NRE vs NRO vs FCNR Account: Differences for NRIs

NRE, NRO and FCNR are the three main bank account types for Non-Resident Indians, and the right one depends on where your money comes from and which currency you want to carry the risk in. As of October 2026, an NRE account holds foreign earnings in rupees with tax-free interest and full repatriation; an NRO account holds Indian income (rent, dividends, pension) with taxable interest and a USD 1 million yearly repatriation cap; an FCNR(B) deposit holds foreign currency itself, so your principal is protected from rupee depreciation and the interest is tax-free in India.

Most NRIs end up with an NRE and an NRO account, and use FCNR for part of their savings. This guide explains the FEMA rules, tax treatment and a worked example showing when FCNR beats NRE.

The three accounts side by side

The account rules come from RBI's Master Direction on deposits and accounts under FEMA. The tax exemption for NRE and FCNR interest was old Section 10(4)(ii) and 10(15)(iv)(fa) of the Income-tax Act, 1961, and the exemption continues under the Income-tax Act, 2025 that took effect on 1 April 2026.

NRE account: for money you earn abroad

Use an NRE account to park foreign salary or savings in India. You send dollars (or dirhams, pounds), the bank converts them to rupees, and the balance stays in rupees.

• Tax: Interest is exempt from Indian income tax as long as you are a "person resident outside India" under FEMA. Your country of residence may tax it.
• Repatriation: You can send the full balance and interest back abroad at any time without limits.
• Risk: If the rupee weakens against your home currency, the value in dollars falls even though the rupee balance grows.
• Restriction: You cannot deposit rupee income earned in India.

NRO account: for money you earn in India

If you own a flat in Pune that you rent out, have Indian mutual funds or receive a pension, that income goes into an NRO account.

• Tax: Interest is taxable in India. Banks deduct TDS at 30% plus applicable surcharge and 4% cess. You can claim a lower rate under a Double Taxation Avoidance Agreement by giving the bank a Tax Residency Certificate and Form 10F.
• Repatriation: Up to USD 1 million per financial year across all your NRO accounts, after paying applicable taxes, supported by Form 15CA and, where required, a chartered accountant's Form 15CB.
• Conversion rule: When you become an NRI, your existing resident savings account must be redesignated as NRO.

FCNR(B) deposit: for keeping money in foreign currency

FCNR(B) is a term deposit held in foreign currency. You deposit USD 10,000 and get USD 10,000 plus interest back on maturity.

• Tax: Interest is exempt in India while you are a non-resident.
• Risk: No rupee conversion, so no exchange-rate risk on the principal for an investor whose home currency is the deposit currency.
• Trade-off: Interest rates are linked to rates in that currency and are typically well below NRE FD rates.
• Tenure: Minimum 1 year, maximum 5 years. Premature withdrawal before 1 year usually earns no interest.

Worked example: NRE FD vs FCNR deposit for USD 10,000

Assume (illustratively) the rupee is at ₹88 per USD today, an NRE 1-year FD pays 6.75%, and a USD FCNR 1-year deposit pays 4.50%. Both are tax-free in India.

NRE FD

• Convert: 10,000 × ₹88 = ₹8,80,000
• Interest at 6.75%: ₹59,400 → maturity ₹9,39,400

FCNR deposit

• Interest at 4.50%: USD 450 → maturity USD 10,450

What you get back in dollars depends on the exchange rate in one year:

Break-even rate = ₹9,39,400 ÷ 10,450 = ₹89.89. If the rupee weakens by more than about 2.1% over the year, FCNR comes out ahead for someone who will spend the money in dollars. If you plan to spend the money in India (for parents, a home loan, or retirement here), the exchange rate matters less and NRE's higher rupee rate usually wins. These rates are illustrative; check current bank rates, and use our FD calculator to compare maturity values.

NRO comparison: the same ₹8,80,000 in an NRO FD at 6.75% earns ₹59,400 before tax. With TDS at 31.2% (30% plus 4% cess, no surcharge at this income level), ₹18,533 is deducted, leaving ₹40,867. A DTAA rate, if lower, reduces this.

FEMA status vs tax residency: two different tests

Your account eligibility depends on FEMA residential status (broadly, whether you have gone abroad for employment, business or with the intention to stay for an uncertain period). Your income tax depends on tax residency under the Income-tax Act, which counts days in India. The two can differ in the year you move. Our guide to tax residency and NRI status explains the day-count rules.

When you return to India

1. Inform each bank of your change in status.
2. NRE savings and FDs are redesignated as resident accounts, or the balance moves to a Resident Foreign Currency (RFC) account if you want to keep foreign currency.
3. FCNR deposits can usually continue till maturity; the proceeds then go to a resident account or an RFC account.
4. Interest on NRE and FCNR becomes taxable in India once you are a resident for tax purposes, subject to the "Resident but Not Ordinarily Resident" transition rules.
5. NRO accounts are redesignated as ordinary resident accounts.

Common mistakes

• Depositing Indian rent or dividends into an NRE account (not allowed).
• Keeping a resident savings account after becoming an NRI.
• Assuming NRE interest is tax-free in the country where you live.
• Ignoring Form 15CA/15CB and DTAA paperwork when repatriating NRO funds.
• Breaking an FCNR deposit before 1 year and losing interest.

If you are sending money from a resident account to family abroad, the rules are different; see our checklist of documents for sending money abroad.

Key takeaways

• NRE: foreign earnings, rupee balance, tax-free interest in India, fully repatriable.
• NRO: Indian income, taxable interest with TDS at 30% plus surcharge and cess, repatriation up to USD 1 million per year.
• FCNR(B): foreign-currency term deposit for 1 to 5 years, tax-free in India, no rupee risk on principal, lower interest rate.
• FCNR beats NRE only if the rupee weakens by more than the interest-rate gap and you need the money in foreign currency.
• Redesignate accounts promptly when your FEMA status changes, both on leaving and on returning to India.