NRE vs NRO Bank Account in India for NRI

Purpose

For NRIs to transfer foreign earnings to India.

For NRIs to manage the income earned in India i.e. rent, dividend, pension, sale of property purchased prior to becoming an NRI etc.

Who can open this account?

Any NRI (including PIO, OCI cardholder) can open an NRE account.

Any person resident outside India can open an NRO account. A Power of Attorney is usually given to a close relative in India to allow them to operate the account.

Joint Account?

NRE accounts can be opened by one or two NRIs as joint holders.

NRO accounts can be opened by an NRI along with an Indian resident or another NRI.

Source of Fund

Income earned in foreign countries can be deposited in this account.

Income earned in foreign as well as in India can be deposited in this account.

Deposits

Can deposit in foreign currency.

Can deposit in foreign as well as Indian currency.

Withdrawals

Money can be withdrawn from an NRE account in India as well as abroad. This is called repatriation.

Money can be withdrawn from an NRO account in India as well as abroad but only Indian currency. This is called non-repatriation basis.

Taxability

NRE accounts are exempt from tax. Interest earning is tax-free in India.

Earning is taxable at the rate of 30%. Interest, dividents and capital gains are taxable in India.

Repatriation of Fund

Both the principal and interest amount is freely repatriable.

The principal amount can be repatriable after submitting Form 15 CA and Form 15 CB to ensure that taxes are collected on the funds before they are remitted abroad. You can remit only up to $1 million in a financial year. 100% of the interest earn is repatriable on which TDS has already deducted.

Exchange Rate fluctuations Risk

Yes

No risk if deposit, as well as the withdrawal, is made in Indian Rupee.

Exposure

The account is exposed to the fluctuations in the value of the Indian Rupees for both the principal and interest.

The account holder is exposed to the fluctuations in the value of the Indian Rupee only for the interest component.

Who should open?

If you are an NRI and want to transfer foreign income to India. You could avoid taxation liabilities with NRE account.

If you are an NRI who has earnings in India; i.e. Rental, Stock Dividends, Interest, Pension, etc.

Stock Market Investment

NRE account (with PIS) is required to buy/sell stocks in India.

NRO account (Non-PIS) can also be used to buy/sell stocks in India on non-repatriation basis.

Equity Derivatives Trading

NRE account (with or without PIS) cannot be used for Equity F&O trading in India.

NRO account is required for trading in Equity Derivatives in India.

Mutual Fund Investment

Can use NRE Account for MF investment in India.

Can use NRO Account for MF investment in India. Only the capital appreciation is repatriable, not the principal amount.

IPO

Can apply in IPO using NRE account including PIS or Non-PIS Account. NRIs must furnish their bank details, besides the date of allotment and cost of acquisition of the shares to calculate the tax on any gains they may have made.

Can apply in IPO using NRO account.