NRE vs NRO Account: Which to Use
Every NRI runs into this question within the first few months abroad: your Indian bank asks whether you want an NRE or NRO account, or tells you your existing resident account needs to convert to one. The two look similar on paper. The differences matter a lot once real money starts moving.
This guide explains how the rules generally work and is not tax, legal, or investment advice. Rates, thresholds, and form numbers change with each Union Budget and Finance Act, and your own situation (which country you live in, your visa or citizenship status, how the asset was funded) can change the answer. Confirm your specific case with a chartered accountant or tax advisor before you file anything or move money.
The core distinction
Both are rupee-denominated accounts you can only open once you qualify as a Non-Resident Indian under FEMA. What separates them is the source of the money.
An NRE (Non-Resident External) account holds money you earn outside India, foreign salary, foreign business income, or savings, that you then remit into India. A NRO (Non-Resident Ordinary) account holds money that originates inside India: rent from a property you still own, dividends from Indian shares, a pension from a former Indian employer, or interest on Indian fixed deposits.
Banks generally require this routing to be followed, even though RBI rules technically allow current India income to be credited to an NRE account if the bank certifies it as genuine current income with tax already accounted for. In practice, that exception is rarely used. If the money came from something in India, it goes into NRO. If it came from your paycheck abroad, it goes into NRE.
| NRE account | NRO account | |
|---|---|---|
| Money in | Foreign income remitted from abroad | India-sourced income: rent, dividends, pension, capital gains |
| Repatriation | Fully and freely repatriable, no RBI ceiling | Capped at USD 1 million per financial year, with paperwork (see below) |
| Interest tax (India) | Exempt from Indian income tax | Taxable, with TDS deducted at source (roughly 31%–39%+) |
| Joint holder | Only a resident close relative, operated by them as power of attorney | Any resident, on a former-or-survivor basis |
Which account for which situation
- Sending your foreign salary or savings to India: NRE. You keep full repatriation rights and the interest is tax-free in India.
- Receiving rent from a property you kept in India: NRO. It's India-sourced income and falls under the capped, taxable route.
- Receiving a pension from a former Indian employer or the government: NRO, since the source of the payment is in India.
- Interest or dividends from Indian mutual funds, stocks, or fixed deposits: NRO.
- A foreign pension paid into an Indian account: NRE, since the source is foreign.
The TDS on NRO interest, in practice
NRO interest gets taxed at source before it ever reaches you. The base rate is 30%, and surcharge is added on top depending on your total income for the year, plus a 4% health and education cess. In practice that works out to roughly 31.2% at lower income levels, climbing toward 39% or higher at high income levels. There's no basic exemption slab for this withholding the way there is for resident taxpayers.
This rate can be reduced if India has a tax treaty (a DTAA) with your country of residence and you complete the paperwork to claim it: a Tax Residency Certificate from your country of residence, plus a self-declaration form filed with India's Income Tax Department. See DTAA Explained for exactly how that process works.
A 2026 update worth knowing
India's Income-tax Act, 2025 took effect on 1 April 2026, replacing the old 1961 Act and renumbering most of its sections. The NRE interest exemption continues under the new law. If you see an older article citing "Section 10" for the NRE exemption or "Section 195" for NRI TDS, that's the pre-April-2026 numbering. It's not wrong history, just outdated terminology for anything you're filing now.
Frequently asked questions
Can I have both an NRE and an NRO account?
Yes, and most NRIs end up with both. NRE for money you earn abroad and want to move freely, NRO for money that originates in India, like rent or a pension.
Do I have to convert my old resident savings account?
Yes. Once your residential status changes to non-resident under FEMA, RBI rules require converting an existing resident savings account to an NRO account, or closing it. Keeping a resident account open after becoming an NRI is a compliance issue, even if the bank does not immediately flag it.
Is NRE interest really completely tax-free?
Yes, in India. Interest earned on an NRE savings or fixed deposit account is exempt from Indian income tax. It may still be taxable in your country of residence, since most countries tax their tax residents on worldwide income, so check how your resident country treats it.
What TDS rate applies to NRO interest?
The base rate is 30%, plus surcharge (which depends on your total income level) and a 4% health and education cess, working out to roughly 31% to 39% or higher in practice. A DTAA claim can reduce this if your country of residence has a tax treaty with India.