While, an NRE account is for depositing income from abroad, NRO account is mainly for putting Indian incomes.

In case of NRE account, only NRIs can become joint account holders but for NRO account both resident and non-resident can become joint account holders. As per RBIs notification RBI/2011-12/536 dated May 7, 2012, NRIs are eligible to transfer funds from NRO account to NRE account within the overall ceiling of USD one million per financial year subject to payment of tax. Such credit of funds to NRE account shall be treated as eligible credit. The decision was taken based on recommendations of K J Udeshi Committee which reviewed the facilities for persons under Foreign Exchange Management Act, 1999. Bank FD interest on NRE and NRO are same around 9.5%; however, interest on NRE FD is TAX FREE whereas NRO FD is TAXABLE. As NRIs may not get any interest if FDs are withdrawn before 1 year, they have no choice but to keep money in NRO FD. However, on completion of 1 year, NRIs will not keep invested in NRO FD but will rush to break FDs to remit money out of India for investing back in NRE FD. And, money once gone, may not return. This will drive demand for dollar and could accelerate rupee depreciation. So, to stop that and keep money in India, RBI allowed transfer of money from NRO to NRE.

NRIs: While it is helpful to Indian Government, it is more beneficial to NRIs. Following are the key 5 benefits to NRIs: 1. Save transaction cost: No need to transfer money from NRO to foreign currency and from foreign currency to NRE if you want to transfer funds from NRO to NRE for taxfree interest 2. Increase your return: Interest on NRO is taxable in India whereas interest on NRE FD is tax free in India, saving tax of 15-30% and no TDS based on DTAA rates. 3. No TDS, No need for Tax Residency Certificate (TRC) (introduced in Finance bill 2012 for TDS on NRO funds at DTAA rates) and no need to file Income Tax return in India as interest on NRE FD and bank accounts are tax free in India 4. You decide when and how much you transfer your funds out of India: Currently, whenever you want your funds back out of NRO, you file Form 15CA, get CA certificate in 15CB and then after completing procedures, remit funds. You may follow the same process for transferring from NRO to NRE but you have full freedom to transfer money out of NRE account whenever you want in future be it partial or full and whether next day, month or year.

5. Limit: There is an overall ceiling of $1M for remittance out of NRO per year. The limit also apply for transfer from NRO to NRE but you dont need to convert them in foreign currency immediately and keep funds in NRE account. There is no limit for remittance out of NRE account. So after 5 years, when you think foreign exchange is in your favour e.g. Rs40/$, you can convert all $5 million, significantly improving your return.