NRE vs NRO Account: The Tax Gap Banks Do Not Lead With

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They are accurate about what each account is. They are also, all of them, in the business of opening one for you, which shapes where the emphasis lands. This post works from the Reserve Bank's own comparison table and the tax provisions, and gives the most room to the parts that cost you money, which are not the parts that sell an account. It is an explainer and not advice on your own position, which depends on your residential status, your treaty country and your total Indian income, and is a question for a Chartered Accountant.

What is the difference between an NRE and an NRO account?

The split is about where the money was earned, not about who you are. An NRE, or Non-Resident External, account holds income earned outside India and remitted in. An NRO, or Non-Resident Ordinary, account holds income that arises inside India: rent from a flat, dividends, a pension, interest on Indian deposits.

Both are rupee accounts. Both come as savings, current, recurring or fixed deposit. On the surface they look like the same product twice, which is why the choice gets made casually. What separates them is set out in the Reserve Bank's own comparison:

	NRE	NRO
Who can open	NRIs and PIOs	Any person resident outside India
Currency	Indian rupees	Indian rupees
Taxability	Exempt from income tax	Taxable
Repatriability	Repatriable	Not repatriable, except all current income, plus USD 1 million a year

Two of those four rows are the entire practical difference, and both sit on the money and not on the mechanics.

Is an NRE or NRO account tax free?

NRE is exempt. NRO is taxed, and the deduction begins at the first rupee.

The Reserve Bank states it directly: income earned in an NRE account is exempt from income tax, and an NRO account is taxable. What that means in a statement is that NRE interest arrives whole, and NRO interest arrives already cut.

Interest paid to a non-resident attracts TDS at 30% under Section 195, plus a 4% health and education cess, giving 31.2% before any surcharge. Surcharge, where it applies, is worked on total Indian income and not on the interest by itself.

One difference from a resident's experience appears on no bank page. Section 195 has no threshold. A resident earning bank interest sees nothing deducted until interest crosses ₹40,000, or ₹50,000 if they are a senior citizen. A non-resident earning interest in an NRO account sees 31.2% withheld from the first rupee of it. There is no free band at the bottom.

On ₹1,00,000 of NRO interest, that is ₹31,200 withheld before anything reaches you. On the same interest in an NRE account, nothing is withheld, because the income is exempt.

Why can't an NRI use Form 15G or 15H to stop the TDS?

Because those declarations are for residents, and the merger into Form 121 did not change that.

A resident whose total tax for the year will be nil can hand the bank a declaration and stop the deduction before it happens. From 1 April 2026 Forms 15G and 15H merged into a single Form 121 under Section 393(6) of the Income-tax Act 2025. The merger changed the paperwork; it did not open the door to non-residents. The mechanics of the new form, including the age condition that survived the merger, are in our post on Form 121.

So the simple route is closed, and an NRI who thinks 31.2% overstates their real liability has two harder ones.

The first is a certificate for lower or nil deduction, applied for from the assessing officer, which instructs the payer to deduct at a reduced rate or not at all. The second is a treaty rate, where the agreement between India and your country of residence sets a lower rate on interest, claimed with a tax residency certificate.

Both have to be in place before the interest is paid. TDS already deducted is not reversed by the bank. It comes back only by filing an Indian return and claiming a refund, which means your money sits with the government until the return is processed. That timing point is the practical difference between knowing this in advance and finding out afterwards.

How much money can be sent abroad from an NRO account?

All current income, and up to USD 1 million a financial year of everything else.

The Reserve Bank's wording is that NRO balances are "not repatriable except for all current income", and that balances of NRIs and PIOs are "remittable up to USD 1 (one) million per financial year (April-March) along with their other eligible assets".

Two things inside that get flattened elsewhere. Most comparisons summarise the NRO row as simply "not repatriable", which overstates it: current income, meaning rent, dividends, pension and the like, is freely remittable and does not consume the million. And the million is not a bank-account allowance. It is a combined ceiling shared with your other eligible assets, so proceeds from selling a property draw on the same limit in the same year.

An NRE balance carries no equivalent cap. It is repatriable outright, which is the other half of why the account the money lands in matters.

Can these accounts be held jointly?

An NRE account can be held jointly with another NRI or PIO outright, and with a resident relative only on a former or survivor basis.

The Reserve Bank permits joint holding between two or more NRIs or PIOs, and permits an NRI or PIO to hold jointly with a resident relative, taking relative from the Companies Act 2013, on former or survivor terms. That phrase does real work: the resident is not an equal operator during the NRI's lifetime. They may act under a Power of Attorney, and those operations are restricted to withdrawals for permissible local payments or remittance to the account holder themselves.

A Power of Attorney holder cannot, on that authority, send the money to their own account abroad. The general rules on joint holding, and what survivorship means, are in our post on joint bank accounts.

What this post deliberately does not cover

It does not name a best bank, compare interest rates, or list minimum balances, all of which differ by bank and change. It does not cover FCNR accounts in any depth, which are the third option and are held in foreign currency as term deposits only, so they answer a different question about exchange-rate risk. It does not tell you which account your money should go into, because that depends on where the income arose, which is a matter of fact rather than preference.

