NRE, NRO and FCNR accounts: how each is taxed, and which one you need

The three accounts, and who can open them

An NRE account, or Non-Resident (External) rupee account, holds money you bring in from abroad. It’s in rupees, it can be a savings, current, recurring or fixed-deposit account, and everything in it, deposit and interest, can go back abroad whenever you like. Only an NRI or a person of Indian origin, which includes an OCI cardholder, can open one.

An NRO account, or Non-Resident Ordinary rupee account, is for money that arises in India: rent, dividends, a pension, interest, the proceeds of selling a flat or shares, and money that was in your Indian accounts before you left. Our NRO account definition has the short version. It’s also in rupees, with the same account types. Any person resident outside India can hold one, including a foreign national with dealings in India. The difference is on the way out: current income can go abroad after tax, but anything else can leave only within a yearly limit.

An FCNR(B) deposit, Foreign Currency (Non-Resident) account (Banks), is a fixed deposit held in a foreign currency such as US dollars, pounds or euros. Like NRE, it’s open to NRIs and people of Indian origin, it’s fully repatriable, and its interest is tax-free in India. Unlike NRE, it isn’t a savings account: it’s term deposits only, for between 1 year and 5 years, and your balance never gets converted to rupees.

“NRI” here is the FEMA meaning: an Indian citizen who is a person resident outside India, broadly someone who has gone abroad to work or to live for an uncertain period. That isn’t always the same as being a non-resident for income tax, which is a day count. Our guide to how your residency status is decided explains the tax test.

Most people who live abroad for good end up with at least an NRE and an NRO account, and many add FCNR deposits. There’s nothing wrong with holding all three at one bank or several. What matters is that each rupee sits in the account its source allows.

NRE accounts: money from abroad, tax-free interest in India

Interest on an NRE account is exempt from Indian income tax while you’re a person resident outside India under FEMA. The exemption sits in Schedule IV, Sl. No. 1 of the Income-tax Act, 2025 (old section 10(4)(ii)), read with section 11. Because it isn’t taxable, the bank deducts no TDS from it, and you don’t need to file an Indian return because of it.

Notice what the condition is tied to. The Act exempts NRE interest for an individual who is “resident outside India” as FEMA defines it, not a non-resident under the Income-tax Act’s day tests. In the year you move back, you can still be non-resident or RNOR for tax, but once you’ve returned to live in India you’re resident under FEMA, and the exemption stops from then on.

What you can pay in is set by FEMA: money sent from abroad, transfers from your other NRE or FCNR accounts, interest on the account, and the proceeds of investments you made from NRE money. RBI’s FAQ also treats current income such as rent, dividends or pension as a permitted credit to an NRE account. That changes nothing on the tax side: rent is taxable in India whichever account it lands in, and many banks will still route Indian income through NRO. Sending from the US? Fund the transfer from a US bank account or a US-issued debit or credit card, not cash, a money order or a cashier’s check, and it stays clear of the US remittance tax.

What you can take out is almost anything: local payments in India, transfers to other NRE or FCNR accounts, investments in India, and remittances abroad, without a yearly ceiling. That’s why NRE is where most people keep savings they may want to move again.

The catch is the exchange rate. You send dollars, pounds or dirhams, the bank converts them to rupees, and when you take money back out it converts again at the rate on that day. NRE deposit rates are usually higher than rates abroad, but if the rupee weakens in the meantime, the currency loss can eat most of the extra interest.

NRO accounts: income from India, taxed interest

Interest on an NRO account is taxable in India, and the bank deducts tax before it pays you. As a non-resident, you have TDS at 30% plus 4% cess on top, with surcharge only on very large income, under 2025 Act s. 393(2) Table Sl. 17was s. 195. The bank deducts at that flat rate on every rupee of interest, whatever your real tax is, and there’s no threshold below which it stops.

That flat rate is often far more than you owe. NRO interest is added to your other Indian income and taxed at the normal slab rates, and a non-resident with modest Indian income can owe much less, sometimes nothing. The self-declarations residents use to stop TDS aren’t open to you, so the only way to get the excess back is to file a return, unless you cut the deduction in advance with the treaty rate or a lower-deduction certificate applied for on Form 128 (was Form 13). Both are explained below.

Give your bank your PAN. Under 2025 Act s. 397(2)was s. 206AA, you can’t get a lower-deduction certificate without one, and a deduction that isn’t recorded against your PAN is much harder to claim back.

NRO is the account for everything that comes from India. Rent from a flat in Pune, dividends on Indian shares, a pension from a former Indian employer, the maturity of an old fixed deposit, the money from selling property as a non-resident: all of it goes into NRO first. You can also pay money from abroad into NRO, though there’s rarely a reason to, because it then becomes subject to NRO’s limits on the way out.

Your NRO account is also where rupee gifts from resident relatives go. A resident can gift a relative living abroad rupees into their NRO account, within the Liberalised Remittance Scheme limit that applies to the giver. Tax on gifts is a separate question, covered in the family money section.

