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Difference between NRE and NRO Account

What is an NRE Account ?

An NRE or Non-Resident External account is used to keep money earned in foreign currency in rupee denomination. The money deposited in an NRE account is converted into Indian currency at the time of deposit. These accounts can be in the form of savings, current, recurring, or fixed deposits.

NRE account is primarily used for carrying out business, personal banking and making investments in India. The person who holds the account is free to repatriate funds from foreign countries into India and from India to other countries.

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What is an NRO Account ?

The Non-Resident Ordinary account or the NRO account is used to manage the income earned in India like dividends, rental income, pension, etc.

Account-holders can deposit and manage their accumulated rupee funds without any hassle. Funds deposited into a NRO account can only be kept in rupees and cannot be converted into foreign currency or repatriated. Although money cannot be sent outside India or converted into  foreign currency from an NRO account, the account owner can send money into this account from a foreign country.

DIFFERENCE B/W NRE ACCOUNT & NRO ACCOUNT

BASIS NRE ACCOUNT NRO ACCOUNT
Repatriability Funds are completely and freely repatriable

 

Repatriability is subject to taxes and only $1 Million in a financial year is allowed.
Taxation Both principal and interest are exempted from tax. Interest paid to an NRI will be taxed at 30% excluding surcharges.
Fund Transfer Funds can be transferred  from an NRE account to another NRE account as well as NRO account. Funds from an NRO account cannot be transferred to an NRE account.
Joint Holding NRE account can be jointly held with another NRI but not with resident Indian. NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.
Deposit rules Indian income cannot be deposited here Overseas income cannot be deposited
Currency fluctuations The deposits in an NRE account are exposed to exchange rate fluctuations as well as conversion loss.

 

NRO account deposits are not exposed to daily currency fluctuations.

 

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Thus, both the NRE and NRO accounts serve different purposes. If the source of income is in India,  NRO account should be opted as an NRE account will not serve this purpose. But if you just want to convert a part of foreign earnings into savings denominated in the Indian currency, the NRE account would be an ideal choice.

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