Overview
Choosing the wrong bank account can lead to tax issues and blocked funds.
Key Differences
| Feature | NRE (Non-Resident External) | NRO (Non-Resident Ordinary) |
|---|---|---|
| Income Source | Foreign income only | India-sourced income (Rent, Dividends) |
| Taxability | Interest is Tax-Free in India | Interest is Taxable in India |
| Repatriation | Fully allowed (Principal & Interest) | Limited (USD 1M/year with filings) |
| Joint Holding | With other NRIs or Resident (Former/Survivor) | With NRIs or Residents |
When to Use NRE
- Parking salary earned abroad in India
- Sending money for family maintenance
- Investing in Indian mutual funds (repatriable basis)
When to Use NRO
- Receiving rent from Indian property
- Receiving dividends from Indian shares
- Receiving pension in India
- Managing proceeds from sale of property (initially credited here)
Tax Implications
NRE Account:
- Interest earned is exempt from tax in India.
- Ideal for savings you want to keep in INR but might move back.
NRO Account:
- Interest earned is subject to TDS (typically 30% + surcharge/cess).
- You can claim DTAA benefits to lower this tax if applicable.
Common Mistakes
- Parking Indian income in NRE: It is illegal to deposit INR cash or Indian income directly into an NRE account.
- Not converting resident accounts: Continuing to use a regular savings account after becoming an NRI is a violation of FEMA rules. You must convert to NRO.
- Ignoring NRO TDS: Many NRIs forget to file returns to claim refunds on the high TDS deducted on NRO interest.