What is difference between NRI and NRE accounts in India?

This is one of the frequently asked questions from NRIs, main from those who have not yet opened any saving account in India. NRIs (Non-Resident Indians) can open different types of bank accounts in India e.g. NRE (Non Resident External), NRO (Non Resident Ordinary), FCNR (Foreign Currency Non-resident), or RFC (Resident Foreign currency). All of them are casually called NRI accounts because only NRIs can open them.

So the main difference between NRI and NRE accounts is that formerly refers to all kinds of bank accounts which can be opened by NRIs, including saving and fixed deposits, but NRE is a special type of NRI bank account which has some restriction on what kind of money you can deposit (foreign currency or money transferred from another NRE account) but also have a preferential benefit on income tax as interest earned on NRE accounts are tax-free in India. 

In the past, I have shared many articles on different types of NRI accounts and I strongly suggest any NRI read those to learn more about different features, and the pros and cons of different NRI accounts. Here, I'll list down the key points related to each of those four types of NRI bank accounts mentioned at the start of this article i.e. NRE, NRO, FCNR, and RFC

NRE (Non Resident External) Account

This is a bank account that allows you to keep your overseas income on Indian currency i.e. INR. You can open NRE savings, current, or fixed deposits. A key feature of the NRE bank account is that you can only deposit freely tradable foreign currency into this account e.g. you can remit money to fund your NRE account, or you can use a traveler's cheque while visiting India, or you can transfer Indian currency from another NRE account. The bottom line is the source of the fund must be abroad. 

One of the main reasons why many NRIs open NRE saving accounts or NRE fixed deposits is the tax benefit, interest earned on both NRE saving and fixed deposit is completely tax-free in India. 

They are not even added to your taxable income, so it doesn't matter if you are earning more than 2.5 lakhs as interest on an NRE account, which is more than the basic exemption limit of income tax in India. 

Another key benefit of opening an NRE saving account or fixed deposit is that both principal and interest are freely repatriable. You don't need to take any permission before sending money from an NRE account overseas. Other NRI accounts like NRO has both limit and approval process before sending money overseas. 

NRO (Non Resident Ordinary) Account

Allows to keep money in INR but the added benefit is that source of funds can also be India. You need an NRO account if you have income generated in India e.g. rental income from flats or properties, royalty, or services offered in India. 

It doesn't have the same tax benefits enjoyed by the NRE account as interest is taxable at a higher rate of 30.3% but you can ask for a lower rate by exercising the DTAA option. 

DTAA stands for Double Tax Avoidance Agreement and if the foreign country you are currently leaving and earning has signed the DTAA treaty with India then you don't need to pay tax in both countries. 

You can even claim tax rebates if the tax is already paid in a foreign country. See this article to learn more bout how to use DTAA to avoid paying a higher tax on NRO fixed deposits.

FCNR (Foreign Currency Non Resident) Account

The FCNR account allows you to keep your fund in foreign currency to avoid foreign exchange risk but at the same time enjoy higher interest rates compared to local foreign banks. You can only open an FCNR account as a fixed deposit and different bank offer FCNR deposit on different foreign currencies. 

Almost all banks allow FCNR deposit in USD but there are few banks e..g Axis bank that allows you to open an FCNR deposit with SGD or HKD. 

The major advantages of the FCNR account are less risk and more interest rate. You don't need to pay any currency conversion charges as well, which is always applied when you remit money to India for depositing on NRE accounts and then send it back overseas by converting INR to USD or other foreign currency. 



Here is also a nice table to compare various features of different types of NRE accounts e.g. NRE, NRO, and FCNR accounts.

RFC (Resident Foreign Currency Account)

This is an NRI account for returning NRI, who can park their foreign currency fund into this account. When they become NRI again they can remit this fund back overseas. They can also use the fund in this account to support their childer's education overseas. See this article to learn more about the RFC account.


That's all about the difference between NRI and NRE accounts. You can see that Indian banks allow NRIs to open different types of NRI accounts e.g. NRE, NRO, FCNR, and RFC for their different needs. Each account has its own benefits and purpose and you should open depending upon your need.

Other NRI Banking Articles you may like

• NRE, NRO, or FCNR? Which is the right account for NRIs?
• Is NRO Account Taxable in India?
• How to appoint a mandate holder in NRE Account?
• What happens to the NRE account when you return to India?
• Is it mandatory to open NRI accounts?
• Can you break FCNR Fixed deposit before maturity?
• Can you repatriate money from the NRO account overseas?

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