NRE, NRO or FCNR(B): How RBI Master Direction No.14 Governs Every NRI Bank Account

An NRI's relationship with the Indian banking system runs through three account types, and every rupee that moves in or out of them is governed by a single rulebook: the Reserve Bank of India's Foreign Exchange Department (FED) Master Direction No.14/2015-16 on Deposit and Accounts, issued under the Foreign Exchange Management Act, 1999 (FEMA). Choosing between a Non-Resident (External) or NRE account, a Non-Resident Ordinary or NRO account, and a Foreign Currency Non-Resident (Bank) or FCNR(B) deposit is not a branding decision; it decides which currency you carry exchange-rate risk in, whether your interest is taxed in India, and how much money you may send home each financial year.

This guide sets out what Master Direction No.14 permits, how the Income-tax Act, 1961 treats the interest, how a country of residence such as the United States relieves double taxation under the India-USA treaty in force since 12 September 1991, and the precise repatriation mechanics that trip up returning Indians. Use our NRI repatriation calculator alongside this piece to model the USD 1 million window described below.

FEMA / DTAA Position

FEMA, 1999 came into force on 1 June 2000 and treats every cross-border money movement as either a current-account or a capital-account transaction. Section 6 of the Act is the pivot: capital-account transactions need RBI permission unless they are specifically permitted, which is why the three NRI account types exist as pre-approved carve-outs rather than case-by-case approvals. The same Section 6 architecture caps a resident individual's outward remittance under the Liberalised Remittance Scheme at USD 250,000 per financial year, a figure worth remembering because it is often confused with the separate USD 1 million facility that applies to NRO balances.

Your residential status under FEMA, not your citizenship, decides eligibility. Master Direction No.14/2015-16 permits an NRI or a Person of Indian Origin (PIO) to open NRE and FCNR(B) accounts, both of which are fully repatriable. An NRO account sits in a wider bracket: any person resident outside India may open one for bona fide rupee transactions, which is why it is the default home for Indian-source income such as rent, dividends and pensions.

Contravening these rules is not costless. Under Section 13 of FEMA, 1999, a penalty of up to three times the sum involved in the contravention, or Rs 2 lakh where the amount is not quantifiable (whichever is higher), may be levied, with a further Rs 5,000 for every day a contravention continues. That is the statutory reason banks insist on redesignating accounts the moment your status changes.

The Double Taxation Avoidance Agreement (DTAA) layer sits on top of FEMA. A treaty such as the India-USA DTAA does not decide whether you may hold an account; it allocates taxing rights over the income the account generates and, through Article 24, guarantees a foreign tax credit in the country of residence. Crucially, India retains a taxing right over capital gains at 12.5 per cent even under the treaty; the DTAA does not make those gains exempt.

Tax Treatment in India

Here the three accounts diverge sharply. Interest earned on NRE and FCNR(B) balances is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act, 1961, for so long as the holder qualifies as a person resident outside India under FEMA. Interest on an NRO account enjoys no such shelter: it is fully taxable in India as income that arises here.

Because NRO interest is income of a non-resident, the bank must deduct tax at source before it credits the interest. Section 195 of the Income-tax Act sets the governing principle plainly: the withholding is made at the rate in force under the Act or the applicable DTAA rate, whichever is lower. An NRI who wants the lower treaty rate applied at source must file Form 10F electronically on the income-tax portal and furnish a valid Tax Residency Certificate (TRC) from the country of residence; without them, the domestic rate applies and the excess can only be recovered by filing a return. Model your net-of-TDS position with the NRI income-tax calculator.

The table below sets out how the India-USA treaty caps the tax on the main income streams an NRI account earns, against India's domestic position. Every rate is taken from the treaty in force since 12 September 1991.

Two points on the table matter for your return. First, the 15 per cent dividend rate applies only where the recipient holds at least 10 per cent of the voting stock in a direct parent-subsidiary sense; ordinary portfolio investors face the 25 per cent portfolio rate under Article 10. Second, Article 12 of the treaty applies a "make available" test to fees for technical services, so not every consultancy fee an NRI bills to India is caught.

On top of the base tax, an NRI with high Indian income pays a surcharge, which for the financial year 2025-26 is levied at 10 per cent on income between Rs 50 lakh and Rs 1 crore, 15 per cent between Rs 1 crore and Rs 2 crore, and 25 per cent between Rs 2 crore and Rs 5 crore. The surcharge in the new tax regime is capped at 25 per cent even above Rs 5 crore, whereas the old regime can reach 37 per cent. A health and education cess of 4 per cent applies on the tax-plus-surcharge total. Rental income routed through an NRO account is taxed the same way; our NRI rental-income tax calculator applies the 30 per cent standard deduction under Section 24(a) before slab rates.

Tax Treatment Abroad

An account's Indian tax treatment is only half the story, because the country of residence taxes its residents on worldwide income. For a US-resident NRI, NRE and FCNR(B) interest that is exempt in India under Section 10(4)(ii) of the Income-tax Act, 1961 is still fully taxable in the United States. The Indian exemption does not travel across the border; it simply means there is no Indian tax to credit against the US liability on that specific income.

