Difference between NRE & NRO Accounts for NRIs (Non-Resident Indians)

Updated on: 2020-03-27 - 3 mins read

Determining an NRI status from Indian taxation point of view:

Below mentioned are the two different definitions to determine your tax status:

Definition 1- Section 6 of the Income Tax Act 1961 (ITA) provides detailed guidelines to assess the residential status of an individual

Here we provide a brief summary of it. For detailed information, please refer to “Section 6 of the income tax Act,1961”. If you fulfill any of the below mentioned conditions, then you qualify as Residence in Indian status and you are liable to file an ITR in India for particular Financial year.

  • If he/she was physically present in India for a total period (including multiple short breaks) of 182 days or more for specific Financial year
  • If he/she was physically present in India for a total period (including multiple short breaks) of 365 days or more during the four years preceding the specific Financial year
  • Definition 2- As per Foreign Exchange Management Act,1999 (FEMA)

    he/she is considered as an NRI, If he/she resides outside of India for the purpose of employment or any other situations in which time of stay outside of India is uncertain.

    Why an NRI needs to open NRE/NRO Account?

    If you hold NRI status as per The Indian Tax Act, 1961 (ITA) and/or Foreign Exchange Management Act (FEMA), it is illegal to have savings bank account in India. In case you already have savings bank account in India, then you can convert them to NRE/NRO account. To manage finances back in India While staying abroad, two preferable and advisable options are available- NRE Account and/or NRO Account.

    Comparison between NRE Account & NRO Account:

    DescriptionNRO AccountNRE Account
    Full FormNon-Resident Ordinary AccountNon-Resident External Account
    Purpose of openingNRI use this account to manage Income earned in IndiaNRI use this account to transfer his/her foreign income to India
    TaxationEarning of interest is taxable at 30% (plus other applicable taxes)Earning of interest is tax free
    Joint Account OptionOne must be NRI & other account holder can be NRI or Indian citizenOnly two NRIs can become joint account holders. However an authorized family member can access the account in the absense of primary account holder
    RepatriableYes (Limited to USD $1M) with some chargesYes, without any charges
    Deposits & withdrawals
    • Deposit option of foreign or Indian currency
    • Withdrawal option of only Indian currency
    • Deposit option of only foreign currency
    • Withdrawal option of only Indian currency
    How can I transfer fund in Indian banks
    • NRO to another NRO/Savings account of Indian citizen
    • NRO to NRE (Not allowed)
    • NRE to another NRE/NRO/savings account of Indian citizen