FEMA NRE vs NRO vs FCNR(B): Repatriation, tax, and currency-risk comparison

For an Indian engineer in Singapore or a doctor in the United States, the practical question after the visa stamps dry is where to park the money earned abroad. The Reserve Bank of India offers three answers under the FEMA 1999 framework: Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Foreign Currency Non-Resident Bank (FCNR-B) accounts. Choosing the wrong one can cost lakhs in avoidable tax over a typical 5-year posting abroad.

This article walks through the three account types side-by-side, drawing on the RBI Master Direction on Deposits and Accounts (FED Master Direction No. 14/2015-16, last updated 9 May 2024), Section 10(4) of the Income-tax Act 1961, and FEMA Notification 5(R) of 2016.

FEMA / DTAA Position

FEMA 1999 makes a clean cut at Section 2(v) and Section 2(w) between "persons resident in India" and "persons resident outside India". An NRI is a person resident outside India under Section 2(w), which under FEMA means a stay of less than 182 days in India during the preceding financial year combined with intent to remain abroad. The Income-tax Act runs its own residency test under Section 6 — the two definitions diverge often enough that they need to be tracked separately, a point covered in detail in our companion piece on Section 6 residency tests for FY 2025-26.

Once classified as an NRI under FEMA, you are barred from holding a resident savings account in India under Schedule 3 of FEMA Notification 5(R) of 2016. Existing resident accounts must be redesignated as NRO within a reasonable period of the change in status; most public-sector banks treat 30 days as the operational cut-off. The three permitted account types are governed by the RBI Master Direction on Deposits and Accounts, which sets out eligibility, source of funds, tenure, and repatriation limits in granular detail across Schedules 1 to 3.

DTAA does not directly govern bank account selection, but it does affect how interest on NRO deposits is taxed in your country of residence. Article 11 of the OECD-model treaty, mirrored in most Indian DTAAs, allows source-country taxation of interest at a capped rate — 15 per cent under the India-USA treaty, 15 per cent under the India-UK treaty, and 12.5 per cent under the India-UAE treaty. NRE and FCNR-B interest is exempt in India under Section 10(4)(ii) of the Income-tax Act, so the DTAA cap is academic for those two buckets; for NRO it becomes the practical TDS rate after filing Form 10F and a tax residency certificate.

Tax Treatment in India

The three accounts sit at opposite ends of the tax spectrum. NRE and FCNR-B interest is fully exempt for non-residents under Section 10(4)(ii) of the Income-tax Act 1961, conditional on the depositor being a "person resident outside India" under FEMA during the year the interest accrues. NRO interest, by contrast, is fully taxable as "Income from Other Sources" under Section 56, with TDS deducted at 30 per cent plus applicable surcharge and 4 per cent health and education cess under Section 195 of the Act.

The table below summarises the tax position for FY 2025-26 across the three account types, assuming the depositor is an NRI for the whole year.

Surcharge on NRO interest follows the new-regime ceiling for FY 2025-26 — 10 per cent above Rs 50 lakh, 15 per cent above Rs 1 crore, and 25 per cent above Rs 2 crore of total taxable income, with the highest slab capped at 25 per cent. An NRI who files only to claim DTAA relief on NRO interest can use our NRI tax calculator to estimate the effective Indian tax cost net of treaty caps.

Two follow-on points are worth tracking. First, joint holding with a resident relative on an NRO account is allowed under Schedule 3 of FEMA Notification 5(R) of 2016 only on "former or survivor" basis. Second, an NRE account can be jointly held with another NRI but not with a resident in the operating mode; a resident close relative may be added only as a power-of-attorney holder under the same Schedule.

Tax Treatment Abroad

The country where the depositor is tax-resident usually treats all three accounts as ordinary foreign deposits — the Indian exemption under Section 10(4)(ii) does not carry across the border. A United States green-card holder reports NRE interest as taxable interest on Schedule B of Form 1040 and on FinCEN Form 114 (FBAR), with no foreign tax credit available because no Indian tax was paid; the rate ranges from 10 per cent to 37 per cent for tax year 2025 under the Internal Revenue Code. A United Kingdom resident reports the same on the SA106 supplementary page at the marginal rate of 20, 40, or 45 per cent, with NRO Indian TDS of 31.2 per cent claimable as Foreign Tax Credit under Article 24 of the India-UK DTAA.

The DTAA cap on NRO interest is only available if the depositor furnishes Form 10F, a tax residency certificate from the foreign tax authority, and Form 15CA/CB at remittance — without these, the bank deducts the full 31.2 per cent under Section 206AA of the Income-tax Act 1961. Where the foreign country gives an FTC, the credit is computed on the lower of the DTAA cap rate and the actual Indian TDS, so a US depositor who claims the 15 per cent cap saves the FTC computation effort even though the headline rate looks higher.

On the FCNR-B side, although interest is exempt under Section 10(4)(ii), the rupee equivalent on maturity is what the foreign country taxes — there is no Indian tax handle to reclaim against currency loss. Our piece on Section 9 deemed accrual for NRIs covers parallel cross-border accrual quirks for service income.

Repatriation Mechanics

Repatriation is where the three accounts diverge most sharply, and where rupee-dollar conversion fees can quietly eat into returns. NRE balances are fully repatriable without any limit, without any RBI permission, and without Form 15CA or 15CB, because the source of funds is by definition already foreign. The depositor instructs the bank in writing or through net banking; the bank converts rupees to the desired foreign currency at the card rate and credits the overseas account, usually within 2 working days under SWIFT MT103.

