Short answer: An NRE account is for parking your foreign income in India: the interest is tax-free and both principal and interest are fully repatriable. An NRO account is for managing your India-earned income (like rent or dividends): the interest is taxable with 30 percent TDS, and repatriation is capped at USD 1 million per financial year. Most NRIs use an NRE account for overseas earnings and an NRO account for Indian income, so often you need both.
If you are an NRI, choosing the right account type is a key compliance and tax decision. Here is how NRE and NRO accounts differ.
The core difference: source of money
The distinction comes down to where your money is earned:
- An NRE (Non-Resident External) account is for foreign income you remit to India. You deposit money earned abroad, which is converted to Indian rupees.
- An NRO (Non-Resident Ordinary) account is for income earned in India, such as rent, dividends, pension, or other domestic receipts.
Both are held in Indian rupees, but they are taxed and repatriated very differently, which is what makes choosing correctly so important.
NRE vs NRO: side by side
| Feature | NRE Account | NRO Account |
|---|---|---|
| Purpose | Park foreign income in India | Manage India-earned income |
| Interest taxation | Tax-free in India | Taxable, with 30 percent TDS |
| Repatriation | Fully and freely repatriable | Up to USD 1 million per financial year |
| Funding | Foreign earnings (converted to INR) | Indian income (and foreign) |
| Joint holding | With another NRI (or resident, per rules) | With an NRI or a resident Indian |
| Currency risk | Yes (foreign currency converted to INR) | Minimal (INR to INR) |
The NRE account: for foreign income
An NRE account is where you park the money you earn abroad. Its big advantages:
- Tax-free interest. Interest earned on an NRE account is completely exempt from Indian income tax.
- Full repatriation. Both the principal and interest can be sent back abroad freely, anytime, with no cap. This makes it ideal for keeping overseas savings flexible.
The one thing to note: since foreign currency is converted to rupees, you are exposed to exchange-rate fluctuations when moving money in and out.
Best for: parking foreign earnings in India, funding Indian investments, and sending money to family, with tax-free, fully repatriable returns.
The NRO account: for Indian income
An NRO account is required to manage income you earn within India. Its features:
- Taxable interest. Interest is taxable in India, with TDS deducted at 30 percent (plus surcharge and cess). A Double Taxation Avoidance Agreement (DTAA) with your country of residence may reduce this rate.
- Limited repatriation. You can repatriate up to USD 1 million per financial year, after tax compliance and the required documentation (Forms 15CA and 15CB).
Importantly, once you become an NRI, your old resident savings account must be redesignated as an NRO account to stay compliant.
Best for: receiving rent from Indian property, managing Indian dividends or pension, and paying India-based bills.
Which should you open?
For most NRIs, it is not either-or, you often need both:
- Use an NRE account for your foreign income, to enjoy tax-free, fully repatriable returns.
- Use an NRO account for your India-earned income, to stay compliant with how domestic income must be handled.
A common structure: route all overseas remittances to the NRE account, and use the NRO account for Indian receipts like rent. Never mix them, keep foreign income in NRE and Indian income in NRO.
Frequently asked questions
What is the difference between NRE and NRO accounts?
An NRE account is for foreign income, with tax-free interest and full repatriation. An NRO account is for India-earned income, with taxable interest (30 percent TDS) and repatriation capped at USD 1 million a year.
Is NRE or NRO interest taxable?
NRE account interest is completely tax-free in India. NRO account interest is taxable, with 30 percent TDS (plus surcharge and cess), though a DTAA may reduce the rate.
Can I repatriate money from an NRO account?
Yes, up to USD 1 million per financial year, after paying applicable taxes and submitting the required documentation (Forms 15CA and 15CB). NRE funds, by contrast, are fully and freely repatriable.
Do I need both an NRE and NRO account?
Often, yes. Use an NRE account for foreign income (tax-free, fully repatriable) and an NRO account for India-earned income like rent or dividends. Many NRIs maintain both.
What happens to my savings account when I become an NRI?
Your resident savings account must be redesignated as an NRO account to remain compliant. You should notify your bank promptly when your residential status changes.
With Jupiter: manage your everyday money with a savings account and track every transaction in one place. Related reading: types of savings accounts.
Manage your money across borders
Choosing the right account keeps your finances tax-efficient and compliant. Whatever your setup, managing your money clearly in one place makes life simpler. Jupiter is the 1-app for everything money.
NRE and NRO rules, taxation, and repatriation limits are governed by FEMA, RBI, and income tax laws, and are subject to change. This article is general information, not tax or financial advice. Consult a qualified professional for NRI-specific guidance.
