NRE vs NRO vs FCNR(B): How the RBI's FEMA Master Direction Defines Each NRI Account and Its Repatriation Rights

For a non-resident Indian, the choice between an NRE, an NRO and an FCNR(B) account is not a branding preference. It is a legal decision that fixes how much of your money can leave India, whether the interest is taxed, and which exchange-rate risk you carry. The Reserve Bank of India sets all three out in its Master Direction on Deposits and Accounts, last updated on 09 October 2025, and the differences are sharper than most account-opening forms suggest. This guide breaks down each account against the actual statute, the Income Tax Act position, and the repatriation cap of USD 1 million per financial year that governs the NRO route.

The starting point is residential status. The moment you become a non-resident under the Foreign Exchange Management Act, 1999 (FEMA), a resident savings account must be re-designated, because resident accounts are not permitted to be operated by non-residents under FEMA. The three deposit products that replace it differ on exactly two axes: the currency the money is held in, and how freely it can be sent abroad. Get those two right and the tax treatment follows.

FEMA / DTAA Position

FEMA is the controlling statute. Under Section 6 of FEMA, 1999, a cross-border movement of funds needs RBI permission unless it is specifically permitted, and the Liberalised Remittance Scheme that lets resident individuals send up to USD 250,000 per financial year is a resident facility, not an NRI one. NRIs instead operate within the deposit framework laid down in the RBI Master Direction on Deposits and Accounts (id 10198 on rbi.org.in), which defines each account type and its repatriation rights.

Three account types sit inside that framework. The Non-Resident External (NRE) account is held in Indian rupees, is fully and freely repatriable, and the interest it earns is exempt from Indian income tax. The Non-Resident Ordinary (NRO) account is also held in rupees, but its interest is taxable and outward remittance is capped at USD 1 million per financial year under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016. The Foreign Currency Non-Resident (Bank) account, or FCNR(B), is a fixed deposit held in a permitted foreign currency, is fully repatriable, and its interest is treated as taxable in the hands of the holder.

The Double Taxation Avoidance Agreement (DTAA) sits on top of this. A treaty cannot make a taxable item exempt where Indian domestic law taxes it; it caps the rate and allocates taxing rights. For interest income, India's treaties cap source taxation at rates that range from 12.5% to 15% depending on the partner country, and for capital gains on Indian-company shares, India retains the right to tax at 12.5%. The DTAA never treats those capital gains as "exempt" — readers who see that word on a forum are reading marketing, not the treaty. You can model the interaction on the DTAA benefit calculator before you file.

The table below sets the three accounts side by side on the features that actually change your outcome. Each row maps to a specific FEMA or Income Tax Act consequence rather than a marketing claim.

The single most consequential line in that table is the repatriation column. An NRE balance can be sent home in full with no annual ceiling, while an NRO balance is throttled at USD 1 million per financial year — the difference matters most for anyone repatriating sale proceeds of inherited Indian property, which almost always lands in an NRO account first. You can read the formal definition of each product in our glossary entries for the NRE account, the NRO account, and the FCNR deposit.

Tax Treatment in India

Indian taxation of these accounts turns entirely on which account the interest sits in. Interest credited to an NRE account is exempt from Indian income tax, so it carries no tax deduction at source and does not enter your total income. Interest credited to an NRO account is fully taxable in India and is added to your total income for the relevant financial year, where it is taxed at the slab rates applicable to you.

Under the new tax regime for FY 2025-26, those slabs run from nil up to Rs 4,00,000, then 5% to Rs 8,00,000, 10% to Rs 12,00,000, 15% to Rs 16,00,000, 20% to Rs 20,00,000, 25% to Rs 24,00,000 and 30% above that, with a health and education cess of 4% on the tax and surcharge. NRO interest is also subject to tax deduction at source under Section 195 of the Income Tax Act, 1961, which is why most NRIs claim a refund or treaty relief at the filing stage rather than at the credit stage. Model the liability on the NRI income tax calculator before you assume the bank withheld the right amount.

Surcharge is the second layer that catches high-balance depositors. On the highest income bands the surcharge in the new tax regime is capped at 25% of base tax — it does not reach the 37% figure that still exists only in the old regime for incomes above Rs 5 crore. The table below shows the surcharge ladder that applies to NRO interest once it pushes your total income past Rs 50 lakh.

A practical point on rebates: the Section 87A rebate under the new regime for FY 2025-26 is Rs 60,000 for total income up to Rs 12,00,000, but most NRIs cannot use it because the rebate is generally unavailable to non-residents — a reminder that resident-focused planning content does not transplant cleanly to NRI returns. FCNR(B) interest follows the NRO logic for reporting purposes: it is treated as taxable in the holder's hands, and the foreign-currency denomination does not change that domestic characterisation. Rental income, which often funds NRO balances, is a separate computation you can run on the NRI rental income tax calculator.

Tax Treatment Abroad

The country you live in will usually tax your worldwide income, which is where the DTAA does its real work. India and the United States have had a treaty in force since 12 September 1991; India and the United Kingdom since 26 October 1993; and India and the United Arab Emirates since 22 September 1993. Each caps the Indian source tax on interest and dividends and preserves a foreign tax credit mechanism in the country of residence.

