Difference Between NRE and NRO Bank Accounts

The most common question an Indian immigrating abroad asks is, “Do I still need to pay taxes in India?”. If you also have this question on your mind or have friends who need an answer to this question, here you go -

There are 2 parts to it –
1. Any income that you earn outside India, like your salary, income from investments, or rentals on properties outside India, is not taxable in India.
2. As an NRI, any funds repatriated from abroad to India, based on the type of bank account, may or may not be taxed in India.

Indians staying outside India for more than 240 days (as per NRI Status Rules 2020) in a calendar year attain the status of an NRI. As an NRI, you can open 2 types of Bank Accounts in Indian banks –
1. Non-Resident External (NRE) Account
2. Non-Resident Ordinary (NRO) Account

Non-Resident External (NRE) Account

Funds Type: Only foreign currency can be transferred to NRE Accounts.
Currency: Funds are stored in Indian Rupee (INR).
Inward Remittance: Domestic money transfer to NRE accounts is not allowed. Only non-INR transfers can be done.
Taxation: Any interest earned (bank interest or fixed deposits) is tax-free in India.
Repatriation: All funds (including interest) are repatriable without any limitation.

Non-Resident Ordinary (NRO) Account

Funds Type: Domestic & foreign currency can be transferred to NRO accounts.
Currency: Funds are stored in Indian Rupee (INR).
Inward Remittance: NRO accounts accept both domestic (INR) & international money transfers.
Taxation: Interest earned (bank interest or fixed deposits) is taxed in India, as per the income tax slab.
Repatriation: Funds can repatriated within the interest and principal limits defined by RBI

One key similarity between NRE and NRO accounts is, that both accounts can be joint accounts between Non-Resident & Resident Indians. The only condition is that the primary account holder must be an NRI.
All major Indian banks have the facility of NRE and NRO accounts, and bank accounts can be opened from abroad as well. Check with the bank on their bank opening process. Few banks have branches/outlets in some of the countries abroad to assist Indian citizens in opening their bank accounts.