for my family maintenance. Should I need to open any NRI account in India or can I send it to my mother’s normal bank account using ICICI net express or other facilities? Look forward to hearing from you.
Many thanks
Indrajith
HI,
IS IT COMPULSURY TO OPEN A NRE/NRO ACCOUNT BY A NRI MOVED OUT OF HIS COUNTRY FOR A LONG TERM PROJECT? WHAT IS THE IMPORTANCE OF NRI/NRO ACCOUNT? WHAT ARE ALL THE BENEFITS? WITH OUT AN NRI/NRO ACCOUNT A NRI CAN’T TRANFER MONEY TO INDIA?
LATHA.
Excellent articles easy to understand for NRIs.
Can PIO/OCI open a Time Deposit or Monthly Income Scheme account in POst office? Under India Post web site, it only mentions about Senior Citizens Scheme which can not be opened by NRIs/PIO.
For All other accounts it says – any individual can open it. Won’t it amount to operating an NRO account ?
Similarly on LIC schemes such as “Jeevan Akshay”, can NRIs/PIO/OCI invest?
Many thanks
A well written article indeed, but as a PIO I am still unclear as to which account I should remit the sale proceeds of my property in India, with a view to repatriation.
You say that NRE accounts accept only foreign remittances and money cannot be transferred from NRO to NRE. At the same time although the sale proceeds can be remitted to the NRO account, you say that repatriation is not possible from this account! So where should the remittance be made in order to repatriate?
There is a ‘Usually no’ in the table (towards Repatriation), which means ‘Unusually yes’! I hope you got it.
Great article, I just given this onto a co-worker who was doing a little research on that. And he in fact purchased me lunch because I discovered it for him
I am glad I could be of help…
Great article, I just given this onto a co-worker who was doing a little research on that. And he in fact purchased me lunch because I discovered it for him
Can you suggest which bank’s NRE/O account is better? TIA
Pls help in clearing confusion on housing loan benefits and NRE /NRO account associted with it.
I have been assigned on long term project and dseputed to UK for about 18 – 24 months.
I had purchased a flat under construction linked plan and approx 25% payment was made while I was stillin India and the balance is to be paid through a housing loan with disbursement being done as per construction timelines, which is expected to be completed in approx 30 months.
Will I be eligible for the tax benefits for principal payments
/interest payment.
The loan provider is asking for NRE /NRO account details, but I have only local account in India and a onsite salary acount. Part of the salary is credited in India and part onsite.
Pls advice : 1) How the housing loan benefits are to be claimed? 2) Do I require NRE /NRO account as indicated by the loan provider and 3) any safegaurds /conditions to be observed.
Hello.
My wife & I have been NRI’s for over 7 years. However, We did not have an NRE account ever before. All our earnings are in my local country’s bank for this many years.Recently on my trip to India I opened an NRE account. Can I transfer a sum of upto 2 crore into this newly opened NRE account without raising any flags. Kindly advice what I must do.
You can remit any amount to NRE account. With rupee getting weeker by the day, RBI is encuraging inward USd remmitance.
The Reserve Bank has recently de-regulated the interest rates on NRE Deposits. Most banks have increased the interest rates. Oriental bank of Commerce is offering one of the best interest rates of 9.75% for a period of 1 year. I found their services really good.
I am not an NRI. Is there any way for a foreign national to have an interest bearing savings account in an Indian bank? I once resided in New Delhi and had a rupee account, but no longer have residency.
I have transferred money from nre to nro account. Though its in nro account now, source of money is nre ac. So whether it is taxable?