NRE, NRO and FCNR Accounts: How Each Is Taxed in India

Three accounts, three different tax stories

Every NRI is offered the same three banking choices in India — NRE, NRO and FCNR — and the tax difference between them is the largest single piece of NRI personal finance most people get wrong. Putting your salary into the wrong account can mean paying tax in India on income that should have been exempt; putting your Indian rent into an NRE account is non-compliant. Here is how each account actually works for AY 2026-27.

NRE (Non-Resident External) account

An NRE account holds funds remitted from abroad in Indian rupees. You move foreign currency in, the bank converts at the prevailing rate, and your balance sits in INR.

• Tax on interest: exempt under Section 10(4)(ii) while you remain a non-resident (or RNOR).
• Tax on principal: the principal is foreign-earned and is not chargeable in India.
• Repatriation: fully repatriable without limit — principal and interest can both be sent back abroad freely.
• Joint holding: can be held jointly with other NRIs/PIOs; a resident close relative can be joint on "either or survivor" basis but cannot operate it.

Used for: foreign salary, foreign-earned savings, and any funds remitted from abroad that you want to keep tax-free and freely movable.

NRO (Non-Resident Ordinary) account

An NRO account holds Indian-source income — rent, dividends, sale proceeds of Indian property, gifts received in India, pension, and so on. Funds in rupees, originating in India.

• Tax on interest: fully taxable in India at the applicable rate (TDS typically at 30% plus surcharge and cess for NRIs, recoverable as refund through your ITR if your slab is lower).
• Tax on other credits: rent, capital gains, dividends — all taxable under their respective heads, with appropriate TDS.
• Repatriation: capped at USD 1 million per financial year, requires Form 15CA / 15CB compliance — see our 15CA/15CB guide.
• Joint holding: can be held jointly with NRIs/PIOs and with resident relatives.

Used for: Indian rent, Indian dividends, property sale proceeds, and any other India-sourced rupee income.

FCNR (B) — Foreign Currency Non-Resident (Bank) account

An FCNR account is a fixed deposit denominated in foreign currency (USD, GBP, EUR, AUD, CAD, JPY, SGD typically). You deposit foreign currency, it stays in that currency, and matures in foreign currency — no exchange-rate risk on principal.

• Tax on interest: exempt under Section 10(15)(iv) while you remain a non-resident.
• Tax on principal: foreign-earned, not chargeable.
• Repatriation: fully repatriable in the original currency.
• Tenure: typically 1–5 years.

Used for: foreign-currency savings you want to park in India for predictable returns without converting to rupees, and without taking on currency risk.

When does the tax exemption stop?

The NRE/FCNR interest exemption applies while you are a non-resident (or, for NRE, RNOR for the relevant year). When you return to India permanently and become a Resident, the exemption ceases prospectively. The bank typically asks you to convert the NRE account to a regular Resident Foreign Currency (RFC) account or close it; FCNR deposits can usually run to maturity at the original rate before the tax position changes.

This timing matters: planning a return to India in October means the NRE/FCNR interest for the months after you become Resident is taxable, while the months before are not. A clean account-restructuring plan around the return date avoids surprise tax bills.

Which account for which income — the rule of thumb

The mismatch — Indian rent into NRE, or foreign salary into NRO — is non-compliant and creates a future audit trail problem.

Filing implications

For your Indian ITR, the data flows like this:

• NRO interest appears in your AIS as taxable interest; reported under Income from Other Sources; TDS credit claimed in 26AS.
• NRO rent appears as Income from House Property; standard 30% deduction; home-loan interest deductible.
• NRO capital gains on property sale appear in Schedule CG; the Section 197 certificate work moves the TDS to the right number.
• NRE/FCNR interest is not taxable while you are a non-resident, but disclose it under exempt income so your filing tells a complete story.
• Schedule FA disclosure of these accounts is not required while you are a non-resident, because they are Indian — Schedule FA applies once you become Resident and Ordinarily Resident and need to disclose your foreign holdings.

Practical reminders

• Inform the bank when your residential status changes. The accounts must be re-designated promptly; running an NRE account while resident is non-compliant.
• NRE/FCNR are wealth-protection tools, NRO is a working account. Sweep Indian income to NRE only if it is legitimately convertible foreign funds (not the case for rent).
• PAN-linked Aadhaar matters for KYC, TDS credit and pre-filing match — keep it current.
• TRC from your country of residence is needed if you want to claim DTAA relief on NRO interest withholding rates.

Pune note: we structure NRI banking around the return ITR

At RDA Tax Advisory Services, Baner, NRI banking advice is part of the annual return. For NRIs holding Pune property, we typically file the year's ITR-2 with NRO rent, ensure the NRE/FCNR exemption is correctly claimed in the exempt-income schedule, run the repatriation paperwork via 15CA/15CB, and advise on account restructuring when a return to India is on the horizon. The simplest single piece of advice: route Indian rupee income to NRO, route foreign currency to NRE/FCNR, and don't cross the streams. Office No. 102, Snehraj Apartment, Baner, Pune 411045 · call +91 77570 45059.

Get your NRI banking structure right

NRI from the Gulf, US, UK or Singapore with Pune-source income? We file your Indian return and structure your NRE/NRO/FCNR accounts cleanly so the tax exemption survives and repatriation runs without bank-side delays. Book an NRI tax consultation at rdatax.in or call +91 77570 45059 — RDA Tax Advisory Services, Baner, Pune.