NRE vs NRO vs FCNR(B): Which NRI Bank Account to Use for Repatriation, Tax and Tenure

An Indian citizen who moves abroad for work becomes, under Section 2(w) of the Foreign Exchange Management Act 1999 (FEMA), a "person resident outside India", and the Reserve Bank of India's FAQ on "Accounts in India by Non-residents" confirms that such a Non-Resident Indian (NRI) may operate three principal deposits: the Non-Resident External (NRE) account, the Non-Resident Ordinary (NRO) account and the Foreign Currency Non-Resident (Bank) or FCNR(B) deposit. Picking the wrong one can cost an NRI the full income-tax exemption on interest, or trap savings behind the USD 1 million-per-financial-year remittance ceiling that applies only to NRO balances.

This guide sets out the FEMA and Double Taxation Avoidance Agreement (DTAA) position, the Indian tax treatment under the Income-tax Act 1961, how a foreign tax credit interacts with each account in the four largest NRI corridors, and the mechanics of moving money out. Every figure below is drawn from the RBI FAQ, the DTAA schedules and Oquilia's central rate configuration as at 24 August 2026.

FEMA / DTAA Position

FEMA 1999 is a permission-based statute. Section 6, which governs capital-account transactions, requires RBI approval for any dealing "unless specifically permitted"; the RBI has, by general permission, specifically permitted NRIs to hold NRE, NRO and FCNR(B) accounts, which is why no case-by-case sanction is needed to open them. That same permissive architecture is what lets a resident remit up to USD 250,000 a financial year under the Liberalised Remittance Scheme, the mirror-image outbound route documented in our explainer on the LRS USD 250,000 limit.

The three accounts differ on five FEMA-defined axes: the currency of denomination, the permitted account types, the deposit tenure, the tax status of the interest and the freedom to repatriate. The RBI FAQ is explicit that an NRE account is held in Indian Rupees and may be a savings, current, recurring or fixed-deposit account with a term of one to three years; that an FCNR(B) account is a term deposit only, held in any permitted foreign currency, for a tenure of not less than one year and not more than five years; and that an NRO account is held in Indian Rupees across the same four sub-types but with interest that is taxable. The table below consolidates the position stated in that FAQ.

The DTAA layer sits on top of FEMA. India has notified separate treaties with each country, and their in-force dates matter because a treaty benefit can only be claimed once the agreement is operative: the India-United States treaty took effect on 12 September 1991, the India-United Kingdom treaty on 26 October 1993, the India-United Arab Emirates treaty on 22 September 1993 and the India-Canada treaty on 6 May 1997. Crucially, none of these treaties makes an NRI's Indian-source capital gains "exempt" - India retains its taxing right, and long-term gains on listed equity are charged at 12.5% under the post-Budget-2024 regime, a point we return to under repatriation. For a plain-language definition of the treaty itself, see the DTAA glossary entry.

Tax Treatment in India

The single largest tax difference between the accounts is the interest. Under the Income-tax Act 1961, interest credited to an NRE account and to an FCNR(B) deposit is exempt from Indian income tax for so long as the holder remains a person resident outside India under FEMA; interest credited to an NRO account enjoys no exemption and is fully taxable in India. The RBI FAQ states this plainly for the NRE account and the taxability of the NRO account; readers should never treat NRO interest as tax-free. The NRE account glossary entry and the NRO account glossary entry set out the definitions in full.

Because NRO interest is taxable, it is subject to tax deducted at source (TDS) under Section 195 of the Income-tax Act 1961, the provision that governs payments to non-residents. Section 195 requires the payer bank to withhold at either the rate in force under the Act or the applicable DTAA rate, whichever is lower, provided the NRI furnishes a valid Tax Residency Certificate and, where required, Form 10F. This "whichever is lower" test is the mechanical hinge of the whole system: it is why a US-resident NRI can have NRO interest withheld at the 15% treaty rate rather than the higher domestic rate, but only once the certificate is on file. The TDS glossary entry explains the withholding concept in more depth.

For NRIs who also earn Indian-source capital gains routed through these accounts, the FY 2025-26 rate architecture applies unchanged: long-term capital gains on listed equity are taxed at 12.5% above an annual exemption of Rs 1,25,000, short-term gains on listed equity at 20%, and long-term gains on property or gold at 12.5% without indexation for assets acquired on or after 23 July 2024. Surcharge then applies on the base tax at 10% for total income above Rs 50 lakh, 15% above Rs 1 crore and 25% above Rs 2 crore; the surcharge in the new tax regime is capped at 25% even on the highest income bands. A 4% health and education cess sits on top of tax plus surcharge. You can model the combined liability on the NRI income-tax calculator.

One rebate point is worth flagging for returning NRIs who reacquire Indian residence: the Section 87A rebate under the new regime for FY 2025-26 is now Rs 60,000 for total income up to Rs 12,00,000 after the Finance Act 2025 raised the threshold. That rebate is irrelevant to non-residents, whose Indian tax is charged on Indian-source income without the resident rebate, but it becomes relevant the moment a person's day-count under Section 6 tips them into residency, as covered in our piece on the Section 6 day-count rules.

Tax Treatment Abroad

Choosing the account is only half the calculation, because the country of residence usually taxes worldwide income and then grants a foreign tax credit for the Indian tax already paid. The credit mechanism is treaty-based: Article 24 of the India-US treaty and Section 126 of Canada's Income Tax Act, for example, both allow the resident country to credit Indian tax against its own liability on the same income. The practical consequence is that NRE and FCNR(B) interest, though exempt in India, is generally still taxable in the country of residence, so the Indian exemption does not make the income tax-free worldwide; it simply means there is no Indian tax to credit.

