Globalisation is all the rage in this modern world. Hundreds and thousands of people migrate to different countries for better work and living opportunities. India ranks right on top in the list of countries with the highest number of nationals living and working in foreign nations. As per reports, 1.3 crore People of Indian Origin and Non-Resident Indians were estimated to be residing abroad in 2021. Indians living abroad cannot transact through normal savings accounts legally.

Special accounts, such as NRO and NRE, are in place for individuals and transactions. These accounts are the safest options for NRIs looking to save their earnings in India. If your total earnings include income made in India and you want to manage it within the country, you must choose an NRO account. However, if you want to transfer foreign earnings to India without tax liabilities, you must opt for an NRE account. Both these accounts are variations of savings accounts, but it is important to know the difference between NRE and NRO account.

What is the difference between NRE and NRO Account?

The main points of difference between NRE and NRO accounts include:

Taxation

A major NRE and NRO account difference is the taxation policy. While an NRE account is free of income tax, wealth tax and tax gifts in India, an NRO account holder must pay wealth and gift tax. Nevertheless, NRO account holders can enjoy reduced tax benefits under the Taxation Avoidance Agreement. Note that the interest accumulated from credit balances and an NRO account falls in the respective tax bracket. 

Transferability

Another major NRE NRO account difference is the transferability of funds. NRE account holders can freely transfer the money in their accounts, both principal amount and interest earned. However, that’s not the case with funds in an NRO account, with a limitation of up to $ 1 million on fund transfers in a financial year, along with applicable taxes levied post payment.

Holding Structure

There is a huge NRO vs NRE difference in the holding structure of both accounts. NRIs can open joint NRO accounts with one or more Indian citizens or NRIs. But, there can be joint NRE accounts only with another NRI.

Currency for Deposits and Withdrawals

Yet another vital point of difference between NRE and NRO is in the currency used for withdrawals and deposits. NRE account holders can deposit money in any foreign currency and withdraw the same in the Indian rupee without hassle. However, individuals need to deposit and withdraw money in Indian currency or rupee denomination with an NRO account.

Rules of Money Deposit

NRE and NRO difference also lies in the varied rules of money deposit for both accounts. Any income generated in India cannot be deposited in an NRE account, whereas an NRO account does not allow overseas income deposits.

Suitable Conditions

The suitability of both accounts is considered another key NRE NRO difference. People looking to hold and maintain their foreign earnings in Indian currency should go for an NRE account. Such accounts are also suitable for individuals willing to keep their savings in liquid form.

But with an NRO account, you can save only the earnings made in India and Indian currency. This can be income from the sale of property, rent or dividend.

Fund Transfer

The difference between NRE and NRO account RBI also lies in how account holders can transfer funds. NRE account holders can transfer funds to other NRE accounts and even NRO accounts. However, NRO account holders can transfer funds only to an NRO account and nothing else.

Effect of Exchange Rate Fluctuations

NRE and NRO account holders should also know about the effect of exchange rate fluctuations on their accounts. While NRO accounts do not risk changing currency value against foreign currency, NRE accounts can risk conversion loss because of fluctuations in exchange rates.

What is a Non-Resident Rupee (NRE) Account?

A non-resident Rupee or NRE account is an Indian currency account that offers complete security. You can hold this account as current, savings, fixed or recurring deposit. The foreign currency you deposit into your NRE account gets converted into Indian currency. As an NRE account holder, you can transfer your money, both the principal amount and the interest, to any foreign account without restrictions and complications. But make sure the amount you deposit in this account is earned in some foreign country, not India.

The international debit card will help you deposit and withdraw money into your NRE account 24/7. At the same time, mutual fund investments will become instant and effortless if you link your NRE account to your investment account. You can use your NRE account for personal banking, investing in India and operating a business. 

What is a Non-Resident Ordinary Rupee (NRO) Account?

A non-Resident Ordinary Rupee or NRO account is a current or savings account held by non-resident Indians in India to manage the income they make in India. As an NRO account holder, you can deposit and manage your accumulated money in Indian currency without complications. Your NRO account gives you the flexibility to receive money either in Foreign or Indian currency. Note that the interest you earn on the principal amount held in your NRO account is subject to TDS or Tax Deducted at Source.

Comparison Table for NRE and NRO Account

NREvs.NRO account

comparison table goes like this:

Why ADCA?

ADCA or Anil D’Souza & Associates is a chartered accountants agency in Bangalore managed and operated by an able group of experienced and competent company secretaries, chartered accountants, tax consultants and corporate financial advisors. With over 15 years of experience in tax, advisory, audit, outsourcing and legal services, the company has successfully added value to its clients. It is one of the top 10 CA agencies in Bangalore that you can contact if you want any help regarding NRE and NRO accounts. It will be a good idea to get the services of ADCA as the company:

• - Has a young team of experienced professionals who understand present-day requirements.

• - Separate departments for varied services to deliver quality right on time.

• - Different teams specialized in varied service areas offering required expertise.

• - Client satisfaction and client value addition are top priorities at ADCA.

• - Affordable Solutions

• - Use of advanced technology to deliver top-quality service

• - Different statutory compliance solutions under a single roof.

FAQs

What is the significance of an NRE account?
The main significance of an NRE account is it converts foreign currency into Indian rupees. If you deposit your foreign earnings in your NRE account, they will convert into INR instantly.

What is the most crucial difference between an NRE and NRO account?
One of the most important differences between an NRE and an NRO account is the currency used for withdrawal. NRO account holders cannot transfer funds without limitations. Dissimilar to an NRE account, the interest accrued on NRO account deposits is a 30% taxable rate deductible at the source. Indians living in a foreign country can transfer funds up to $1 million in a financial year once they pay all applicable taxes.

Which is the better account: NRO or NRE?
Going for an NRE account is always better, especially for individuals looking to hold and maintain their foreign earnings in Indian rupees. These accounts also work for people looking to keep their savings in liquid form, and the NRO account is best suited for people who want to save their Indian earnings in Indian rupees.

Should people send money to NRO or NRE?
The NRE account is completely repatriable and free of tax, while the NRO account requires the holder to pay taxes on the repatriated amount. This critical difference makes an NRO account the better solution for those looking to save their money in India.