NRE, NRO and FCNR accounts
Which NRI account to use, the very different tax on each, and what happens when you return
An NRI uses one of three account types, and the tax on each differs sharply. An NRE account (rupee, for income earned abroad) has fully tax-free interest in India and is fully repatriable. An FCNR account (a foreign-currency fixed deposit) also has tax-free interest and no rupee exchange risk. An NRO account (rupee, for income earned in India such as rent, dividends or pension) has taxable interest, subject to 30% TDS under Section 195 (which a treaty can reduce), and repatriation is capped at USD 1 million a year with Form 15CA/15CB. The one-line rule: foreign income goes in an NRE, Indian income in an NRO, and a foreign-currency deposit in an FCNR.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
The three accounts and their tax
Each account suits a different money source. The NRE (Non-Resident External) account holds income earned abroad in rupees, its interest is exempt under Section 10(4)(ii), and both principal and interest are fully repatriable. The FCNR (Foreign Currency Non-Resident) account is a foreign-currency fixed deposit whose interest is exempt under Section 10(15)(iv)(fa), with no rupee exchange risk. The NRO (Non-Resident Ordinary) account holds income earned in India (rent, dividends, pension, sale proceeds); its interest is taxable, with 30% TDS under Section 195 (a treaty can reduce this, and a Section 197 certificate can lower it), and repatriation from it is capped at USD 1 million a financial year, with Form 15CA and 15CB.
Which account to use
The choice follows the source of the money. Money earned abroad that you want held in India with full repatriability and tax-free interest goes in an NRE account. Money earned in India, rent on a property, dividends, a pension, the proceeds of selling an Indian asset, must go in an NRO account (it is the India-income bucket). A foreign-currency deposit, where you want to avoid rupee exchange-rate movement, goes in an FCNR. Many NRIs hold an NRE and an NRO together: foreign earnings in the NRE (tax-free), Indian earnings in the NRO (taxable). The 30% NRO TDS can be reduced through the relevant treaty or a Section 197 lower-deduction certificate.
tipOne-line rule: foreign income to an NRE (tax-free), Indian income to an NRO (taxed at 30%), foreign-currency deposit to an FCNR (tax-free). Where you park money depends entirely on where you earned it.
What happens when you return (FEMA vs income-tax status)
A subtle but important point: the NRE and FCNR interest exemption depends on being a person resident outside India under FEMA, not on your income-tax residential status, and the two can diverge on return. A returning NRI can be income-tax RNOR (so foreign income is sheltered) yet still FEMA non-resident for a transitional window, so NRE interest can stay tax-free a while longer, until you are redesignated as resident under FEMA. On becoming FEMA-resident, the NRE account is redesignated (to a resident or RFC account) and the interest becomes taxable; an FCNR deposit runs to maturity; and the NRO continues as the India-income bucket. Do not conflate FEMA residence (which controls account eligibility) with income-tax residence (which controls taxability).
warningBack in India but still non-resident under FEMA? Your NRE interest can stay tax-free a while longer, FEMA status, not income-tax status, controls the exemption. Redesignate accounts on the correct trigger or risk a mismatch.
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Source / notes
- Income-tax Act 1961 s.10(4)(ii) (NRE interest exempt) + s.10(15)(iv)(fa) (FCNR interest exempt) (re-enacted in the Income-tax Act 2025)
- Income-tax Act 1961 s.195 (NRO interest TDS 30%) + s.197 (lower-deduction certificate)
- FEMA 1999 + RBI rules (account eligibility, USD 1 million NRO repatriation cap, 15CA/15CB)
Frequently asked questions
Is interest on my NRI account taxable in India?+
It depends on the account. NRE (rupee, foreign-earned) and FCNR (foreign-currency deposit) interest is completely tax-free in India under Sections 10(4)(ii) and 10(15)(iv)(fa). NRO (rupee, India-earned) interest is taxable, with 30% TDS under Section 195, though a tax treaty or a Section 197 certificate can reduce that rate. So NRE and FCNR are the tax-free buckets; NRO is the taxable one.
Which NRI account should I use?+
It follows where you earned the money: foreign income you want held in India goes in an NRE account (tax-free interest, fully repatriable); Indian income (rent, dividends, pension, sale proceeds) must go in an NRO account; and a foreign-currency deposit, to avoid rupee exchange risk, goes in an FCNR. Many NRIs hold both an NRE and an NRO, foreign earnings in one, Indian earnings in the other.
Can I send NRO money abroad?+
Yes, up to USD 1 million per financial year from your NRO account, with Form 15CA and a Chartered Accountant's Form 15CB. NRE and FCNR balances are fully repatriable without that cap. So if you need to move more than USD 1 million of India-earned money abroad in a year, that is the constraint to plan around, and the forms are required for the remittance.
What happens to my NRI accounts when I move back to India?+
The NRE and FCNR interest exemption depends on FEMA non-resident status, not income-tax status, and the two can diverge on return, so NRE interest can stay tax-free during a transitional window even while you are income-tax RNOR. Once you become resident under FEMA, the NRE account is redesignated (to a resident or RFC account) and its interest becomes taxable; an FCNR runs to maturity; the NRO continues. Redesignate on the correct trigger.
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