Can You Transfer Funds From an NRE to NRO Account?

Non-Resident Indians (NRIs) utilize specific bank accounts in India to manage their finances, primarily the Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts. These accounts serve distinct purposes, accommodating different sources of income and varying rules for moving funds back outside India.

NRE and NRO Account Characteristics

The NRE account is designed for Non-Resident Indians to deposit income earned outside India. Funds held in an NRE account, whether principal or interest, are fully and freely repatriable, meaning they can be transferred back to a foreign country without restriction. A significant feature of the NRE account is that the interest earned on its balance is exempt from income tax in India. This account primarily holds foreign earnings in Indian Rupees, with the foreign currency converted upon deposit.

Conversely, the NRO account is intended for managing income generated within India. This includes earnings such as rent, dividends, pensions, or other local sources. Funds in an NRO account are not fully repatriable; only up to USD 1 million per financial year can be transferred out of India, and this is subject to applicable taxes being paid. The interest earned on an NRO account is subject to Indian income tax, with Tax Deducted at Source (TDS) typically applied at a rate of 30%, plus any applicable cess and surcharge.

A key distinction between these accounts lies in the source of funds, their repatriability, and their tax treatment in India. NRE accounts are for foreign-sourced, freely repatriable, and tax-exempt funds. NRO accounts are for Indian-sourced, restricted-repatriation funds, and their interest income is taxable. While NRE accounts primarily receive funds from overseas, NRO accounts can receive both Indian and foreign currency deposits, though foreign currency is converted to Indian Rupees.

Steps for Transferring Funds

Transferring funds from an NRE account to an NRO account is generally permissible and a relatively straightforward process. Many banks offer this service through their online banking portals, though it can also be initiated through a physical branch visit. The convenience of online platforms allows for a streamlined experience, often reducing the need for extensive paperwork.

Before initiating the transfer, ensure you have the necessary account details for both your NRE and NRO accounts, including the account numbers and the Indian Financial System Code (IFSC) of the beneficiary NRO account’s branch. Banks may require a declaration of the purpose of the transfer, such as for local expenses, investments in India, or family maintenance. While specific forms like Form 15CA or 15CB are typically associated with transfers from NRO to NRE accounts for repatriation purposes, a simple declaration might suffice for an NRE to NRO transfer.

To execute the transfer online, log in to your bank’s internet banking platform. Navigate to the funds transfer section, select the option for transferring between your own accounts, and specify your NRE account as the source and your NRO account as the destination. Enter the amount to be transferred and confirm the transaction details. If visiting a branch, bring your account details and a written request or the bank’s internal transfer form. Processing times for such internal transfers are generally quick, often completed within a few hours to one business day.

Tax and Regulatory Considerations

Transferring funds from an NRE account to an NRO account does not, in itself, trigger an immediate tax event in India. However, a significant consequence of this transfer is the change in the character of the funds. Once funds reside in an NRO account, any interest subsequently earned on these funds becomes subject to Indian income tax.

This interest is typically taxed at a rate of 30%, along with applicable surcharges and cess, and is subject to Tax Deducted at Source (TDS). Non-Resident Indians can sometimes benefit from lower tax rates on NRO account interest under Double Taxation Avoidance Agreements (DTAA) between India and their country of residence, provided they submit a Tax Residency Certificate (TRC) and Form 10F. The Foreign Exchange Management Act (FEMA) governs these transactions, ensuring that funds are appropriately categorized and utilized. While there are no specific FEMA restrictions on the amount transferred from NRE to NRO, it is important to understand that funds in an NRO account lose their fully repatriable status. Banks maintain records of these transfers and may require declarations to ensure compliance with regulatory guidelines.