NRE vs NRO accounts: Tax, repatriation and income rules explained for NRIs

Financial service allows Indians living abroad to manage foreign earnings and Indian income

Choosing between non-resident external (NRE) and non-resident ordinary (NRO) accounts is an important financial decision for non-resident Indians (NRIs). Both accounts allow NRIs to manage money in India and they differ in purpose, tax treatment and repatriation rules. Here’s a breakdown based on information available on State Bank of India’s (SBI) website.

 

Purpose of the accounts

NRE account: Designed to park overseas income in India. Money is deposited in foreign currency and converted into Indian rupees (INR).

 

NRO account: Primarily used to manage income earned in India such as rent, dividends, or pension. It accepts remittances from abroad.

 

Source of funds

 

According to SBI, NRE accounts can only receive funds from overseas remittances, transfers from other NRE/NRO accounts, or foreign currency deposits. Indian-sourced earnings cannot be deposited.

 

NRO accounts can hold both Indian income and foreign remittances. This makes them suitable for NRIs with financial ties in India.

 

Taxation rules

 

NRE accounts: Interest earned is completely tax-free in India. No tax deducted at source (TDS) applies.

 

NRO accounts: Interest is taxable at 30.9 per cent, though the rate may be lower under Double Taxation Avoidance Agreements (DTAAs) with the NRI’s country of residence. Tax is deducted at the time of credit.

 

Repatriation of funds

 

NRE accounts: Principal and interest are fully repatriable without restrictions. This makes them attractive for NRIs who want easy access to funds abroad.

 

NRO accounts: Funds can be repatriated only up to ~1 million (or equivalent) each financial year, after payment of applicable taxes and subject to documentation. Repatriation means transferring money from your Indian bank account back to your overseas account. It lets NRIs move their savings or income across borders.

 

Both NRE and NRO accounts are maintained in INR. In NRE accounts, foreign currency is converted to INR at the time of deposit. For NRO accounts, domestic deposits remain in INR, while foreign remittances are similarly converted.

 

How to choose

SBI notes that the choice depends largely on the source of income:

 

• Opt for NRE if your earnings are primarily abroad and you want tax-free returns with unrestricted repatriation. 
• Opt for NRO if you continue to earn in India and need to manage local transactions while complying with tax obligations.

 

This report is based on information published on State Bank of India's website as of August 28, 2025.