Interest and dividends are where the treaty caps bite hardest. The withholding rates India may charge under each treaty differ, and a lower Indian withholding leaves more foreign income to be taxed at home. The table below shows the ceiling rates for the four largest corridors, all drawn from the notified DTAA schedules.

Two nuances sit behind these headline numbers. First, the US and Canadian treaties charge 25% on portfolio dividends and drop to 15% only where the recipient holds at least 10% of the paying company's voting stock under Article 10, so an ordinary NRI shareholder faces the 25% rate. Second, the UAE presents a special case: it levies no personal income tax, so a UAE-resident NRI cannot claim a foreign tax credit for Indian tax against a non-existent UAE liability, and the India-UAE treaty note is explicit that capital gains on shares of an Indian company remain taxable in India. The foreign tax credit calculator helps NRIs in creditable jurisdictions estimate the net position, while the DTAA benefit calculator compares treaty and domestic rates side by side.

For account selection, the abroad-side logic is straightforward. An NRE or FCNR(B) deposit produces zero Indian tax and therefore zero Indian TDS to reclaim, which suits residents of high-tax jurisdictions such as the United States and United Kingdom who would otherwise face a refund cycle. An NRO account, by contrast, produces Indian TDS under Section 195 that a US or UK resident must then feed into their home-country credit claim, adding a compliance step tied to the 15% treaty interest rate shown above.

Repatriation Mechanics

Repatriation is the axis on which the accounts diverge most sharply. Balances in an NRE account are fully and freely repatriable, both principal and interest, with no annual ceiling, because the funds entered the account from abroad in the first place. FCNR(B) deposits are likewise fully repatriable as to both principal and interest, and because they are held in foreign currency for a tenure of one to five years, the depositor is shielded from any rupee depreciation over the deposit term - the exchange-rate risk sits with the bank, not the customer. This is the FCNR(B) account's defining advantage, and it is why the FCNR deposit calculator and the NRE fixed-deposit calculator treat currency and tenure as first-order inputs.

The NRO account is the constrained one. Under the RBI FAQ, balances in an NRO account are remittable only up to USD 1 million per financial year, and that ceiling covers the aggregate of current and capital account remittances from the account. Repatriating NRO funds also requires a chartered accountant's certification in Form 15CB and an online Form 15CA declaration confirming that applicable Indian tax has been paid, which is the compliance gate that the tax-exempt NRE route avoids. NRIs who want to move idle NRO savings into the freely repatriable NRE pipeline can do so within the same USD 1 million ceiling; the process is set out in our NRO-to-NRE transfer calculator, and the broader outbound arithmetic in the repatriation calculator.

A structural point ties the mechanics together. The USD 1 million limit is a per-financial-year figure, so an NRI carrying a large NRO balance - typically rental income, sale proceeds of inherited property or dividends that had to land in a rupee account - may need to stagger remittances across several years beginning 1 April each year. Planning that staggering around the 12.5% long-term capital gains charge on property and the Form 15CA/15CB timeline is where most repatriation friction actually occurs, and it is the reason the choice of account should be made before the money arrives, not after.

Finally, joint holding affects estate planning. The RBI FAQ permits NRE and FCNR(B) accounts to be held jointly by two NRIs or PIOs, or with a resident close relative on a "former or survivor" basis, which lets a resident family member operate the account only after the NRI's death. That "former or survivor" wording, in force under the RBI's general permission, keeps the tax-exempt and fully repatriable character of the NRE and FCNR(B) accounts intact during the NRI's lifetime while providing a clean succession route.

FAQ

Is interest on an NRO account tax-free like an NRE account?

No. Under the Income-tax Act 1961, only NRE and FCNR(B) interest is exempt for a person resident outside India; NRO interest is fully taxable and is subject to TDS under Section 195 at the domestic rate or the applicable DTAA rate, whichever is lower. A US or UK resident who files a valid Tax Residency Certificate can have NRO interest withheld at the 15% treaty rate.

Can I hold an FCNR(B) account in any currency for any period?

Almost. The RBI FAQ confirms an FCNR(B) deposit may be held in any permitted foreign currency, but it must be a term deposit with a tenure of not less than one year and not more than five years. It cannot be a savings or current account, unlike NRE and NRO accounts, which offer all four sub-types.

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

Up to USD 1 million per financial year, per the RBI FAQ, covering the aggregate of current and capital account remittances. The remittance requires a Form 15CA declaration and, in most cases, a Form 15CB certificate from a chartered accountant confirming that applicable Indian tax has been paid.

Are my capital gains exempt in India under the DTAA?

No. None of the India-US (1991), India-UK (1993), India-UAE (1993) or India-Canada (1997) treaties exempts Indian-source capital gains; India retains the taxing right, and long-term gains on listed equity are charged at 12.5% above the Rs 1,25,000 annual exemption under the FY 2025-26 regime.

Which account avoids Indian TDS entirely?

Both the NRE account and the FCNR(B) deposit, because their interest is exempt from Indian income tax, so there is no TDS to deduct and nothing to reclaim. This suits residents of high-tax countries such as the United States and United Kingdom, whose 15% treaty interest rate would otherwise create a refund cycle on NRO interest.

Can a resident relative be a joint holder on my NRE account?

Yes. The RBI FAQ allows NRE and FCNR(B) accounts to be held jointly with a resident close relative on a "former or survivor" basis, meaning the resident can operate the account only after the NRI account holder's death, preserving the account's tax-exempt and repatriable status during the NRI's lifetime.

Does the UAE's zero income tax mean I pay no tax at all?

No. Because the UAE levies no personal income tax, a UAE-resident NRI has no foreign liability against which to claim a credit, but India still taxes Indian-source income: the India-UAE treaty caps interest withholding at 12.5% and portfolio dividends at 10%, and its notes confirm that capital gains on shares of an Indian company remain taxable in India.