FCNR(B) deposits: foreign currency, no exchange risk

An FCNR(B) deposit is the account to use when you want to keep money in India without taking a view on the rupee. You deposit, say, US dollars, the bank holds them as dollars, and pays you interest in dollars. At maturity you get dollars back, which you can send abroad freely. The interest is exempt in India through Schedule IV, Sl. No. 14 of the Income-tax Act, 2025, which carries forward the old section 10(15)(iv)(fa). No TDS is deducted.

The exemption is broader than NRE’s in one useful way. It covers interest paid to a non-resident or to a person who is not ordinarily resident. So if you move back and you’re an RNOR taxpayer for your first years home, interest on FCNR deposits you already hold stays tax-free in India until your RNOR years end, while NRE interest stops being exempt as soon as you’re resident under FEMA.

The trade-off is the rate. FCNR interest is usually lower than NRE interest because you carry no currency risk. Whether FCNR or an NRE deposit comes out ahead depends on where you’ll spend the money and what the rupee does over the term.

Banks can’t pay whatever they like on either account. RBI caps FCNR(B) rates at the overnight reference rate (or swap rate) for the currency plus 250 basis points for deposits of one year to under three years, and plus 350 basis points for three to five years. NRE deposit rates can’t be higher than the bank pays on comparable domestic rupee term deposits. From 17 June 2026, RBI lifted the three-to-five-year FCNR(B) cap and the NRE limit for fresh or renewed deposits of three years or more (money moved in from NRO never qualified). It was due to run to 30 September, but RBI ended the relaxation a month early, on 31 August 2026; the normal caps apply again to new and renewed deposits.

NRE or NRO: which do you need?

Most people need both. The question isn’t really “NRE or NRO” but which money goes where, and the rule is the source of the money. Money you earn or hold abroad and bring to India belongs in NRE (or FCNR). Money that arises in India, or was already in India when you left, belongs in NRO. You don’t get to choose the account for tax reasons: rent paid into NRE is still taxable rent.

If you’re sending savings to India to earn interest, NRE or FCNR is almost always the better home, because the interest is tax-free in India and the money can leave again freely. If you have rent, dividends, a pension or sale proceeds in India, you need an NRO account to receive them. If you do both, you’ll have both accounts.

The comparison below sets the three side by side, including the tax where you live, which people often forget.

Two practical points. First, keep the accounts separate in your own records: which deposit came from abroad, which came from Indian income. It’s the first thing a bank asks before an NRO-to-NRE transfer, and the first thing a tax officer would ask about a large credit. Second, don’t move money from NRO to NRE to make the interest tax-free without doing the paperwork. The transfer is allowed only within the yearly limit and after tax, as explained below.

Interest is still taxed where you live

India exempting NRE and FCNR interest doesn’t make it tax-free. It only stops India taxing it. The country you live in decides for itself, and most of the countries our readers live in tax their residents on worldwide income.

• United States. US citizens, green-card holders and tax residents report NRE, NRO and FCNR interest on their federal return as foreign interest income, in the year it’s credited, including interest that’s reinvested in a deposit. You also report the accounts themselves on the FBAR for foreign accounts and, above its own thresholds, on a second IRS form for foreign financial assets.
• United Kingdom. UK residents are generally taxed on foreign savings income, including NRE and FCNR interest, as it arises. If you’ve newly arrived after a long spell abroad, you may be able to claim the UK’s four-year foreign income and gains relief instead.
• Canada and Australia. Both tax residents on worldwide income, so Indian interest goes in your return there.
• The Gulf. The UAE and most Gulf states don’t have personal income tax, so for residents there NRE and FCNR interest is effectively untaxed anywhere.
• The second US report. Once foreign assets pass their own, higher thresholds, a US person also owes a second, separate filing to the IRS. Our guide to FBAR and FATCA reporting for Indian accounts covers which accounts count and both sets of thresholds.

For NRO interest, you’re usually taxed in both countries, and the treaty sorts it out. India taxes the interest first, as the country where it arises. Your country of residence taxes it too, and gives you credit for the Indian tax, usually only up to the rate the treaty lets India charge. If your bank deducted more than that, the excess isn’t creditable abroad: you claim it back from India in your Indian return. The treaty pages explain how the treaty with your country works.

NRE interest has no Indian tax to credit, so you pay the full tax where you live on it. That’s why an NRE deposit that looks attractive at India’s rates can be less so after your own country’s tax and any currency loss. Compare the after-tax figure, not the headline rate.

Getting back TDS on NRO interest

For most readers, the NRO deduction is the one place in this section where real money is at stake. Your bank deducts 30% plus cess on all your NRO interest. Your actual tax is worked out on your total Indian income at slab rates, and non-residents get the same basic slabs as residents under the new regime. If your Indian income is modest, the gap can be most of the TDS.

