For NRIs managing money in India, the choice between NRE and NRO accounts isn't just paperwork — it has real consequences for taxation and how easily you can move money out of India.
NRE (Non-Resident External) accounts
Designed for your foreign earnings — money you earn outside India and want to hold or invest in rupees. Both principal and interest are fully repatriable (freely transferable back abroad), and interest earned is completely exempt from Indian income tax under Section 10(4). This makes NRE the natural choice for parking foreign salary or savings you want to eventually move back to your country of residence.
NRO (Non-Resident Ordinary) accounts
Designed for income earned within India — rental income, dividends, pension, or any India-sourced earnings. Repatriation is allowed but capped (currently up to USD 1 million per financial year, subject to conditions and documentation), and interest is taxable in India, with TDS deducted at 30% (plus applicable surcharge and cess) at source.
Can DTAA reduce the NRO TDS rate?
Yes — if India has a Double Taxation Avoidance Agreement with your country of residence, you may be eligible for a reduced TDS rate on NRO interest, but this requires submitting a Tax Residency Certificate and other documentation to your bank rather than happening automatically.
A common mistake: using the wrong account for the wrong money
Depositing India-sourced income (like rent from a property you own in India) into an NRE account is not correct — that income should go into an NRO account, since NRE is specifically meant for foreign earnings. Banks and regulations expect this distinction to be maintained accurately, not treated as interchangeable.
Don't forget currency conversion when moving money
When converting foreign earnings to rupees for an NRE deposit, or estimating what a rupee amount is worth back in your home currency, exchange rates fluctuate daily and meaningfully affect your actual returns in your home currency terms.