By Manu Rao | Updated March 2026
If you are a Non-Resident Indian or a Person of Indian Origin opening a bank account in India, you will encounter two acronyms immediately: NRE and NRO. Both are rupee-denominated accounts. Both can be opened at any scheduled commercial bank in India. But the rules on deposits, taxation, and repatriation are completely different.
Mixing these up — or using the wrong account for the wrong purpose — can create tax complications, FEMA violations, and unnecessary TDS deductions. Here is exactly how they differ.
Quick Comparison Table
| Criterion | NRE Account (Non-Resident External) | NRO Account (Non-Resident Ordinary) |
|---|---|---|
| Governing Regulation | FEMA (Deposit) Regulations 2016, Schedule 1 | FEMA (Deposit) Regulations 2016, Schedule 3 |
| Currency | Indian Rupees (funded by foreign currency conversion) | Indian Rupees |
| Source of Funds | Foreign earnings only — salary earned abroad, foreign remittances, transfers from other NRE/FCNR accounts | Indian income — rent, dividends, pension, sale proceeds of Indian assets, plus foreign remittances |
| Repatriability | Fully repatriable — principal and interest can be sent abroad freely | Restricted — up to USD 1 million per financial year (after tax) under RBI's Liberalised Remittance Scheme |
| Tax on Interest | Exempt from Indian income tax (Section 10(4)(ii) of Income Tax Act 1961) | Taxable in India — TDS at 30% + surcharge + cess on interest earned (Section 195) |
| Joint Holding | Only with another NRI/PIO | Can be held jointly with a resident Indian |
| Account Types | Savings, Current, Fixed Deposit, Recurring Deposit | Savings, Current, Fixed Deposit, Recurring Deposit |
| Interest Rates | Determined by bank — typically comparable to resident savings rates | Determined by bank — typically comparable to resident savings rates |
| Loan Against Deposit | Available — loan can be in India or abroad | Available — loan in India only |
| On Return to India | Must be redesignated as resident account or closed | Must be redesignated as resident account |
NRE Account — Your Foreign Earnings in Indian Rupees
The NRE account is designed for one purpose: parking your foreign earnings in India in rupee form. Every deposit into an NRE account must originate from outside India — your salary from a US employer, proceeds from selling a UK property, transfers from your foreign bank account.
The defining feature is full repatriability. You can transfer the entire balance — principal and accumulated interest — back to your foreign bank account at any time, without any RBI permission or ceiling. This makes the NRE account the go-to for NRIs who want liquidity and the ability to move money back home.
The tax benefit is equally clear. Interest earned on NRE deposits is completely exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act 1961. No TDS is deducted. You do not need to report this income in your Indian tax return (assuming you remain an NRI for tax purposes).
NRE Fixed Deposits
NRE FDs lock in the tax exemption for a fixed period. Minimum tenure is 1 year, maximum is 5 years under current FEMA regulations. If you break the FD before maturity, the bank may pay a reduced rate but the tax exemption still applies. Interest rates on NRE FDs typically range from 6-7.5% depending on the bank and tenure — competitive compared to US dollar fixed deposit rates.
Key Restriction
You cannot deposit Indian rupees earned in India into an NRE account. Rental income from your Indian property, dividends from your Indian stocks, pension — none of this goes into the NRE account. That is what the NRO account is for.
NRO Account — Your Indian Income, Managed
The NRO account collects your Indian-source income. Common deposits include:
- Rent from Indian property
- Dividends from Indian shares
- Interest from Indian fixed deposits or bonds
- Pension from former Indian employer
- Proceeds from sale of Indian assets (property, shares, mutual funds)
You can also deposit foreign remittances into an NRO account, though there is usually no reason to — the NRE account offers better tax treatment for foreign funds.
Tax Treatment
Interest on NRO deposits is taxable in India. Banks deduct TDS at 30% (plus applicable surcharge and 4% cess) on interest earned. This applies to both savings and fixed deposit interest.
If your total Indian income falls below the basic exemption limit (INR 3 lakh under the new tax regime for FY 2025-26), you can file a tax return and claim a refund of the excess TDS. But the deduction happens at source — you get the money back later, not upfront.
DTAA relief may be available. If your country of residence has a tax treaty with India, the treaty rate for interest income may be lower than 30%. For example, the India-US DTAA (Article 11) caps interest taxation at 15%. To claim the lower rate, you need to provide a Tax Residency Certificate (TRC) from your home country and file Form 10F with the bank. The bank then deducts TDS at the treaty rate instead of 30%.
Repatriation — The USD 1 Million Cap
This is the biggest practical difference. NRO funds are not freely repatriable. Under RBI guidelines, NRIs can remit up to USD 1 million per financial year (April to March) from an NRO account, subject to:
- Payment of applicable taxes
- A certificate from a Chartered Accountant (Form 15CB) confirming tax compliance
- Filing Form 15CA online with the Income Tax Department before the remittance
For amounts exceeding USD 1 million per year, specific RBI approval may be needed depending on the nature of the funds. Sale proceeds of immovable property have their own repatriation rules — up to two residential properties in a lifetime, subject to conditions under FEMA.
Which Account for Which Purpose?
Use NRE Account for:
- Parking foreign salary or business income in India
- Saving in Indian rupees with full repatriation flexibility
- Earning tax-free interest in India
- Maintaining an emergency fund in India that you can move back abroad anytime
Use NRO Account for:
- Collecting rent from Indian property
- Receiving dividends and interest from Indian investments
- Receiving pension payments
- Depositing sale proceeds of Indian assets before repatriation
- Paying Indian bills, insurance premiums, or EMIs from Indian income
Can You Transfer Between NRE and NRO?
Yes, with restrictions. You can transfer funds from an NRE account to an NRO account freely. The reverse — NRO to NRE — is not permitted. Once money enters the NRO account, it becomes subject to the NRO repatriation rules (USD 1 million cap, tax clearance).
This one-way door means you should be careful about where you park funds initially. If you send foreign earnings to an NRO account by mistake, you cannot simply move them to NRE later. The funds are now treated as NRO funds.
Impact on Company Registration
If you are an NRI setting up a company in India:
- Share subscription money can come from either NRE or NRO account (FEMA NDI Rules 2019, Rule 6)
- Investment in a Private Limited Company from NRE/NRO account is permitted under the FDI policy without RBI approval (automatic route for eligible sectors)
- Director's remuneration paid by the Indian company goes to the NRO account (it is Indian income)
- Dividend income from your Indian company goes to the NRO account
For foreign nationals (non-NRI, non-PIO) — the NRE and NRO framework does not apply. Foreign nationals invest through normal banking channels under FEMA, and funds are routed through the Indian company's designated bank account.
Documentation Required
Opening either account requires:
- Valid passport
- Overseas address proof
- Passport-size photographs
- PAN card (or Form 60 if PAN not available)
- FEMA declaration
Some banks require an in-person visit to an Indian branch. Others allow NRIs to open accounts at overseas branches of Indian banks (SBI, Bank of Baroda, Bank of India have a presence in major countries).
Bottom Line
NRE for foreign money coming in. NRO for Indian money already there. Keep them separate. Do not mix the sources.
Setting up your India business and need help structuring your banking? Talk to Beacon Filing — we coordinate with banks and help NRIs get the right account setup alongside their company registration.