NRO vs NRE vs FCNR(B): Which Account an NRI Can Open and What Each Permits Under RBI Rules

Every non-resident Indian who earns rent in Mumbai, holds maturing fixed deposits in Pune or wires salary home from Dubai eventually confronts the same three-letter alphabet soup: NRE, NRO and FCNR(B). The rules are not folklore — they sit inside RBI FED Master Direction No. 14/2015-16 (RBI/FED/2015-16/9), "Deposits and Accounts", whose Part II governs accounts in India held by persons resident outside India and which was last updated on 09 October 2025. Picking the wrong account does not just cost a few basis points of interest; it can trap legitimately earned money inside India or expose tax-free balances to a 30% withholding it never needed to suffer.

This guide separates the three deposit types by who may open them, what may be credited, how India and the residence country tax the interest, and how freely the balance can be sent abroad. Throughout, every rule is anchored to the statute or treaty that creates it, because for an NRI the difference between an NRE account and an NRO account is the difference between a repatriable, tax-exempt rupee balance and a fully taxable one.

FEMA / DTAA Position

The legal scaffolding starts with the Foreign Exchange Management Act, 1999. Section 6 of FEMA treats capital-account transactions as prohibited unless the RBI specifically permits them, and the three NRI deposit categories exist precisely as such permissions under the October 2025 Master Direction. Because the accounts are a creature of FEMA, eligibility turns on your residential status under FEMA, not on your income-tax residency — the two tests are defined separately and can diverge in the year you move.

An NRE (Non-Resident External) account is a rupee-denominated account that an NRI or Person of Indian Origin may open, and Part II of Master Direction No. 14/2015-16 restricts permissible credits to inward remittances from abroad, the interest the account itself earns, and transfers from other NRE or FCNR(B) accounts. You cannot, for instance, pay Indian rent receipts into it. The defining feature is that both principal and interest are freely repatriable without any annual ceiling.

An FCNR(B) — Foreign Currency Non-Resident (Bank) — deposit is a term deposit held in a freely convertible foreign currency rather than rupees, with a permitted tenor of 1 year to 5 years under the same Master Direction. Because the balance stays in, say, US dollars or pounds, the depositor carries no rupee-depreciation risk over the deposit's life — the bank, not the NRI, bears the currency mismatch.

An NRO (Non-Resident Ordinary) account is the catch-all rupee account that any person resident outside India may open to route legitimate Indian dues — rent, dividends, pension, sale proceeds and similar income. It is the only one of the three into which domestic Indian earnings may flow, and its trade-off is restricted repatriation: balances are generally non-repatriable beyond a USD 1 million per financial year window described in the Repatriation Mechanics section below.

Where a Double Taxation Avoidance Agreement enters the picture is for the interest these accounts earn and for any capital gains an NRI realises in India. Under the residence article (Article 4 of most Indian treaties), a dual resident is allocated to one country by the tie-breaker tests; but India never wholly surrenders source taxation. On long-term capital gains in particular, India retains a taxing right at 12.5% under every major treaty — the gain is taxable in India, never "exempt", regardless of the DTAA involved.

Tax Treatment in India

The headline tax distinction tracks the account type exactly. Interest on an NRE account is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act, 1961, for so long as the account holder qualifies as a person resident outside India under FEMA — the exemption is a function of FEMA residency, so it lapses in the year you return to India for good. Interest on an FCNR(B) deposit is likewise exempt under Section 10(15)(iv)(fa) of the same Act while the holder is a non-resident or not-ordinarily-resident.

NRO interest gets the opposite treatment: it is fully taxable in India, and because the holder is a non-resident, the bank deducts TDS at 30% under Section 195 of the Income-tax Act, 1961, before crediting interest — there is no basic-exemption cushion at the deduction stage as there would be for a resident. On top of that 30% comes the applicable surcharge and a 4% health and education cess, so the effective deduction at source begins at 31.2% even for a small NRO balance.

The surcharge is itself slabbed by total income for FY 2025-26: 10% where income exceeds Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore, and — critically for high earners — it is capped at 25% in the new tax regime (the 37% top rate survives only in the old regime above Rs 5 crore). For NRO interest that pushes an NRI past Rs 50 lakh of Indian income, that surcharge compounds the 30% base rate quickly, which is why modelling the liability on the NRI income-tax calculator before the financial year closes is worthwhile.

Two rebates that residents rely on simply do not reach NRIs. The Section 87A rebate — raised to Rs 60,000 in the new tax regime for FY 2025-26 — is available only to resident individuals, so a non-resident with Indian taxable income cannot zero out a small liability with it. NRIs who let TDS over-deduct against a lower actual slab liability must instead claim the excess back by filing a return and reconciling it on the rental income tax calculator where house-property income is involved.

Tax Treatment Abroad

Indian tax exemption is not global tax exemption. The United States taxes its residents and citizens on worldwide income, so NRE and FCNR(B) interest that India exempts under Sections 10(4)(ii) and 10(15)(iv)(fa) remains fully reportable and taxable on a US return — the Indo-US treaty effective from 12 September 1991 does not erase that, it only prevents the same income being taxed twice through the foreign-tax-credit mechanism in Article 24. Where India deducts nothing (because NRE interest is exempt) there is no Indian tax to credit, and the US tax stands in full.

