Non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) can use Non-resident External (NRE) and Non-resident Ordinary (NRO) to park their income earned abroad and in India, respectively. However, the tax treatment of that income will be different. Income in an NRE account is completely tax-free in India, whereas income in an NRO account may incur a tax deducted at source (TDS) of 30% along with surcharge and education and health cess of 4%. This means that if an NRI earns the same income from their NRE and NRO accounts, the tax outgo on the NRO account can be significantly higher.
An expert projection indicates how an NRI earning 7% interest on $10,000 investment in an NRE account and a Rs 8.5 lakh investment in their NRO account may end up paying Rs 18,500 in TDS in the NRO scenario, while the income from the NRE account remains tax-free.
