In short: The NRE vs NRO account choice comes down to where your money is earned. Your overseas income goes into an NRE account (tax-free, fully repatriable), while Indian-source income — rent, pension, dividends — must go into an NRO account. Most NRIs need both.
Key points
- Under FEMA, once you become an NRI, you must convert your existing resident savings or current account to an NRO account. Continuing to hold a standard resident account as a non-resident is illegal under FEMA.
- NRE account interest is generally exempt from tax in India, and both the principal and interest are fully and freely repatriable — there is no upper limit on repatriation from an NRE account.
- NRO account interest is taxable in India. TDS is deducted at 30% plus applicable surcharge and cess, though this can be reduced to 10–15% under a Double Taxation Avoidance Agreement (DTAA) if your country of residence has one with India.
- NRO account repatriation is capped at USD 1 million per financial year, subject to FEMA conditions and applicable RBI directions. Transfers from NRO to NRE also fall within this limit.
- India has DTAA arrangements with more than 90 countries, including the USA, UK, Canada, UAE, and Australia, allowing eligible NRIs to claim lower TDS rates on NRO interest.
- A person is treated as an NRI under FEMA if they stay outside India for more than 182 days in a financial year.
What is FEMA and why does it govern your bank account?
The Foreign Exchange Management Act (FEMA) is the central law regulating how money flows in and out of India for non-residents. When you become an NRI, FEMA determines what types of bank accounts you can legally hold and how you can move funds across borders.
FEMA defines an NRI as a person resident outside India who is a citizen of India. Separately, for FEMA purposes, a person is treated as an NRI if they stay outside India for more than 182 days in a financial year.
The Reserve Bank of India (RBI) issues detailed directions under FEMA. Your bank is required to follow those directions, which is why compliance is not optional — for you or the bank.
What happens to your existing savings account when you become an NRI?
This is the step most people miss. The moment you acquire NRI status, you must convert your resident savings or current account to an NRO account. You cannot simply leave it as it is.
Continuing to operate a standard resident savings account after becoming a non-resident is a violation of FEMA. If you are in this situation, speak to your bank promptly and get it converted. For related guidance on regulatory compliance as an NRI, see our Law for You guides on FEMA obligations and asset management.
NRO account: for income earned in India
Who should open one?
The NRO account is designed for NRIs, PIOs, and OCIs who receive income from Indian sources. If you earn rent from a property in India, receive a pension, collect dividends from Indian shares, or receive gifts or proceeds from selling immovable property in India, those funds must go into an NRO account.
Joint holding
An NRO account can be held jointly with a resident Indian or with another NRI or PIO. You are also permitted to hold multiple NRO accounts across different banks.
Repatriation limit
You can remit funds abroad from your NRO account up to USD 1 million per financial year, subject to applicable FEMA regulations, RBI directions, and conditions in force at the time. This limit also covers any transfers you make from your NRO account to your NRE account.
Tax treatment
Interest earned on an NRO account is taxable in India. Your bank will deduct TDS at 30% plus applicable surcharge and cess, regardless of how much interest is credited during the year. However, if your country of residence has a DTAA with India, you may be eligible to have TDS deducted at the reduced treaty rate of 10–15% instead. You need to submit the required documents to your bank to claim this benefit.
NRE account: for income earned abroad
Who should open one?
The NRE account is for parking your overseas earnings — salary earned abroad, foreign business income, or returns on foreign investments — in Indian rupees. Only foreign-source income can be deposited into an NRE account.
Joint holding
An NRE account can be held jointly only with another NRI or PIO. A resident Indian cannot be a joint holder of an NRE account, because all account holders must maintain non-resident status.
Tax and repatriation
Interest on an NRE account is generally exempt from tax in India. Both the principal and the interest are fully and freely repatriable — you can transfer them abroad without being subject to the USD 1 million cap that applies to NRO accounts.
NRE vs NRO account: side-by-side comparison
| Feature | NRE Account | NRO Account |
|---|---|---|
| Purpose | Park foreign-source income in India | Manage Indian-source income |
| Currency | Indian Rupees (funded from foreign currency) | Indian Rupees |
| Deposits allowed | Foreign-source income only | Indian-source income (rent, pension, dividends, etc.) |
| Joint holding | Only with another NRI or PIO | With a resident Indian or another NRI/PIO |
| Repatriation | Fully and freely repatriable (no cap) | Up to USD 1 million per financial year |
| Interest taxation | Generally exempt from tax in India | Taxable; TDS at 30% + surcharge & cess (or lower DTAA rate) |
| Mandatory conversion | No — opened voluntarily | Yes — your resident account must be converted on becoming an NRI |
What is DTAA and how does it help you?
A Double Taxation Avoidance Agreement is a treaty between two countries that prevents you from being taxed twice on the same income — once in India and once in your country of residence.
India has DTAA arrangements with more than 90 countries, including the USA, UK, Canada, UAE, and Australia. If your country is on the list, your bank can deduct TDS on NRO interest at the reduced treaty rate of 10–15% instead of the standard 30% plus surcharge and cess.
To claim this benefit, you typically need to submit documents such as your Tax Residency Certificate and other forms your bank requires. Check with your bank for the exact documents needed, as requirements can vary.
Do you need both accounts?
In most cases, yes. If you have any income from India — rent, pension, dividends, or property sale proceeds — you need an NRO account to receive it legally. If you also want to bring your overseas earnings to India (to invest, support family, or save in rupees), an NRE account gives you the tax and repatriation advantages to do so efficiently.
Having both accounts also gives you flexibility. You can transfer funds from your NRO account to your NRE account, though that transfer counts against your USD 1 million annual repatriation limit from the NRO side.
Frequently asked questions
Can I keep my existing savings account after becoming an NRI?
No. Under FEMA, it is illegal for a non-resident to continue holding a standard resident savings account. Once you acquire NRI status, you must convert your existing account to an NRO account. Contact your bank as soon as your status changes to avoid a FEMA violation.
Is the interest on my NRE account taxable in India?
Generally, no. Interest earned on an NRE account is exempt from tax in India, and both the principal and interest are fully and freely repatriable. However, tax rules can change and your specific circumstances matter, so it is worth confirming the current position with a qualified tax adviser.
How much can I repatriate from my NRO account each year?
Under FEMA, NRIs can remit up to USD 1 million per financial year from their NRO account, subject to applicable FEMA regulations and RBI directions in force at the time. Any transfers from your NRO account to your NRE account also count toward this limit.
This article is for general information only and is not legal advice. Laws change; verify against the primary sources cited and consult a qualified advocate for your situation.
