Banking Awareness : NRE and NRO Accounts

Non-Resident External (NRE) Account

An NRE account is a savings account opened by an NRI to park his/her income earned outside India. The principle and the interest earned from it are freely repatriable in this account. A joint NRE account can be opened by 2 NRIs.

Non-Resident Ordinary (NRO) Account

An NRO account is a savings account opened by an NRI to maintain his/her income earned in India through dividend, rent, pension, etc. The free reparability is restricted to certain limits in this account. You can open a joint account one being an NRI and another Indian resident or two NRIs.

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Is Interest earned on NRE and NRO Accounts Exempt from Income Tax?

As long as your status is Non-Resident Indian, the interests earned on NRE accounts are fully exempted from tax in India. Similarly, interest accrued from the deposit in Foreign Currency Non-Resident (FCNR) account is also exempted from taxation.

The interest earned on NRO account is fully taxable at 30% according to the Income Tax Act 1961 as the income is made in India through various investments. You can get the deduction of up to INR 10,000 while filing the income tax return. However, interest earned from specific mutual funds is tax-free.

You will be requested to change your NRE account to resident account upon the change in your residential status. After becoming an Indian resident, you will be asked to disclose your assets held in abroad in India and your income will be taxed.

Deposits and Withdrawals

Under an NRE account, individuals can deposit in foreign currency and make withdrawals in Indian currency. Under NRO account, individuals can deposit in both Indian and foreign currencies and withdraw in Indian currency.

Maintaining a monthly average balance in both the accounts varies from banks to banks with a minimum being INR 10,000.

Non-Resident (Ordinary) Rupee Account (NRO)Non-Resident (External) Rupee Account (NRE)Foreign Currency Non-Resident (Bank) Account (FCNR(B))
CurrencyRupee Denominated (INR)Rupee Denominated (INR)USD, Pounds, Euro, Yen, etc.
Who can open?NRI, Resident before becoming an NRINRINRI
A/c typeCASA, Fixed/TermCASA, Fixed/TermOnly Fixed/Term
PurposeTo park Indian earnings, like rent, Indian salarydividend, etc.To park overseas savings remitted to India by convertingto INRTo maintain account in foreign currency. Only term deposit of 1 to 5 years
RepatriationOnly interest on NRO accountbalance (after deducting TDS)YesYes
TaxTaxed as per applicable slab rateTax freeTax free


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