Three routes cut the tax:

• File a return and claim the refund. It’s the route that always works. The TDS shows in your annual tax statement, Form 168 (was Form 26AS), and the refund comes to an Indian bank account you’ve validated on the portal. Check whether you need to file a return as an NRI, and file by 31 July 2027.
• Ask the bank to apply the treaty rate. Where the tax treaty with your country caps tax on interest below the rate the bank uses, many banks will deduct at the treaty rate if you give them a tax residency certificate from your country, Form 41 (was Form 10F) and a short declaration, before the interest is paid.
• Get a lower-deduction certificate. You apply online to the tax department, which tells the bank to deduct at a lower rate or none, based on your expected tax for the year.

Use the estimator below to see roughly how much of your TDS you’d get back. Our guide to TDS on NRO interest has the rate, the refund steps and the treaty rates by country.

Moving money: NRO to NRE, and abroad

NRE and FCNR money can go abroad at any time. NRO money is more restricted. Current income in your NRO account, meaning rent, dividends, pension and interest, can be sent abroad after tax. Any other NRO balance, such as the proceeds of selling a flat, old savings from before you left, or an inheritance, can be sent abroad only up to USD 1 million a financial year (April to March). That limit comes from the FEMA Remittance of Assets Regulations, not from tax law.

Moving NRO balances, other than current income, to your NRE account counts against the same limit. RBI’s FAQ says in terms that NRO funds can be transferred to NRE within that facility, which in practice is the neat way to do it: once the money is in NRE, it’s fully repatriable and future interest on it is tax-free in India.

Before the bank moves NRO money abroad or to NRE, it needs to know the tax has been dealt with. You file Form 145 (was Form 15CA) online, and above ₹5 lakh (₹5,00,000) in the year, banks normally want a chartered accountant to certify the tax position on Form 146 (was Form 15CB) first. The step-by-step guide to the remittance forms covers the documents banks ask for and the order to do things in.

Strictly, the certificate is needed for remittances that are taxable in India. Whether moving your own savings, already taxed, counts as a taxable remittance isn’t settled, and bank practice varies, so expect to be asked for it.

The yearly limit applies whether the money goes abroad or into your own NRE account. See moving money from NRO to NRE or abroad for what counts towards it and how long each step takes.

If you bought property in India with money from abroad or from an NRE or FCNR account, the sale proceeds of up to two homes can go abroad outside the limit. That’s covered in the property section.

When you move abroad: resident accounts become NRO

This is a legal obligation, not a choice. RBI’s rules say that when a resident Indian becomes a person resident outside India, their existing resident accounts should be re-designated as NRO accounts. That includes savings accounts, fixed deposits and recurring deposits. It happens when your FEMA status changes, usually the day you leave for a job abroad, not at the end of the tax year.

Tell each bank in writing, with your passport, visa or work permit and an overseas address. The bank changes the account type, starts deducting TDS at the non-resident rate and updates its records. Fixed deposits usually run to maturity at the rate you booked, as NRO deposits.

Leaving a resident account as it is causes three problems. It’s a FEMA breach, which can bring a penalty. The bank keeps deducting TDS at resident rates, so your tax record won’t match your return. And the account can be frozen when the bank finds out, often just when you need it.

You don’t have to close resident accounts to open an NRE account. Most people convert their existing accounts to NRO and open an NRE account alongside, often at the same bank.

Joint accounts with residents

Joint accounts are the area where FEMA’s rules are most specific. An NRE account or FCNR deposit can be held jointly with other NRIs or people of Indian origin. It can also be held with a resident relative, but only on a “former or survivor” basis: the resident relative can operate it only as your power-of-attorney holder while you’re alive, and takes it over after you.

An NRO account can be held jointly with any resident on a “former or survivor” basis. That’s the usual arrangement for NRIs whose parents manage rent or bills in India.

Tax follows the money, not the names. Interest on a joint account is taxed in the hands of the person whose money it is, usually the first holder who put the money in. Banks report and deduct TDS against the first holder’s PAN, so if the money is really your parent’s, the deduction and the income can end up in the wrong return.

When you move back to India

Coming home reverses the conversions, and the timing again follows FEMA. As soon as you return to live in India, your NRE accounts should be re-designated as resident accounts, or the money moved to a Resident Foreign Currency (RFC) account if you want to keep it in foreign currency. Your NRO accounts become ordinary resident accounts. FCNR deposits can run to maturity at the agreed rate, and then become resident rupee deposits or go into an RFC account.

The tax changes at different points. NRE interest becomes taxable once you’re resident under FEMA. FCNR interest stays tax-free while you’re RNOR for tax. And your status for the whole tax year, including whether your foreign income is taxed, comes from the day tests. Check yours with the residency status checker before your first return back.

Your accounts are only one part of the transition. Moving back to India sets out the whole first-three-years plan: how long you stay RNOR, what happens to a foreign retirement account, and when you have to start reporting foreign assets.