The difference between NRE and NRO accounts comes down to where the money was earned and what you can do with it. An NRE (Non-Resident External) account holds income you earned abroad, pays interest that is tax-free in India, and lets you send the full balance back out of the country whenever you want. An NRO (Non-Resident Ordinary) account holds income that arises inside India — rent, dividends, pension, Indian investment returns — has interest taxed at roughly 31% withheld at source, and caps how much capital you can repatriate at $1 million per financial year. Both are governed by the Foreign Exchange Management Act, 1999 (FEMA) and Reserve Bank of India regulations.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account If you have money on both sides of the border, you will usually need one of each.
The Short Comparison
NRE is the account for money coming into India from outside. NRO is the account for money already earning inside India. NRE interest is not taxed in India; NRO interest is. NRE balances move out of India freely; NRO balances move out under a yearly cap and with tax paperwork attached. Joint holding rules also differ, and so does what happens if you later return to India for good.
Both account types are offered as savings accounts, current accounts, fixed deposits, and recurring deposits. The tax and repatriation rules below apply to the account type, not the format.
What Each Account Is Allowed to Hold
An NRE account accepts only funds remitted from outside India in a foreign currency. The bank converts the deposit into Indian Rupees at the prevailing rate when it lands. Permitted credits include overseas salary, business income, investment proceeds from your country of residence, and transfers from other NRE or FCNR(B) accounts.2Reserve Bank of India. Accounts in India by Non-residents You cannot deposit Indian-source income into an NRE account.
NRO accounts are the mirror image. Rental payments from Indian property, dividends from domestic stocks, pension from a former Indian employer, and interest from Indian investments all belong here. FEMA requires income accruing or arising in India to flow into an NRO account. Mixing the two invites regulatory scrutiny, and it undoes the tax-free character of the NRE balance.
How the Two Are Taxed in India
Interest earned on NRE balances is exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act, 1961. The bank withholds nothing. This exemption covers both savings interest and fixed deposit interest, and it holds only as long as you retain NRI status; the day you become a resident again, the exemption ends.
NRO interest is treated as Indian-source income and is subject to Tax Deducted at Source. The base rate is 30%, and after the 4% Health and Education Cess the effective withholding comes to roughly 31.2%. High total income can push the rate higher through surcharges.
India’s Double Taxation Avoidance Agreements can reduce that withholding. If India has a treaty with your country of residence, you may claim a lower rate by giving the bank a Tax Residency Certificate from your home country before the interest is credited. Many treaties bring the rate on interest down to around 15%. The benefit is not automatic; the certificate has to be on file.
Repatriation: What You Can Send Back Out
This is where the two accounts diverge most sharply, and where the wrong choice can leave your money stuck.
NRE Balances Move Freely
Both the principal and the interest in an NRE account can be converted to foreign currency and sent abroad at any time, with no cap and no prior RBI approval.2Reserve Bank of India. Accounts in India by Non-residents If you might need the money outside India on short notice, this is the account that gets you there.
NRO Repatriation Is Capped and Documented
NRO outflows work differently depending on whether the money is current income or capital. Current income such as rent, dividends, pension, and interest can be remitted abroad without a dollar cap, provided applicable Indian taxes have been paid.3Reserve Bank of India. Master Circular on Remittance Facilities for Non-Resident Indians / Persons of Indian Origin / Foreign Nationals Capital funds — proceeds from selling property, maturing investments, inheritances, and similar asset liquidations — are subject to a limit of $1 million per financial year.
Every outward remittance from an NRO account also needs tax compliance paperwork. Form 15CA is your online declaration to the Income Tax Department confirming that applicable taxes have been deducted or paid. Form 15CB is a certificate from a Chartered Accountant verifying the nature of the payment and the tax treatment. Without them, the bank will not release the transfer.
Moving Money From NRO to NRE
You can transfer funds from an NRO account into an NRE account, but the same limits and paperwork carry over. Current income transfers have no dollar cap. Capital transfers count against the $1 million annual ceiling. You still need Form 15CA, and for transfers exceeding ₹5 lakh in a financial year you also need Form 15CB. Once the money reaches the NRE account, it is freely repatriable from that point forward.
U.S. Reporting If You Live in the United States
NRE interest is tax-free in India. It is not tax-free in the United States. Federal law requires U.S. citizens and resident aliens to report worldwide income, which includes interest from Indian accounts.4Internal Revenue Service. Reporting Foreign Income and Filing a Tax Return When Living Abroad NRE interest, NRO interest net of Indian withholding, and any other Indian earnings all belong on your federal return. You can generally claim a foreign tax credit for Indian tax already paid on NRO interest, which prevents double taxation, but the underlying income still has to be reported.
Two separate account-disclosure filings apply on top of income reporting:
- FBAR (FinCEN Form 114) is required if the combined value of all your foreign financial accounts crosses $10,000 at any point during the calendar year. The threshold is an aggregate across every foreign account you hold, not a per-account figure. An NRE savings account at $6,000 plus an NRO fixed deposit at $5,000 puts you over. Filing is electronic, through FinCEN’s BSA E-Filing System.5Financial Crimes Enforcement Network. Report Foreign Bank and Financial Accounts6Financial Crimes Enforcement Network. Reporting Maximum Account Value
- FATCA (Form 8938) is filed with your tax return if your foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any point during it for an unmarried filer. Married couples filing jointly have thresholds of $100,000 and $150,000.7Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
FBAR and FATCA are separate requirements with different thresholds and different filing systems, and you may owe both. Willful FBAR violations carry fines up to the greater of $100,000 or 50% of the account balance per violation, and non-willful violations still carry meaningful penalties.
Joint Holders and Power of Attorney
NRE accounts can be held jointly only with another NRI. A resident Indian family member cannot be added as a joint holder on an NRE account. NRO accounts are more flexible and can be held jointly with other non-residents or with resident Indians.2Reserve Bank of India. Accounts in India by Non-residents Joint NRO accounts commonly run on an “either or survivor” mandate so a resident relative can handle routine transactions like property taxes and household bills.
If you would rather not add a joint holder, you can appoint a Power of Attorney. A PoA holder can make local payments and investments from either account on your behalf, but generally cannot open or close accounts in your name, repatriate funds unless the PoA specifically grants that authority, or raise loans against your deposits. It works well for routine management and stops short of cross-border control.
If You Move Back to India
Both account types are tied to your status as an NRI, so a permanent return changes what you are allowed to hold. FEMA requires redesignation from the date your residential status changes, not at the end of the financial year. An NRE account is either converted to a resident savings account or its balance transferred into a Resident Foreign Currency account, which keeps the funds in foreign currency. An NRO account is redesignated as a regular resident account in the bank’s records. Existing NRE fixed deposits do not need to be broken early, but they should be redesignated, or the proceeds moved to an RFC account at maturity.2Reserve Bank of India. Accounts in India by Non-residents
Delay is expensive. Under Section 13 of FEMA, holding the wrong account type after your status changes can bring a penalty of up to three times the account balance. Where the amount is not easily quantifiable, a flat penalty of ₹2 lakh applies, and continuing violations accrue an additional ₹5,000 per day from the first day of non-compliance.8Indian Kanoon. Section 13 in The Foreign Exchange Management Act, 1999 Banks that spot a mismatch between your residential status and your account type may also freeze the account without warning.