NRE vs NRO account explained: what money goes where, tax on interest, repatriation limits and why most NRIs end up holding both. Plain English, no jargon.
NRE vs NRO comes down to one question: where did the money come from? An [NRE account](/blog/nre-account-taxation-what-nris-need-to-know-about-foreign-salary-income) is for money you earned abroad and want to keep freely movable, and its interest is tax-free in India. An NRO account is for money you earn in India, such as rent, dividends or a pension, and its interest is taxed. Most NRIs end up needing both.
This article is general information, not financial or tax advice. For decisions about your own money, speak to a qualified adviser who knows both Indian rules and the rules in your country of residence.
## What do NRE and NRO actually stand for?
Both are rupee savings or deposit accounts that Indian banks offer to people who live outside India, under rules set by the [Reserve Bank of India](https://www.rbi.org.in/) under the [Foreign Exchange Management Act](https://en.wikipedia.org/wiki/Foreign_Exchange_Management_Act) (FEMA).
- **NRE** means Non-Resident External. Think "external money coming in".
- **NRO** means Non-Resident Ordinary. Think "ordinary Indian income staying here".
You can hold either as a savings account, a current account or a fixed deposit. Both hold Indian rupees, so both carry exchange rate risk if you later convert the money back.
## NRE vs NRO at a glance
| Feature | NRE account | NRO account |
|---|---|---|
| Money you can deposit | Foreign earnings sent from abroad, or transfers from another NRE or FCNR account | Foreign remittances plus income earned in India (rent, dividends, pension, sale proceeds) |
| Repatriation (moving money back abroad) | Fully repatriable, principal and interest | Interest freely repatriable; principal subject to an annual limit and paperwork |
| Tax on interest in India | Exempt, while you qualify as non-resident | Taxable, with tax deducted at source |
| Joint holders | Other NRIs; a resident close relative is allowed on a "former or survivor" basis | NRIs and residents |
| Best for | Parking overseas savings in India | Managing money that arises in India |
## How does an NRE account work?
You fund an NRE account by sending money from your overseas bank account or by moving money from another NRE account. You cannot deposit Indian income into it. Rent from your flat in Pune or a dividend from an Indian company does not belong here.
The big attractions are simple:
1. **Full repatriation.** You can move the balance and the interest back abroad at any time, with no annual cap.
2. **Tax-free interest in India.** Interest on an NRE account is exempt from Indian income tax, provided you are a non-resident under the Income Tax Act. Your country of residence may still tax it, so check local rules.
3. **Easy to use for India spending.** You can pay Indian bills, fund investments or send money to family from it.
One catch to watch: residency for FEMA and residency for income tax are tested differently. If you move back to India, you must tell your bank, and the tax-free status of NRE interest can change. A tax adviser can explain how this applies in your year of return.
## How does an NRO account work?
An NRO account is the home for anything you earn in India after you move abroad. If you rent out a property, receive dividends, draw an Indian pension or sell an asset, the money goes here. You can also send money from abroad into an NRO account if you like.
Two features matter most:
- **Interest is taxable.** Banks deduct tax at source on NRO interest. The rate for non-residents is higher than for residents, and surcharge and cess apply on top. If India has a tax treaty (a Double Taxation Avoidance Agreement, or DTAA) with your country of residence, you may be able to claim a lower rate by giving your bank a Tax Residency Certificate and the required forms. Check current rates and forms on the official [Income Tax Department portal](https://www.incometax.gov.in/).
- **Repatriation has a limit.** You can move money from an NRO account abroad, but the principal is subject to an annual cap. As of 2024, RBI rules allowed up to USD 1 million per financial year (April to March) from NRO balances, including the proceeds of selling assets, once tax is paid. Banks usually ask for Forms 15CA and 15CB (a chartered accountant's certificate) before sending the money. Confirm the current limit with your bank or the RBI before you plan a large transfer.
## Do I legally need an NRO account?
In many cases, yes. When you become a non-resident under FEMA, your existing resident savings accounts should be redesignated as NRO accounts. Banks expect you to tell them when your status changes. Keeping a resident account as though nothing happened is a common mistake, and banks can freeze or restrict accounts when they spot it.
So the typical path looks like this:
1. Your old resident savings account becomes an NRO account.
2. You open a fresh NRE account for money you send from abroad.
3. Indian income keeps flowing into the NRO account; overseas savings go to the NRE account.
## Which one should you choose?
Use this quick check:
- **You only send overseas savings to India and want them back later?** An NRE account is the natural fit.
- **You have rent, dividends, a pension or other Indian income?** You need an NRO account for that income.
- **You plan to sell property in India?** The sale proceeds go to an NRO account first, and repatriation follows the annual limit and paperwork.
- **You want to avoid rupee exchange risk on savings?** Ask your bank about an FCNR(B) deposit, which holds money in a foreign currency such as US dollars or pounds instead of rupees.
- **You want a parent in India to help manage things?** An NRO account allows a resident joint holder with full access. An NRE account allows a resident close relative only on a "former or survivor" basis.
Many people run both side by side. Money can move from NRE to NRO freely. Moving from NRO to NRE is allowed within the repatriation limit, after tax, and with the same paperwork as sending it abroad.
Learning how Indian money rules work often leads to wider curiosity about how India itself works, from the RBI to the Constitution. If you enjoy testing that kind of knowledge, the [Bharat Ko Janiye Quiz](https://bkjquiz.com/?utm_source=dgamaf53&utm_medium=paid_search&utm_id=d53) is the official quiz of India's Ministry of External Affairs. It is free to join and open to everyone worldwide.
## Common mistakes NRIs make
- **Depositing Indian rent into an NRE account.** This breaks the rules. Indian income belongs in NRO.
- **Forgetting to update residency status.** Tell every bank, broker and fund house in India when you move abroad, and again if you return.
- **Ignoring tax at home.** India may exempt NRE interest, but the US, UK, Canada and many other countries tax their residents on worldwide income. Report it where required.
- **Not claiming treaty benefits.** If your NRO interest is being taxed at the full non-resident rate, a DTAA claim may lower it.
- **Losing track of TDS certificates.** Download Form 16A from your bank each year. You will need it to file an Indian return or claim a refund.
## Next steps
Once you know which account suits you, the next questions are usually how to get money into India cheaply and what you can invest in once it is there. Our guide to the [cheapest way to send money to India](/blog/cheapest-way-to-send-money-to-india) explains how to compare fees and exchange rates. If you hold an OCI card, read [whether OCI holders can invest in India](/blog/can-oci-holders-invest-in-india) to see how these accounts connect to property, shares and [mutual funds](/blog/swp-for-retirement-how-to-generate-16-000-monthly-income).
Before you open anything, compare two or three banks on the details that matter to you: online access from abroad, the documents they need (usually passport, visa or residence proof, overseas address proof and PAN), minimum balance rules and how quickly they process repatriation requests.
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