For NRO interest, by contrast, the 30% Indian TDS is a creditable foreign tax. A US-resident NRI claims it as a foreign tax credit so that the same interest is not taxed twice; the treaty's role is to set the ceiling and the credit ordering, not to refund the Indian deduction. The withholding rates the major treaties cap for different income streams are summarised below, all expressed as the treaty rate India may charge at source.

The Gulf changes the calculus entirely. The UAE levies no personal income tax, so an NRI resident in Dubai has no foreign liability against which to claim a credit — the 12.5% interest cap under the India-UAE treaty (in force since 22 September 1993) and the 12.5% LTCG right India retains are the only taxes payable, provided the NRI holds a valid Tax Residency Certificate proving UAE establishment, which the treaty notes require. A US dividend recipient, by contrast, faces the higher 25% portfolio-dividend rate under Article 10 unless they hold at least 10% of the paying company's voting stock, in which case the rate falls to 15%.

The practical lesson is to match the account to the residence country's own regime. An NRE balance saves Indian tax for everyone, but the saving is only fully captured where the residence country either exempts foreign interest or where, as in the UAE, there is no income tax at all to claw it back.

Repatriation Mechanics

Repatriation — moving the money out of India — is where the three accounts diverge most sharply, and it is governed by the same October 2025 Master Direction that defines them. Both NRE and FCNR(B) balances are fully and freely repatriable: principal and interest can be remitted abroad without any monetary ceiling and without a chartered accountant's certificate, because the funds either originated abroad (NRE inward remittances) or are already held in foreign currency (FCNR(B)). This is the single biggest reason to route fresh overseas earnings through an NRE account rather than an NRO one.

NRO repatriation is the constrained case. Balances representing capital — sale proceeds of property, accumulated past income, inheritances — are repatriable only up to USD 1 million per financial year across all of an NRI's NRO accounts taken together, and the remittance requires Form 15CA (the remitter's declaration) plus Form 15CB (a chartered accountant's certificate confirming the tax position) under the Income-tax Rules. The USD 1 million window resets each financial year on 01 April.

Current income, however, escapes that cap. Rent, dividends, pension and interest credited to an NRO account in the year are treated as current-income remittances and may be sent abroad net of applicable Indian tax without consuming the USD 1 million allowance, on production of the same Form 15CA/15CB documentation. Estimating the post-tax repatriable amount in advance is exactly what the NRI repatriation calculator is built for.

One adjacent point of confusion is the Liberalised Remittance Scheme. The LRS limit of USD 250,000 per financial year under FEMA Section 6 applies to resident individuals sending money out of India — it is not the NRI repatriation route, and an NRI should never conflate the resident LRS allowance with the USD 1 million NRO facility. Funds parked in an FCNR deposit sidestep the question altogether, since they are already offshore in substance.

A clean operating model for most NRIs therefore looks like this: route overseas salary and savings into an NRE account for tax-free, freely-repatriable rupee holdings; lock larger sums into FCNR(B) deposits when you want to neutralise rupee-depreciation risk over a 1-to-5-year horizon; and confine the NRO account to genuinely Indian-source income such as rent and dividends, repatriating from it within the USD 1 million annual window after settling the 30%-plus TDS.

FAQ

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

Yes. Section 10(4)(ii) of the Income-tax Act, 1961, exempts NRE-account interest from Indian income tax for as long as the holder is a person resident outside India under FEMA. The exemption ends the year you become a FEMA resident again, so balances should typically be redesignated as resident (or RFC) accounts on permanent return.

Why does my NRO interest suffer 30% TDS when residents pay far less?

Because Section 195 of the Income-tax Act, 1961, mandates a flat 30% deduction on a non-resident's NRO interest, plus surcharge and a 4% cess, taking the floor to 31.2%. Residents enjoy a basic exemption and lower slab rates at source; NRIs do not, and must file a return to reclaim any over-deduction against a lower actual liability.

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

Capital balances in an NRO account are repatriable up to USD 1 million per financial year across all your NRO accounts, against Form 15CA and a Form 15CB certificate from a chartered accountant, under the RBI Master Direction No. 14/2015-16. Current income such as rent and dividends can be remitted net of tax without using up that USD 1 million allowance.

Can an NRI claim the Section 87A rebate to cut Indian tax?

No. The Section 87A rebate — Rs 60,000 in the new tax regime for FY 2025-26 — is available only to resident individuals. A non-resident with Indian taxable income cannot use it and must rely on treaty relief and accurate slab computation instead.

Are capital gains exempt for an NRI under a DTAA?

No. India retains a source-taxing right on long-term capital gains at 12.5% under every major treaty, including those with the US (1991), UK (1993), UAE (1993) and Singapore (1994). The gain is taxable in India; the treaty governs credit in your residence country, it does not exempt the gain.

Does an NRI in the UAE pay any Indian tax on deposits?

NRE and FCNR(B) interest stays exempt under Sections 10(4)(ii) and 10(15)(iv)(fa). NRO interest is taxable in India, and the India-UAE treaty (effective 22 September 1993) caps interest at 12.5% provided a valid Tax Residency Certificate is held; because the UAE levies no personal income tax, there is no further foreign liability.

Which account should overseas salary go into?

Overseas earnings should go into an NRE account, whose credits are limited under the Master Direction to inward remittances, account interest and NRE/FCNR(B) transfers. That keeps the balance tax-free under Section 10(4)(ii) and fully repatriable without the USD 1 million cap that constrains NRO funds.