NRE vs NRO Account: A Detailed Comparison of Two Essential Bank Accounts for NRIs

17^th Jul 2025...

As an NRI, managing income earned both in India and abroad becomes easier with the right banking solution. That's where NRE and NRO accounts come in, each designed to serve a specific purpose. Choosing the right account depends on where your income comes from and how you plan to use it.

In this article, we'll explain what an NRE and NRO account mean, how they differ, the benefits they offer, and the tax rules that apply. This will help you decide which account fits your financial priorities better.

What is an NRE Account?

NRE Full Form: Non-Resident External Account

An NRE (Non-Resident External) account is specifically designed for Non-Resident Indians (NRIs) to manage their foreign income in India. It enables the seamless transfer of earnings from abroad, with the deposited funds maintained in Indian Rupees (INR). This account allows both the principal and interest to be transferred back to the account holder's overseas bank account without any restrictions.

Also read: NRI Account Meaning

What is an NRO Account?

NRO Full Form: Non-Resident Ordinary Account

An NRO (Non-Resident Ordinary) account is designed for NRIs to manage income earned in India, such as rent, dividends, pensions, or business profits. The account holds funds in Indian Rupees and can also receive income from foreign sources if needed. While it offers a convenient way to manage Indian earnings from abroad, repatriating funds from an NRO account is subject to certain limits and tax regulations, unlike an NRE account.

Difference between NRE and NRO Account

When deciding between an NRE or NRO account, understanding the difference between NRE and NRO accounts is essential. Here's a breakdown:

Feature	NRE Account	NRO Account
Full Form	Non-Resident External Account	Non-Resident Ordinary Account
Currency of Balance	Indian Rupees (INR)	Indian Rupees (INR)
Purpose	To manage foreign income in India	To manage income earned in India
Reparability	Fully repatriable to the overseas account	Partially repatriable with restrictions
Tax Benefits	Tax-free interest in India	Interest subject to tax in India
Tax on Income	Tax-free in India (subject to tax in foreign country)	Taxable in India at applicable rates
Joint Account	Can be held jointly with another NRI only	Can be held jointly with both NRI and Resident Indians
Deposits	Only foreign income can be deposited	Both foreign and Indian income can be deposited
Interest Rates	Higher interest rates	Standard interest rates offered

What are the benefits of NRE account?

The NRE account benefits include features that make it easier for NRIs to manage foreign income and maintain financial flexibility while staying connected to India.

Tax-Free Interest
One of the most attractive benefits of an NRE account is that the interest earned is exempt from tax in India.
Reparability
The principal and interest in the NRE account can be freely repatriated abroad without any restrictions.
Currency Flexibility
The NRE account can hold foreign currency, making it easier for NRIs to transfer their funds to India without losing out on exchange rates.
Easy Management
NRIs can easily stay in control of their finances from anywhere in the world, with internet banking providing quick and convenient access to their NRE account balance.
Security
Since NRE accounts are held in India, the deposits are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC), offering safety to your money.

What are the benefits of a NRO Account?

The NRO account benefits include a convenient way for NRIs to handle income earned in India, along with access to essential banking services while living abroad.

Managing Indian Income
NRO accounts allow NRIs to manage their income from India, like rent or dividends, efficiently and securely.
Dual Deposits
NRIs can deposit both foreign and Indian income into the NRO account.
Local Transactions
It is easier to deal with local transactions, especially payments and investments in India, through an NRO account.
Ease of Access
NRO accounts allow both online and offline banking facilities which makes it easier for NRIs to manage their Indian income.

NRE Account tax rules explained

The NRE account tax is one of the key features that differentiate it from the NRO account. Here's a breakdown:

Interest Exempt from Tax: The interest earned on an NRE account is tax-free in India.
No Wealth Tax: Funds held in NRE accounts are not subject to wealth tax in India.
Tax Residency: However, the taxability of the interest may depend on the NRI's country of residence and its tax treaties with India.

How NRO Accounts are taxed in India

The NRO account tax is subject to the following conditions:

Interest is Taxable: The interest earned on an NRO account is taxable in India at a rate of 30% (plus applicable cess and surcharge).
Tax Deducted at Source (TDS): Tax is deducted at source (TDS) on interest earned in NRO accounts. However, NRIs can claim tax relief under India’s Double Taxation Avoidance Agreement (DTAA).
Repatriation Tax: When repatriating funds from NRO accounts, there are tax implications, including a 30% tax on the principal and interest.

Which account should you choose: NRE or NRO?

The decision to choose between an NRE vs NRO account depends largely on your financial requirements and source of income.

Choose NRE Account if you want to repatriate funds freely, benefit from tax-free interest in India, and have income earned abroad.
Choose NRO Account if you need to manage income generated in India, and you’re comfortable with some restrictions on repatriating the funds.

Both accounts offer unique benefits depending on your needs, but it's important to understand the tax implications of NRE and NRO accounts to make an informed decision.

Conclusion

Choosing between an NRE and NRO account ultimately depends on the kind of income you’re managing and what you need from your banking relationship in India. While both accounts serve different purposes, understanding their features especially around taxation and repatriation can help you make the right call. With the right account in place, managing your finances from abroad becomes simpler, more secure, and aligned with your long-term goals.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.