NRE (Non-Resident External Rupee) account is an account maintained in Indian rupee for overseas income whereas, NRI or NRO (Non-Resident Ordinary Rupee) account is an account maintained in Indian rupee primarily used for income earned in India.NRE and NRO Account Both the accounts are intended for NRIs (Non-Resident Indians), and he/she can open an account as savings as well as current accounts. NRI must maintain an average monthly balance of Rs. 75,000 in both the accounts.
NRE and NRO Account
Regardless of similarities between NRE and NRO accounts, they have many differences among them as follows:
Difference Between NRE and NRO Account
- NRIs, whose income comes from outside India primarily use NRE accounts whereas, NRIs, whose income comes from within India primarily use NRO account.
- NRI can repatriate or send money abroad in different currencies in NRE account, but he cannot send money by any other means except as remittance from abroad or transfer from another NRE account. In NRO account, NRI can repatriate funds only for the current income and up to 1 million USD per financial year, for any bonafide purpose out of the balances in the account. However, the interest earned in NRO account is fully repatriable.
- The rate of interest is comparatively lower in NRE account as compared to NRO account. However, the interest rates in NRO account cannot be higher than that offered by them on comparable domestic rupee deposits.
- The balances and interest income earned on NRE fixed deposits are completely tax-free. Even the cash gifts to this account are exempt from tax. However, the interests received from NRO fixed deposits are taxable as per Income Tax Act, 1961 at 30.90%. In case the interest amount exceeds Rs. 10 lakhs, the rate will be 33.99%.
- The limit for term deposit in NRE account is from 1-10 years. No such limit is there in NRO account.
- Two or more NRIs together can open NRE account but he cannot open an account with an Indian Resident. NRI can open NRO account along with an Indian resident ( a close relative) as defined U/S 6 of the Companies Act, 1956.
- NRE account accepts deposits only in foreign currency and allows withdrawals in Indian rupee. NRO account accepts deposits in both foreign currency as well as Indian currency but allows withdrawals only in Indian rupee.
- An account holder can transfer funds from NRE to NRO account. However, he cannot transfer funds from NRO to NRE account as he cannot repatriate funds outside India. RBI has now permitted to transfer from NRO to NRE account subject to the submission of required documents and the total amount of funds transferred to NRE account.
- NRE accounts involve the risk of exchange loss and conversion loss due to the effect of exchange rate fluctuation. NRO accounts do not involve such risks.thies are the difference between NRE and NRO Account and (Non-Resident External Rupee).