The Reserve Bank of India (RBI), under the Foreign Exchange Management Act (FEMA), mandates that Non-Resident Indians (NRIs) must operate specific bank accounts—either NRE or NRO—for managing foreign and domestic income. This ensures compliance with currency regulations and appropriate repatriation protocols.
Definitions
Non-Resident External (NRE) Account An NRE account is maintained in Indian Rupees but allows NRIs to deposit foreign income. Funds are converted at prevailing exchange rates.
- Types: Savings, current, fixed deposit, or recurring.
- Deposits: Only foreign-sourced income.
- Repatriation: Full repatriation of principal and interest permitted.
- Taxation: Interest income is exempt from Indian income tax.*
Non-Resident Ordinary (NRO) Account An NRO account is used to manage income earned within India.
- Types: Savings or current account.
- Deposits: Domestic and foreign income.
- Repatriation: Permitted up to USD 1 million per financial year, subject to documentation and tax compliance.
- Taxation: Interest income is taxable and subject to tax deduction at source (TDS) as per applicable rates.*
Key Differences
| Criteria | NRE Account | NRO Account |
| Currency Conversion | Foreign currency converted to INR | Foreign/INR deposits; withdrawals in INR |
| Source of Funds | Only foreign income | Foreign and Indian income |
| Repatriation | Full repatriation of principal and interest | Limited to USD 1 million/year* |
| Joint Holding | With another NRI or close-resident relative | With another NRI or resident Indian |
| Exchange Rate Impact | Subject to currency fluctuation | Lower impact due to domestic usage |
Tax Considerations
- NRE account interest is exempt from income tax in India.*
- NRO account interest is fully taxable and subject to TDS.*
- DTAA relief may be available for NRO accounts upon submission of required documentation (e.g., Tax Residency Certificate, Form 10F, and self-declaration).
Account Opening Process
- Choose a Bank: Must be authorised by the RBI to offer NRE/NRO accounts.
- Submit Application: Available through online or in-branch channels.
- Provide Documents:
- Proof of NRI status (e.g., passport, visa).
- Address proofs (overseas and Indian).
- PAN card or Form 60.
- Passport-sized photographs.
- Initial Funding:
- NRE: Funded through foreign remittance.
- NRO: Funded via domestic income or remittance.
- KYC Compliance: Per RBI norms.
- Account Activation: Subject to bank verification.
Disclosures and Disclaimers
*Interest income exemptions and repatriation limits are subject to current Indian tax laws and RBI regulations. Refer to the official notifications from the Income Tax Department and RBI for up-to-date compliance requirements.
Disclaimer
This document is for informational purposes only and does not constitute legal, tax, or investment advice. Please consult with a qualified professional for personalised guidance.
Sources
- Reserve Bank of India, Master Direction – Deposits and Accounts, July 2023.
- Income Tax Department, Circular No. 2/2021.