NRE vs NRO: What’s the Difference?

With so many account types for us to choose from, it might be quite difficult to pick the best kind – particularly when you do not even know what each of them entails. As a worker from India in the United States, you’ll be earning your own money during your time there – money that you’ll likely want to send home as well. But how can you do that?

Looking at those accounts, you can’t quite figure out how they are different – as both of them are somehow linked with both Indian and US currency. Well, this article wants to shed some light on the matter, so that you will know precisely how to manage your money.

Difference between an NRE and an NRO

When it comes to the NRE and the NRO, there are certain key differences that you will have to understand. For you to reach that stage, you will first have to know exactly what each type of account entails, and who needs to go for them. Only then will you understand which one of them you actually need.

What Is an NRE?

An NRE account – also referred to as the Non-Resident External account is an account that a non-resident Indian (NRI) uses to transfer their foreign earnings to India. Simply put, this account is used by foreigners to “park” whatever they earn outside their home countries so that they (or their family) may eventually use that money in India.

With an NRE account, you may keep your savings in Indian currency – but at the same time, you may keep them liquid. An NRE account may have another joint account with one more NRI who is sending or using money from that account – which is quite convenient if the money and savings are for family use.

With NRE accounts, the savings in Indian currency are also free to repatriate – making them a cost-saving option. You may also transfer funds without any restrictions or complications. The only condition is that the money transferred needs to be earned outside India.

Who Needs an NRE?

An NRE account is needed by someone who has left India to work in the U.S. on a visa – but they still have family or business to attend to in India. For instance, if an NRI has a parent or sibling in need of financial assistance at home, that person might use the NRE account to transfer the money back home.

Plus, not everyone that goes to the U.S. on a visa cuts all the business bridges. Some people link that money to an investment account and use it to carry out any business they might have running at home. It is an efficient way of adding U.S-earned money to the investments that they have in India.

What Is an NRO?

An NRO account (short for Non-Resident Ordinary Rupee account) is a current or savings account that is owned by an NRI to manage the income that he gains from India. To put it simply, if the green card holder is currently working in the United States but still has a source of income (e.g. a business, investment property), they will use the NRI account for depositing or transferring that money.

With an NRO account, the holder of the account may deposit, but also manage the rupee that they have accumulated without any issues. Moreover, this account allows you to receive money not only in your Indian currency but in foreign currency as well – provided the source is still India.

When applying for an NRO account, you may also go for a joint account. The origin of the co-owner is not really that important, as it may be a resident from India or even a fellow NRI. You may also transfer money from your NRE account into your NRO account – but bear in mind that the interest earned in this account is subjected to tax deductions.

Who Needs an NRO?

An NRO is needed by the NRI with a PAN card that has a source of income coming from India. Unlike the NRE, the account is for receiving the money rather than giving it. It’s meant for those that have financial ties with India (e.g. a standing business, an apartment from which they collect rent, etc.), and still have ways of earning in their home country even if they moved to the United States.

What Is the Difference Between an NRE and an NRO?

Now that you know exactly what both accounts entail, you may also notice that they are quite similar at points – so, where exactly do the differences lie? Well, here are a few crucial points.

• NRE accounts are opened in India by an NRI in order to deposit the earnings he gains in a foreign country, while an NRO is opened in India by the NRI to manage the income that he or she gains in India. This includes rent, pensions, dividends, and interest.
• NRE is not subjected to takes, no matter if we’re talking about the balance or interest rate. However, according to the Income Tax Act or 1961, the NRO is taxable by 30%.
• When it comes to money in an NRE account, the interest may be repatriated. In other words, these amounts may be transferred from your NRE account to another account. It’s similar for the NRO – but in regards to the principle, only $1 million may be remitted per financial risk.
• Income that is coming from outside of India may be added to either of these accounts. However, if the income is coming from within India, you may only deposit it in the NRO account. Both accounts have withdrawals made in Indian currency.
• NRO accounts are not exposed to exchange rate risks, particularly if the deposit was made in rupees. However, since NRE uses a foreign currency, it may be exposed to risks at the exchange rate.

NRE vs. NRO Chart

Final Thoughts

NRE vs NRO – who wins here? Both of them have their own benefits and drawbacks – so at this point, you just have to determine exactly which one fits your requirements the most.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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