NRE vs NRO vs FCNR(B): How FEMA Rules Govern Where NRIs Hold and Repatriate Money in India

Every non-resident Indian (NRI) who keeps money in India runs into the same first question: which bank account is legal, and which one lets money flow back out again. The single rulebook that answers it is the Foreign Exchange Management Act 1999 (FEMA), read with the FEMA (Deposit) Regulations 2016 notified as Notification FEMA 5(R)/2016-RB dated 1 April 2016. The Reserve Bank of India's FAQ "Accounts in India by Non-residents", updated as on 16 January 2025, permits exactly three deposit types for an NRI or person of Indian origin (PIO): the Non-Resident External (NRE) account, the Non-Resident Ordinary (NRO) account, and the Foreign Currency Non-Resident (Bank) deposit, written FCNR(B). Choosing the wrong one either traps rupees inside India or creates an avoidable tax bill.

This guide maps each of the three accounts to its FEMA basis, its tax treatment in India, its interaction with your country of residence, and the exact repatriation ceiling the RBI sets — down to the USD 1 million per financial year limit that governs an NRO account. Every figure below is drawn from the RBI FAQ dated 16 January 2025, the FEMA (Deposit) Regulations 2016, or the Income-tax Act 1961. Model your own numbers with the Oquilia NRI income-tax calculator as you read.

FEMA / DTAA Position

Under Section 6 of FEMA 1999, a capital-account transaction by a person resident outside India needs RBI permission unless it is specifically permitted, and the FEMA (Deposit) Regulations 2016 are exactly that standing permission for the three account types. The RBI FAQ dated 16 January 2025 draws the boundaries sharply. An NRE account is a rupee account into which you remit foreign earnings; both principal and interest are fully and freely repatriable. An FCNR(B) deposit is held in a permitted foreign currency (US dollar, pound sterling, euro, yen and others) for a fixed term of not less than 1 year and not more than 5 years, which lets you hedge rupee depreciation because the currency of denomination never changes. An NRO account is a rupee account meant for income that arises inside India, such as rent, dividends and pension.

The repatriation consequence follows directly from where the money originates. NRE and FCNR(B) balances are foreign money brought in, so FEMA lets them leave without a ceiling. NRO balances are India-sourced, so under the FEMA (Remittance of Assets) Regulations 2016 they may be remitted abroad only up to USD 1 million per financial year. The RBI FAQ also confirms holding rules: any of these accounts may be held jointly by two or more NRIs or PIOs, or jointly with a resident relative on a "former or survivor" basis.

A double taxation avoidance agreement (DTAA) does not create any of these accounts, but it decides the rate at which India may tax the one balance that is taxable — NRO interest. Under Article 11 of India's treaties, the withholding rate on interest is 15% for a resident of the United States (treaty effective 12 September 1991), 15% for the United Kingdom (effective 26 October 1993) and 12.5% for the United Arab Emirates (effective 22 September 1993). You can read the plain-English version of these terms in the Oquilia DTAA glossary entry and the FEMA glossary entry.

Tax Treatment in India

The tax line in the table above is the whole game. Interest on an NRE account is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act 1961, and interest on an FCNR(B) deposit is exempt under Section 10(15)(fa) so long as you remain a person resident outside India. The RBI FAQ dated 16 January 2025 restates this plainly: NRE and FCNR(B) interest is tax-free in India. That exemption is the reason an NRI parks fresh foreign earnings in an NRE or FCNR(B) balance rather than an NRO account.

NRO interest gets the opposite treatment: it is fully taxable in India. The payer bank deducts tax at source under Section 195 of the Income-tax Act 1961, which requires withholding at either the DTAA rate or the domestic rate, whichever is lower. The domestic withholding rate on NRO interest is 30% plus applicable surcharge plus a 4% health and education cess, so a US-resident NRI who furnishes a valid Tax Residency Certificate is withheld at the 15% treaty rate instead of 30%. Because Section 195 has no basic-exemption threshold for non-residents, tax is deducted from the first rupee of NRO interest.

Surcharge stacks on top once income crosses set thresholds. Under the Income-tax Act 1961 the surcharge on tax is 10% for total income between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% between Rs 2 crore and Rs 5 crore. Above Rs 5 crore the surcharge is capped at 25% in the new tax regime — it does not rise to 37% for those who file under the new regime, a cap in force since FY 2023-24. The 4% cess then applies to tax plus surcharge combined.

If your NRO balance earns rental income from Indian property, that rent is taxed on top of the interest, and you can size the liability with the Oquilia NRI rental income tax calculator. The bank withholds against your gross NRO income, so a lower-deduction certificate under Section 197 is often worth obtaining to release the excess TDS during the year rather than claiming a refund after filing.

Tax Treatment Abroad

Your country of residence usually taxes worldwide income, which is where the DTAA's foreign-tax-credit machinery earns its keep. A US-resident NRI reports NRO interest on the US return and claims a foreign tax credit for the 15% Indian withholding under Article 25 of the India-US treaty (effective 12 September 1991), so the same rupee of interest is not taxed twice. Article 24 of that treaty is the general relief-from-double-taxation clause the FAQ notes rely on. The credit is limited to the US tax otherwise payable on that income, so any Indian tax above the US rate is not refunded — it simply exhausts the credit.

