NRE vs NRO vs FCNR(B): How FEMA Rules Govern NRI Bank Accounts and Repatriation

For a non-resident Indian, the choice between an NRE, NRO or FCNR(B) account is not a banking preference — it is a legal classification fixed by the Foreign Exchange Management Act, 1999 (FEMA) and operationalised by the Reserve Bank of India's FED Master Direction No. 14/2015-16 on Deposits and Accounts, first issued on 1 January 2016 and last updated on 29 June 2026. Pick the wrong account and you can trip the USD 1 million per financial year repatriation ceiling, suffer avoidable tax deducted at source, or fall into a FEMA contravention penalised under Section 13 of the Act at up to three times the amount involved.

This guide sets out, for each account type, the FEMA regulation and tax-treaty position that governs it, the tax it attracts in India, how that interacts with foreign-tax-credit rules abroad, and the exact mechanics of moving money out of India. Your first checkpoint is always your residential status under Section 6 of the Income-tax Act, 1961 — you may open and hold these three accounts only while you are a "person resident outside India" as defined in Section 2(w) of FEMA 1999. Model your own numbers with the NRI income-tax calculator before you act on any of it.

FEMA / DTAA Position

The statutory backbone is the Foreign Exchange Management (Deposit) Regulations, 2016, notified as FEMA 5(R)/2016-RB, read with the current-account framework in FEMA 10(R)/2015-RB. Section 6 of FEMA 1999 treats the opening of these accounts as a capital-account facility that the RBI has pre-permitted for NRIs and Persons of Indian Origin, so no separate approval is needed as long as the account holder remains non-resident.

The NRE account is a rupee account into which only funds sourced from outside India may be credited, and its entire balance — principal and interest — is freely repatriable under the Master Direction dated 1 January 2016. The NRO account, by contrast, is designed to receive Indian-source income such as rent, dividends and pension, and its repatriation is capped at USD 1 million per financial year under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 (FEMA 13(R)). The FCNR(B) deposit is held in a permissible foreign currency as a term deposit of one to five years, insulating the depositor from rupee movement while keeping the balance fully repatriable.

On the tax-treaty side, India's Double Taxation Avoidance Agreements (DTAAs) do not override this FEMA architecture; they only allocate taxing rights over the income these accounts generate. India's oldest relevant treaty here is the India-United States DTAA, in force since 12 September 1991, followed by the India-United Kingdom treaty of 26 October 1993 and the India-United Arab Emirates treaty of 22 September 1993. Where a treaty rate is lower than the domestic rate, Section 195 of the Income-tax Act directs the payer to withhold at the lower figure, provided the NRI furnishes a valid Tax Residency Certificate and Form 10F.

Tax Treatment in India

The single most valuable feature of the NRE and FCNR(B) accounts is that their interest is exempt from Indian income tax. Interest on an NRE account is exempt under Section 10(4)(ii) of the Income-tax Act, 1961, and interest on an FCNR(B) deposit is exempt under Section 10(15)(iv)(fa), in both cases only for so long as the holder qualifies as a person resident outside India under FEMA 1999. No TDS is deducted on these balances while that status holds.

NRO interest receives the opposite treatment: it is fully taxable in India and subject to withholding under Section 195. The domestic withholding rate on such payments to a non-resident is substantially higher than the rate applied to residents under Section 194A, which is why claiming the treaty ceiling matters. Model the after-tax position on rent routed through an NRO account with the NRO rental-income tax calculator.

Capital gains booked in India remain taxable in India regardless of which account receives the proceeds. Long-term capital gains on listed equity are taxed at 12.5% above the Rs 1.25 lakh annual exemption under Section 112A, a rate set by Budget 2024 with effect from 23 July 2024; long-term gains on property and other assets are also taxed at 12.5% without indexation for acquisitions on or after that date. A surcharge then applies on the base tax — 10% above Rs 50 lakh of total income, 15% above Rs 1 crore and 25% above Rs 2 crore — with the top surcharge in the new regime under Section 115BAC capped at 25%, not the 37% that survives only in the old regime. Health and education cess of 4% is added on top.

The treaty ceilings above come directly from the operative articles of each DTAA: Article 11 (interest), Article 10 (dividends) and Article 13 (capital gains). Note the US dividend line: the 15% rate applies only where the recipient holds at least 10% of the voting stock of the paying company, so an ordinary NRI portfolio investor falls into the 25% portfolio category under Article 10 of the India-US treaty. Compare the net outcomes for your residence country with the DTAA benefit calculator.

Tax Treatment Abroad

A treaty caps what India may withhold; it does not exempt the income in your country of residence. A US-resident NRI is taxed by the Internal Revenue Service on worldwide income and must report Indian interest, dividends and gains on the US return, then claim a foreign tax credit for the Indian tax paid. Article 24 of the India-US DTAA, in force since 12 September 1991, is the relieving provision that makes that credit available in the country of residence, preventing the same income being taxed twice.