For a US-resident NRI, Article 24 of the India-US treaty allows the foreign tax credit to be claimed in the country of residence, so Indian tax paid on NRO interest is generally creditable against US tax on the same income. The mechanics of claiming that credit through Form 67 are covered in our note on the India-USA DTAA foreign tax credit. The UAE position is structurally different because the UAE imposes no personal income tax on individuals, so the treaty's value for a Dubai-based NRI is mainly the reduced 12.5% Indian source rate on interest rather than a credit on the other side.

Two cautions apply across all three treaties. First, treaty relief requires a Tax Residency Certificate — for the UAE, the RBI-cited note records that the TRC requires UAE establishment proof, so a visa alone will not secure the lower rate. Second, the lower dividend rates carry conditions: the India-US treaty applies 15% only where the recipient holds at least 10% of the voting stock, and 25% in all other portfolio cases under Article 10. NRE interest, being exempt in India, generates no Indian tax to credit abroad, so an NRE balance can in some jurisdictions be more efficient than the foreign tax credit dance an NRO balance forces.

Repatriation Mechanics

Repatriation is where the three accounts diverge most visibly. An NRE balance — both principal and interest — is freely repatriable with no annual ceiling, because the funds entered India as foreign currency in the first place. An FCNR(B) deposit is similarly fully repatriable and, being denominated in foreign currency, carries no rupee-conversion risk on the way out. The NRO account is the constrained one: outward remittance from it is capped at USD 1 million per financial year under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016.

That USD 1 million ceiling is per financial year and aggregates across all of an individual's NRO holdings, covering current income such as rent and interest as well as capital items like the sale proceeds of inherited property. The remittance is operationalised through a Chartered Accountant's certification on Form 15CA and Form 15CB, which confirms that the applicable tax has been paid before the bank releases the funds. Where balances exceed the cap in a single year, the practical route is to spread repatriation across financial years or to first move eligible funds from NRO to NRE. You can estimate the post-tax remittable amount on the repatriation calculator.

The NRO-to-NRE transfer deserves its own note because it is the legitimate way to escape the USD 1 million throttle on future remittance. Funds moved from NRO to NRE — again subject to the USD 1 million annual limit and the Form 15CA/15CB documentation — become fully repatriable thereafter, since NRE balances carry no outward ceiling. The RBI's portfolio routes for NRI equity, which determine how investment proceeds land in NRE versus NRO accounts, are explained in our piece on the RBI PIS routes for NRIs. And because residential status itself can change with a foreign passport, the consequences of that are covered in our explainer on Citizenship Act Section 9.

A final repatriation reality: exchange-rate risk is not a footnote. NRE and NRO balances are held in rupees, so the depositor absorbs any rupee depreciation between deposit and remittance, whereas an FCNR(B) deposit locks the foreign-currency value and shifts that risk to the bank. For an NRI who knows the money is going back out within a one-to-five-year horizon, that single feature often decides the account.

FAQ

Is interest on an NRE account really tax-free in India?

Yes. Interest credited to a Non-Resident External account is exempt from Indian income tax under the RBI deposit framework reflected in the Master Direction updated 09 October 2025, so no tax is deducted at source and the interest does not enter your Indian total income. The exemption is tied to your continued non-resident status.

Why is my NRO interest taxed when NRE is not?

Because the NRO account is designed to hold India-sourced income such as rent, dividends and pension, the interest it earns is fully taxable and subject to tax deduction at source under Section 195 of the Income Tax Act, 1961. It is added to your total income and taxed at the FY 2025-26 slab rates, which reach 30% above Rs 24,00,000 in the new regime.

What is the maximum I can repatriate from an NRO account?

Up to USD 1 million per financial year, aggregated across all your NRO holdings, under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016. The remittance requires Form 15CA and Form 15CB certification that the applicable tax has been paid, and amounts above the cap must be spread across financial years.

Can I move money from NRO to NRE to make it repatriable?

Yes, but the transfer itself counts against the same USD 1 million per financial year limit and needs the Form 15CA/15CB documentation. Once funds sit in the NRE account they are fully repatriable with no further annual ceiling, which is why the NRO-to-NRE route is the standard planning step.

Does the DTAA make my Indian capital gains exempt?

No. The Double Taxation Avoidance Agreement caps rates and allocates taxing rights; it does not exempt capital gains. India retains the right to tax long-term capital gains on Indian-company shares at 12.5% for treaty partners including the US, UK and UAE, and the treaty then lets you claim a foreign tax credit in your country of residence rather than a full exemption.

Which account carries exchange-rate risk?

NRE and NRO accounts are held in Indian rupees, so the depositor bears any rupee depreciation before remittance. An FCNR(B) deposit is held in a permitted foreign currency, which means the bank carries the conversion risk and your foreign-currency value is locked for the term of the deposit.

Do I need a Tax Residency Certificate to claim treaty rates?

Yes. To access the reduced DTAA source rates — such as 12.5% interest for a UAE-resident NRI — you must hold a valid Tax Residency Certificate from your country of residence, and for the UAE that certificate requires proof of a UAE establishment, not merely a residence visa.