Why NRIs Need Special Bank Accounts
Once you qualify as a Non-Resident Indian (NRI) under FEMA, a regular resident savings account is no longer compliant. RBI mandates that you park funds in designated NRE or NRO accounts so that:
- Currency flows are properly tracked.
- Indian & foreign income stay ring-fenced for taxation.
- Repatriation to abroad follows clear limits and paperwork.
NRE Account — Your “Foreign Cash” Wallet
| Feature | Details |
|---|---|
| Purpose | Deposit income earned outside India (salary, bonuses, overseas investments) |
| Currency | Indian Rupees (funds auto-converted at prevailing FX rate) |
| Taxation in India | Zero — principal & interest completely tax-free |
| Repatriation | Unlimited; withdraw abroad any time |
| Joint Holding | Allowed with another NRI |
| Best For | Long-term, tax-efficient rupee savings & investments in India |
Pro tip: Park excess foreign earnings here, then channel into rupee FDs, mutual funds or real estate without worrying about Indian tax drag.
NRO Account — Your “India Bills” Wallet
| Feature | Details |
|---|---|
| Purpose | Collect income generated in India: rent, dividends, pension, interest, consultancy fees, etc. |
| Taxation | Interest taxable at 30% TDS (plus cess/surcharge) unless DTAA relief is claimed |
| Repatriation | Capped at USD 1 million per FY (net of taxes) with Form 15CA/CB certification |
| Joint Holding | Can be with an Indian resident (parents, spouse) |
| Best For | Paying EMIs, family maintenance, domestic insurance premiums, day-to-day local spends |
Remember: You cannot directly credit foreign salary into an NRO account.
NRE vs NRO — Quick Comparison
| Parameter | NRE | NRO |
|---|---|---|
| Source of funds | Foreign | Indian |
| Tax on interest | Nil | 30% TDS* |
| Repatriation limit | No cap | USD 1 mn / yr |
| Joint holder | NRI only | Resident or NRI |
| Typical use | Savings & investments | Bills & Indian income flows |
*May be lower under Double Taxation Avoidance Agreement (DTAA). File Form 10F + tax residency certificate to claim.
Which Account Should You Open?
Most NRIs maintain both:
- NRE for building tax-free wealth in India.
- NRO for Indian cash flows and local obligations.
If you have zero income streams in India yet, an NRE alone can suffice. Conversely, if you own property that yields rent, you must have an NRO.
How to Optimise Your Mix
Sweep excess NRO balance (post-tax) into NRE via online transfer once or twice a year to consolidate savings. Use reciprocity under DTAA to lower TDS on NRO interest — often to 10–15 %. Keep clear documentation (invoices, rent agreements) for every NRO credit; simplifies Form 15CA/CB later. For short India visits, set standing instructions so parents can access NRO funds via ATM/debit card.
Common Pitfalls to Avoid
- Crediting Indian salary, consultancy fees or rent to an NRE account – violations attract penalties.
- Forgetting to update KYC once residential status changes.
- Missing the Form 15CA/CB while repatriating > USD 10,000 equivalent — banks will block the transfer.
- Ignoring DTAA benefits and over-paying TDS.
FAQs
I’m on an H-1B in the US. Can I convert my old resident account into NRE?
No. A resident savings account is converted to an NRO. Open a fresh NRE account for foreign earnings.
Is the USD 1 million cap on NRO repatriation per account or per person?
Per financial year per individual, aggregated across all NRO accounts you hold.
Can I hold FDs in both accounts?
Yes. NRE FDs offer tax-free interest; NRO FD interest is taxable.
Does my spouse’s income abroad qualify for my NRE account?
Only if the funds are transferred from an account in your name. Otherwise route it via her NRE.
Next Steps — Let Finance Shelter Help
• Unsure how to structure your NRI banking?
• Need assistance with NRO repatriation paperwork or DTAA claims?
• Looking to invest NRE funds into high-yield opportunities?
💬 Book a free 15-minute consultation with a Finance Shelter cross-border specialist today. We’ll craft a compliant, tax-efficient plan tailored to your goals.
“Move abroad with confidence—Finance Shelter keeps your money working smartly on both sides of the globe.”