Where India does tax the income, Article 24 of the India-USA DTAA (in force since 12 September 1991) provides the mechanism to avoid taxing the same rupee twice: the country of residence grants a foreign tax credit for the Indian tax paid, up to the amount of its own tax on that income. So if India withholds 15 per cent on NRO interest under the treaty and the US resident's marginal rate is higher, the US allows a credit for the 15 per cent and taxes only the balance. The credit is claimed on the residence-country return, not in India, which is why timing and TRC documentation matter. Our foreign-tax-credit calculator walks through the ordering.

The direction of relief is fixed by the treaty and cannot be reversed by choice. Because India retains the right to tax capital gains at 12.5 per cent under the treaty, a US-resident NRI cannot treat those gains as exempt in either country; India taxes first at up to 12.5 per cent, and the US then grants a credit under Article 24. Treating DTAA capital gains as exempt is the single most common and most expensive error NRIs make on cross-border returns.

Repatriation Mechanics

Repatriation is where the three accounts show their real differences, and Master Direction No.14/2015-16 draws the lines precisely.

NRE and FCNR(B) balances are fully repatriable without any ceiling and without RBI reference: both principal and interest can be sent abroad freely. Permissible credits to an NRE account under the Master Direction include foreign inward remittances, interest earned on the account itself, and eligible current income. An FCNR(B) deposit goes one step further by holding the money in a foreign currency, which removes rupee exchange-rate risk on the principal over the deposit term; compare tenor economics with our FCNR deposit calculator and NRE fixed-deposit calculator.

The NRO account carries the one hard numerical limit every NRI must plan around. Balances in an NRO account are repatriable only up to USD 1 million per financial year, covering the total of current-income remittances and capital transactions, and the remittance requires a chartered accountant's certificate in Form 15CB together with Form 15CA. The table below summarises the position.

On a permanent return to India, the accounts must be redesignated. Under Master Direction No.14/2015-16, NRE and NRO accounts are redesignated as resident accounts once the holder's status changes, or the NRE balance may instead be transferred to a Resident Foreign Currency (RFC) account if the returning resident wishes to keep the funds in foreign currency. Failing to redesignate promptly is itself a FEMA contravention exposed to the Section 13 penalties described earlier. If you are shifting balances between accounts before departure or return, our NRO-to-NRE transfer calculator models the USD 1 million cap and the Form 15CA/15CB paperwork.

For NRIs who need a rupee account purely to do business with India rather than to bank personal income, a Special Non-Resident Rupee (SNRR) account may be more appropriate than an NRO account; we compare the two in detail in the linked article below.

FAQ

Can I open an NRE account jointly with a resident relative?

Master Direction No.14/2015-16 permits NRE and FCNR(B) accounts to be held, and an NRO account is available to any person resident outside India for bona fide rupee transactions. Because eligibility and joint-holding conditions turn on the exact relationship and mandate, confirm the current terms directly against RBI Master Direction No.14 before opening the account. See the NRE account and NRO account glossary entries for the working definitions.

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

Yes, for so long as you remain a person resident outside India. Interest on NRE and FCNR(B) balances is exempt under Section 10(4)(ii) of the Income-tax Act, 1961. The exemption ends when your FEMA residential status changes on return, which is one reason NRE balances are redesignated or moved to an RFC account at that point.

How much can I repatriate from my NRO account each year?

Up to USD 1 million per financial year, covering both current income and capital transactions, under Master Direction No.14/2015-16. The remittance must be supported by Form 15CA and a chartered accountant's Form 15CB. NRE and FCNR(B) balances, by contrast, are fully repatriable with no ceiling.

What TDS applies to my NRO interest, and can I reduce it?

NRO interest is taxable and the bank withholds tax under Section 195 of the Income-tax Act, 1961, at the rate in force or the DTAA rate, whichever is lower. A US-resident NRI can bring the withholding down to the 15 per cent treaty rate by filing Form 10F online and providing a valid Tax Residency Certificate. Without them, the domestic rate applies and any excess is recovered only by filing a return.

Are my NRE interest earnings taxable in my country of residence?

Very likely yes. The Indian exemption under Section 10(4)(ii) does not extend abroad; a US resident, for example, must report NRE and FCNR(B) interest on the US return even though India levies nothing. Article 24 of the India-USA DTAA gives a foreign tax credit only for tax India actually charges, so exempt Indian income generates no credit.

Can capital gains ever be exempt under the India-USA DTAA?

No. India retains a taxing right over capital gains at 12.5 per cent even under the treaty in force since 12 September 1991. The DTAA relieves double taxation through the Article 24 foreign tax credit, not by exempting the gain. Treating treaty capital gains as exempt is a filing error, not a planning strategy.

What happens to my accounts when I return to India for good?

Under Master Direction No.14/2015-16, NRE and NRO accounts are redesignated as resident accounts once your status changes, or NRE funds may be moved to a Resident Foreign Currency (RFC) account to stay in foreign currency. Delay exposes you to Section 13 FEMA penalties of up to three times the amount involved, so redesignate as soon as you become a resident.