Education

Difference Between NRE Accounts and NRO Accounts

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Main Difference

The difference between NRE account and NRO account is important to understand for a Non Resident Indian (NRI). The main difference between NRE and NRO account is that NRI has the option to open NRE account while NRO account can be opened by a person of Indian origin and an overseas citizen of India.

What is NRE Account?

NRE stands for Non-Resident External (NRE). It is a bank account that is opened by depositing foreign currency and the currency can be tendered in the form of traveler’s checks or notes. It is a saving or current account held in Indian that allows the accounts holder to repatriate funds that come from outside earnings and transfer earnings to Indian conveniently and securely. Money transferred to an NRE account from any foreign currency is converted to Indian rupees. It allows the NRI to maintain and hold foreign currency earnings in Indian rupees. The account holder may repatriate all the funds along with the interest earned at any point of time without having to pay tax on the interest amount. Any NRI can open an NRE account.

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What is NRO Account?

NRO stands for Non-Resident ordinary (NRO). It is a normal bank account opened by an Indian going abroad with the intention becoming an NRI. He can also open NRO account by spending remittances from his home country or by transferring funds from his other NRO account. It offers the same services like NRE account except that any repatriation done via this account should be reported to RBI by filling up prescribed forms. It helps NRIs to manage income earned in India such as rent, dividends or pension from abroad. The account holder can deposit and manage accumulated rupee funds conveniently via an NRO account. Foreign currency deposited into the NRO account is converted into Indian rupees.

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Key Differences

  1. It is easy to repatriate funds from an NRE account including the interest earned in that account. However, there are some restrictions imposed by RBI on NREO accounts.
  2. NRE accounts are tax exempted that’s why all kinds of direct taxes like income taxes, gift taxes, and wealth taxes are exempt. But NRO accounts are taxable and all prescribed taxes are applicable on NRO accounts.
  3. In an NRE account, repatriation is allowed outside India in any currency.
  4. An NRE account holder can equally transfer funds to another NRE account and NRO account. While NRO account holder can transfer funds to another NRO account only.
  5. NRE joint account can’t be opened with a resident but this facility is available in case of NRO account.
  6. NRE accounts tends to be more risky because of exchange loss, day to day fluctuations in the Indian rupees and conversion loss while NRO accounts are not at such risk.
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