The one-line difference

NRE holds money you earned outside India. NRO holds money you earn inside India.

Both are rupee accounts. The source of the money is what separates them, and that source decides how they behave.

How they differ in practice

  • Repatriation. NRE money moves out freely. NRO money is capped at US $1 million per financial year, with documentation.
  • Indian tax on interest. NRE interest is exempt. NRO interest is taxable, and tax is deducted at source.
  • What goes in. NRE takes foreign earnings. NRO takes Indian rent, dividends, pension and proceeds from assets you already held.
  • Joint holding. An NRE account can generally be held jointly with another non-resident. NRO is more flexible on resident joint holders.

Which one should your investments run through?

This is the part that actually matters, and it follows from the route you choose rather than from the account.

Investing on a repatriable basis means the money comes from abroad or from your NRE account, and the proceeds can go back out. Investing on a non-repatriable basis runs through NRO, and the investment is treated as domestic money.

Decide this before you invest. Changing route afterwards usually means selling and re-buying, with the tax and cost that follows.

A trap for people who file taxes abroad

NRE interest being exempt in India does not make it tax-free.

If you are tax resident somewhere that taxes worldwide income, the UK for example, that interest is fully taxable there. And because no Indian tax was paid, there is usually no foreign tax credit to claim against it.

So the Indian exemption benefits your other country's revenue, not you. Worth knowing before you park a large balance there.

What about FCNR?

A third account type worth knowing. FCNR is a term deposit held in foreign currency rather than rupees, so you carry no rupee exchange risk on it. The interest is exempt from Indian tax, like NRE.

It suits money you know you will need in dollars, pounds or dirhams rather than rupees.