The mechanism is symmetrical for a UK-resident NRI, whose India-source income is taxable in the United Kingdom with credit relief for Indian tax under the treaty of 26 October 1993. This is where the exempt status of NRE and FCNR(B) interest can cut the other way: because India levies no tax on that interest, there is no Indian tax to credit abroad, so a US or UK resident may pay their full domestic rate on it with no offset. NRO interest, taxed in India at the Section 195 rate reduced to the 15% treaty ceiling, generates a creditable foreign tax that softens the domestic bill.

The UAE sits apart because it does not levy a personal income tax on individuals. A UAE-resident NRI therefore has no domestic liability against which to claim a credit, and the India-UAE treaty of 22 September 1993 does the work by holding Indian withholding down to 12.5% on interest and 10% on dividends. India still retains its taxing right over capital gains at 12.5% — the treaty preserves that under Article 13, and it can never be read as making Indian capital gains free of tax. For technical-service fees, both the US and UK treaties add a "make available" test under Article 12, so a fee is taxable in India only if it transfers know-how the payer can independently reuse. To claim any of this relief you must file Form 10F and hold a current TRC; our note on claiming DTAA relief as an NRI walks through the paperwork.

Repatriation Mechanics

Repatriation is where the three accounts diverge most sharply. From an NRE or FCNR(B) account, both principal and accrued interest may be remitted abroad without any monetary ceiling and without a chartered accountant's certificate for the funds themselves, because those balances arrived as foreign exchange in the first place under FEMA 5(R)/2016-RB. This is the practical reason NRE and FCNR(B) are the preferred parking spots for money you may need overseas.

The NRO account is bounded. Under the Remittance of Assets Regulations (FEMA 13(R)), an NRI may remit up to USD 1 million per financial year out of NRO balances, covering current income such as rent, dividends and pension as well as the sale proceeds of assets. Each remittance from an NRO account generally requires Forms 15CA and 15CB — the latter a chartered accountant's certificate confirming that the applicable tax under Section 195 has been deducted — filed under Rule 37BB on the income-tax portal at incometax.gov.in. Estimate the ceiling headroom and tax leakage with the NRI repatriation calculator.

A common efficiency move is to shift eligible funds from NRO to NRE within the USD 1 million window, after which they become freely repatriable; the NRO-to-NRE transfer calculator shows what survives after tax. Finally, status is not permanent: the Master Direction requires that on your permanent return to India these accounts be redesignated to resident accounts, with an FCNR(B) deposit allowed to run to maturity and then convert to a Resident Foreign Currency account. Continuing to operate an NRE or NRO account after becoming resident is itself a FEMA contravention exposed to the Section 13 penalty of up to three times the amount involved or Rs 2 lakh, whichever is higher, plus Rs 5,000 for each day the default continues.

FAQ

Is NRE fixed-deposit interest really tax-free in India?

Yes, for as long as you remain a person resident outside India under FEMA 1999. Interest on NRE deposits is exempt under Section 10(4)(ii) of the Income-tax Act, 1961, so banks deduct no TDS. The exemption falls away from the date your residential status changes on permanent return, after which the account must be redesignated to resident under the RBI Master Direction dated 1 January 2016.

What is the repatriation limit on an NRO account?

An NRI may remit up to USD 1 million per financial year from NRO balances under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 (FEMA 13(R)). This ceiling covers both current income such as rent and pension and the sale proceeds of Indian assets. NRE and FCNR(B) balances carry no such limit.

Can I avoid the higher TDS on NRO interest?

You can reduce it to the treaty ceiling — 15% for US and UK residents and 12.5% for UAE residents under Article 11 of the respective DTAA — but only by furnishing a valid Tax Residency Certificate and Form 10F. Section 195 then directs the bank to withhold at the lower of the treaty rate and the domestic rate.

Are my capital gains exempt under the DTAA if I live abroad?

No. India retains the right to tax capital gains arising in India at 12.5% under Section 112A and the post-Budget 2024 regime, and Article 13 of the India-US, India-UK and India-UAE treaties preserves that right. Your country of residence then gives foreign-tax-credit relief; the gain is never simply exempt.

Which account should hold my Indian rental income?

Rent is Indian-source income and must be credited to an NRO account, where it is taxable and subject to TDS under Section 195. You can still repatriate it within the USD 1 million annual window after the tax is settled and Form 15CB is filed under Rule 37BB.

What happens to these accounts when I move back to India permanently?

The RBI Master Direction No. 14/2015-16 requires NRE and NRO accounts to be redesignated as resident accounts once you become a person resident in India. An FCNR(B) term deposit may run to its contracted maturity of up to five years and then be converted into a Resident Foreign Currency account rather than broken early.