The United Kingdom works the same way for a UK-resident and UK-domiciled NRI: NRO interest is reported to HMRC and the 15% Indian treaty withholding is credited under the India-UK DTAA (effective 26 October 1993), whose Article 4 tie-breaker also settles dual-residence cases. The critical practical point is that NRE and FCNR(B) interest, though exempt in India, is generally still taxable in your country of residence, because the Indian exemption is a domestic relief and does not bind a foreign tax authority.

The UAE is the outlier that many Gulf NRIs misread. The UAE levies no personal income tax as of 2026 (the 9% corporate tax introduced from June 2023 applies to business profits, not salary or personal deposit interest), so an NRI resident in Dubai typically faces no second layer of tax on Indian interest. But the India-UAE DTAA still fixes India's interest withholding at 12.5% and, importantly, does not treat capital gains on shares of an Indian company as exempt — India retains the right to tax long-term capital gains at 12.5% under the treaty. To claim any treaty rate the UAE resident must produce a Tax Residency Certificate supported by proof of a UAE establishment, per the treaty notes recorded by the Central Board of Direct Taxes.

Repatriation Mechanics

Repatriation is where FEMA becomes a hard rule rather than a tax preference. The full balance of an NRE account — principal and accrued interest — is freely repatriable at any time under the FEMA (Deposit) Regulations 2016, and the same is true of an FCNR(B) deposit, which returns to you in the original foreign currency on maturity of its 1-to-5-year term. Neither needs a per-year ceiling because the money entered India as foreign exchange in the first place.

An NRO account is capped. Under the FEMA (Remittance of Assets) Regulations 2016 you may remit abroad up to USD 1 million per financial year from NRO balances, which comfortably covers most rental income, dividends, pension and even sale proceeds of inherited property once taxes are cleared. This USD 1 million route is distinct from the Liberalised Remittance Scheme, whose USD 250,000 annual limit applies only to residents, not to NRIs; an NRI never uses LRS to move NRO money out. Size the after-tax amount you can send home with the Oquilia NRI repatriation calculator.

The paperwork is fixed. Every remittance from an NRO account requires Form 15CA filed by the remitter, and where the amount is chargeable to tax a chartered accountant's certificate in Form 15CB confirming that the applicable tax has been paid must accompany it, under Rule 37BB of the Income-tax Rules 1962. Banks will not release an NRO remittance without these forms, so build the CA certificate into your timeline before instructing the transfer. Interest already suffered TDS under Section 195, so the 15CB certificate mostly confirms that position for the outward leg.

FAQ

Can I keep my resident savings account after becoming an NRI?

No. The RBI FAQ dated 16 January 2025 requires that on becoming a person resident outside India you redesignate any resident savings account as an NRO account, or close it. Continuing to operate a resident account after your status changes is a FEMA contravention. Read the residency tests in the Oquilia residential-status glossary entry to confirm when your status actually flips.

Is FCNR(B) interest really tax-free even though it is a fixed deposit?

Yes, while you remain non-resident. FCNR(B) interest is exempt under Section 10(15)(fa) of the Income-tax Act 1961, and the deposit is held for a fixed term of not less than 1 year and not more than 5 years per the FEMA (Deposit) Regulations 2016. The exemption ends if you return to India and become resident, at which point the deposit can typically be re-designated to an RFC account.

Do I pay Indian tax when I move money from NRO to NRE?

You do not pay a fresh tax on the transfer itself, but the transfer counts against your USD 1 million per financial year NRO repatriation limit under the FEMA (Remittance of Assets) Regulations 2016, and it needs Form 15CA plus a Form 15CB certificate confirming taxes are paid. The underlying NRO income was already taxed under Section 195, so the move simply repositions post-tax money into a freely repatriable account.

Which account should I use for salary earned abroad?

Use an NRE or FCNR(B) account. Both take foreign earnings remitted from outside India, both are fully repatriable, and interest on each is exempt from Indian tax under Section 10(4)(ii) and Section 10(15)(fa) respectively. An NRO account is only for India-sourced income such as rent or dividends, per the RBI FAQ dated 16 January 2025.

How is TDS on my NRO interest reduced from 30% to the treaty rate?

Furnish a valid Tax Residency Certificate and Form 10F to your bank. Section 195 of the Income-tax Act 1961 mandates withholding at the DTAA rate or the domestic rate, whichever is lower, so a US or UK resident is withheld at 15% and a UAE resident at 12.5% instead of the domestic 30% plus surcharge and 4% cess. Without the TRC the bank must deduct at the higher domestic rate. See the Oquilia TDS glossary entry for the mechanics.

Are capital gains on Indian shares exempt for a UAE-resident NRI?

No. Despite the UAE levying no personal income tax as of 2026, the India-UAE DTAA does not exempt gains on shares of an Indian company; India retains the right to tax long-term capital gains at 12.5%, the same treaty rate that applies to US and UK residents. Treat any claim that Indian capital gains are "exempt" under a DTAA as incorrect.