FCNR-B is even simpler — there is no rupee leg at all. The deposit is held, accrued, and matured in the original foreign currency. On maturity, the bank either rolls the deposit over, transfers it to an NRE rupee account at the prevailing spot rate, or remits the foreign currency directly to the depositor's overseas account. The depositor avoids the spread that banks add to inward and outward rupee conversions, which is a meaningful cost on round-trips above USD 50,000 in a typical year.

NRO repatriation is the only one with a hard cap. Under FEMA Notification 13/2000 and the RBI Master Direction on Remittance of Assets dated 1 January 2016, an NRI can repatriate up to USD 1 million per financial year from NRO balances, covering current income, sale proceeds of immovable property, inheritance, and Indian retirement benefits. The remittance requires Form 15CA Part C and a chartered accountant's certificate in Form 15CB, certifying that all applicable Indian taxes have been paid on the underlying income.

The table below maps the repatriation path for each account type.

For an NRI selling an inherited property in India worth Rs 4 crore, the proceeds first hit an NRO account; only USD 1 million can be moved out in a single financial year. At a USD/INR rate of approximately Rs 83 to a dollar, that limit translates to roughly Rs 8.3 crore — for a Rs 4 crore sale it is rarely a binding constraint, but for larger estates the balance waits in NRO for the next financial year. Our NRO to NRE repatriation calculator walks through the rupee-to-foreign-currency cost net of the bank's spread and the timing of CA-certified Form 15CB.

A common operational error is treating rental income from Indian property as repatriable through NRE. Rental income is India-source, must be credited to NRO under Schedule 3 of FEMA Notification 5(R), and counts towards the USD 1 million annual cap. The 30 per cent TDS under Section 195 on gross rent is deducted before the net hits NRO; the NRI rental income tax calculator handles the Section 24 standard deduction of 30 per cent that makes filing a refund return worthwhile.

For NRIs returning to India for good, the FEMA change of status is immediate from the date of return with intent to stay, even though the Section 6 Income-tax Act test classifies the person as RNOR or ROR. Funds from NRE and FCNR-B accounts can be transferred to a Resident Foreign Currency (RFC) account under Regulation 5 of FEMA Notification 10(R) of 2015, held in foreign currency and fully repatriable. Our note on NPS Tier 1 for NRIs under the PFRDA framework covers a parallel portability question.

FAQ

Can an NRI keep the same NRE account when shifting from one foreign country to another?

Yes. The NRE designation under FEMA Notification 5(R) of 2016 attaches to the depositor's resident-outside-India status, not the specific foreign country. A software engineer moving from the United States to Singapore retains the NRE account; the bank may ask for an updated KYC pack including the new address proof. The Section 10(4)(ii) exemption continues because the person remains a non-resident under FEMA throughout.

Is FCNR(B) safer than NRE during a rupee depreciation?

It depends on the time horizon. FCNR(B) eliminates rupee-currency risk because the principal stays in dollars or another foreign currency; if the rupee falls from Rs 83 to Rs 90 to the dollar during the term, the depositor receives the same dollar count back. NRE deposits, however, typically offer a 1.5 to 2 percentage point higher rupee interest rate to compensate for that currency risk. Over a 5-year horizon the comparison is empirical, not theoretical, and the historical rupee depreciation against the dollar of about 3 to 4 per cent per year sits close to the FCNR-NRE rate gap.

Can a Resident Indian fund an NRI relative's NRE account directly?

No. Under Schedule 3 of FEMA Notification 5(R) of 2016, NRE accounts can only be funded from foreign sources or transfers from another NRE or FCNR account. A resident relative can gift up to USD 250,000 per year under the LRS, but only by remitting abroad first and then crediting the NRE from the NRI's overseas bank.

Does NRO interest qualify for the Section 80TTA deduction of Rs 10,000?

No. Section 80TTA of the Income-tax Act 1961 applies only to individual residents and HUFs. An NRI's entire NRO savings interest is taxable from the first rupee at the slab rate; Section 80TTB for senior citizens is similarly restricted to residents.

Is Form 15CA mandatory for repatriating funds from an NRE account?

No. Form 15CA and Form 15CB are required only when the remittance is chargeable to tax in India and exceeds Rs 5 lakh in a financial year. NRE repatriations are foreign-source funds and not chargeable to tax in India. The bank may ask for a self-declaration on the non-applicability of Section 195.

Can an NRI hold an FCNR(B) deposit jointly with a resident close relative?

Yes, but only on "former or survivor" basis under the RBI Master Direction on Deposits and Accounts, with the NRI being the "former" or primary holder. The resident close relative, defined under Section 2(77) of the Companies Act 2013, can only receive the deposit upon the NRI's death and cannot operate the account during the NRI's lifetime in any manner that would amount to ownership.

What happens to NRE and FCNR(B) accounts after the NRI returns to India for good?

Under FEMA Notification 5(R) of 2016, both accounts must be redesignated as resident or transferred to a Resident Foreign Currency (RFC) account immediately on change of status; banks usually allow a 30-day grace period. From redesignation, the Section 10(4)(ii) exemption ceases and interest becomes taxable on the residency basis applicable under Section 6 of the Income-tax Act 1961.