It does not work out anyone's residential status. The tests are in the Income-tax Act and turn on day counts and circumstances, they changed in the recent past, and getting them wrong changes everything above. It does not cover what happens to these accounts when you return to India permanently, which is its own subject and involves redesignating the account. And it does not interpret any specific double taxation treaty, since the rate on interest differs by country and the claim needs a tax residency certificate.

Those are all questions for a Chartered Accountant who can see your actual position, which is the standing caution on everything tax-related here.

Frequently asked questions

What is the difference between an NRE and an NRO account? Where the money was earned. An NRE, or Non-Resident External, account is for income earned outside India and brought in. An NRO, or Non-Resident Ordinary, account is for income that arises inside India, such as rent from a flat, dividends, a pension or interest on Indian deposits. Both are held in rupees and both can be savings, current, recurring or fixed deposit accounts. The consequences differ sharply. The Reserve Bank's own comparison states that income earned in an NRE account is exempt from income tax while an NRO account is taxable, and that an NRE balance is repatriable while an NRO balance is not, other than current income and a USD 1 million annual facility.

Is an NRE or NRO account tax free? NRE is, NRO is not. The Reserve Bank states plainly that income earned in an NRE account is exempt from income tax, and that an NRO account is taxable. On the NRO side the deduction happens at source: interest paid to a non-resident attracts TDS at 30% under Section 195, plus 4% health and education cess, which is 31.2% before any surcharge. Surcharge applies to your total Indian income rather than to the interest alone. The part people are least prepared for is that Section 195 carries no threshold, so the deduction starts on the first rupee of interest, where a resident would see nothing withheld until interest passed ₹40,000, or ₹50,000 for a senior citizen.

Can an NRI submit Form 15G or 15H to avoid TDS? No. Those declarations are for residents, and that has not changed with the new law. From 1 April 2026 Forms 15G and 15H merged into Form 121 under Section 393(6) of the Income-tax Act 2025, and the eligibility still runs on residence. An NRI who believes the deduction is higher than their actual liability has to take the other route, which is applying to the assessing officer for a certificate authorising deduction at a lower rate or none at all. A treaty between India and the country of residence may also set a lower rate on interest, which is claimed with a tax residency certificate. Both routes need paperwork before the interest is paid, because TDS already deducted comes back only by filing a return.

How much money can be sent abroad from an NRO account? All current income, plus up to USD 1 million a financial year of the rest. The Reserve Bank's position is that an NRO balance is not repatriable except for all current income, and that balances of NRIs and PIOs are remittable up to USD 1 million per financial year, running April to March, along with their other eligible assets. Two details inside that are easy to miss. Current income, meaning things like rent, dividends and pension, is not squeezed into the million, and the million is a combined ceiling that other eligible assets such as sale proceeds also draw on. An NRE balance carries no equivalent cap, because it is repatriable outright.

Can an NRE account be held jointly with a resident? Yes, but only on a former or survivor basis. The Reserve Bank permits an NRE account to be held jointly by two or more NRIs or PIOs, and permits an NRI or PIO to hold one jointly with a resident relative, with relative taking its meaning from the Companies Act 2013, on a former or survivor basis. The practical effect is that the resident relative does not operate the account as an equal party during the NRI's lifetime. They may operate it as a Power of Attorney holder, and those operations are themselves restricted to withdrawals for permissible local payments or remittance to the account holder.

In summary

The distinction is simple and the consequences are not. Money earned abroad goes to an NRE account, where the income is exempt and the balance comes out freely. Money earned in India goes to an NRO account, where it is taxable and where getting it out runs into a USD 1 million annual ceiling shared with your other assets.

The number worth carrying is 31.2%, deducted from the first rupee of NRO interest, with no threshold and no declaration available to stop it. A resident in the same position would have a free band and a one-page form. An NRI has neither, and the alternatives both require paperwork filed before the interest is paid rather than after. How TDS works generally, including how to read it on a statement, is in our post on tax deducted at source.

Sources

• Reserve Bank of India, Accounts in India by Non-residents, FAQ as on 16 January 2025, for the account comparison table covering who may open each account, currency, taxability, repatriability, joint holding and Power of Attorney operations, and for the USD 1 million per financial year remittance facility: rbi.org.in
• Reserve Bank of India, Master Circular on Non-Resident Ordinary Rupee (NRO) Account, for the permissible credits and debits and the conditions governing repatriation of NRO balances under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016: rbi.org.in
• Income Tax Department of India, Section 195, tax deduction at source on payments to non-residents, for the 30% rate on interest and the absence of any threshold, together with the 4% health and education cess: incometax.gov.in
• Income-tax Act 2025, Section 393(6), and the Income-tax Rules 2026, Rule 211, for Form 121 replacing Forms 15G and 15H from 1 April 2026 and for its eligibility conditions, as set out in our own Form 121 explainer