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NRE vs NRO vs FCNR(B) accounts in 2026: tax, repatriation and which money goes where

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In short

  • NRE interest is tax-free in India while you are a person resident outside India under FEMA; the exemption now sits in Schedule IV of the Income-tax Act, 2025.
  • NRO interest is taxable, with TDS of 30% plus surcharge and 4% cess unless you claim a lower treaty rate.
  • NRE and FCNR(B) money is fully repatriable; NRO balances can be sent abroad only up to USD 1 million per financial year (April to March).
  • FCNR(B) deposits run for 1 to 5 years in foreign currency and can continue to maturity after you return, with interest exempt while you are RNOR.

Use an NRE account for money you earn abroad and want to keep in rupees, tax-free and fully repatriable. Use an NRO account for income that arises in India, such as rent, dividends or pension. That money cannot go into an NRE account until tax is dealt with. Use an FCNR(B) deposit when you want to hold savings in dollars, pounds or another foreign currency and avoid rupee risk.

All three are rules under the Foreign Exchange Management Act (FEMA), set out in RBI’s Deposit Regulations, 2016. Tax treatment comes from the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026.

The three accounts at a glance

Feature NRE NRO FCNR(B)
Currency Indian rupees Indian rupees Foreign currency (USD, GBP, EUR, CAD, AUD, JPY and others)
Account types Savings, current, term deposit Savings, current, term deposit Term deposit only, 1 to 5 years
What you can credit Money remitted from abroad, transfers from other NRE/FCNR accounts, taxed current income Indian income, transfers from other NRO accounts, rupee gifts or loans from residents within limits Money remitted from abroad, transfers from NRE/FCNR
Tax on interest in India Exempt while you are a person resident outside India Taxable; TDS 30% plus surcharge and cess Exempt while you are non-resident or RNOR
Repatriation Full, principal and interest Current income after tax; balances up to USD 1 million per financial year Full, principal and interest
Joint holding Other NRIs, or a resident relative on “former or survivor” basis Residents or other NRIs Same as NRE
Currency risk Yours Yours Bank’s, as long as you stay in that currency

What money goes where

The simplest test is the source of the money. Foreign salary, savings and business income belong in NRE or FCNR(B). Indian income belongs in NRO.

Rent from a flat in Pune, dividends from Indian shares and an Indian pension are “current income”. They are normally credited to NRO. RBI does allow current income into an NRE account once the bank is satisfied the tax is paid. Many banks still keep it in NRO for a clean audit trail.

You cannot move NRO money into NRE freely. Any NRO-to-NRE transfer counts towards the USD 1 million annual limit and needs the same tax paperwork as a remittance abroad. Our guide to repatriating from an NRO account covers the steps.

How each account is taxed in 2026-27

NRE interest

NRE interest is exempt in India. Under the 1961 Act the exemption was Section 10(4)(ii). The Income-tax Department’s FAQs confirm it now sits in Schedule IV of the 2025 Act, with the same conditions.

The condition that matters is FEMA status, not income-tax status. You must be a “person resident outside India” under FEMA. Once you return to live in India, the exemption ends, even if you are still RNOR for income tax.

NRO interest

NRO interest is fully taxable in India. The bank deducts TDS at 30%, plus surcharge where it applies and 4% health and education cess. TDS on payments to non-residents is now under Section 393(2) of the 2025 Act (Section 195 of the 1961 Act).

You may pay less under a tax treaty. To claim it, give the bank a Tax Residency Certificate and Form 41. See using a DTAA to cut Indian tax.

FCNR(B) interest

FCNR(B) interest is exempt while you are non-resident. It stays exempt after you return, for as long as you qualify as RNOR (resident but not ordinarily resident). Once you become ordinarily resident, it becomes taxable. Our RNOR guide explains the tests.

Remember that “tax-free in India” does not mean tax-free at home. The US, UK, Canada and Australia tax their residents on worldwide income, so NRE and FCNR interest is usually reportable there.

Repatriation rules

NRE and FCNR(B) balances, including interest, can be sent abroad without any limit. No CA certificate is needed for these accounts because the money was never taxable income in India.

NRO is different. Current income can be repatriated once tax is paid. Other NRO balances, including property sale proceeds and inheritance, can go abroad only up to USD 1 million per financial year, April to March. Remittances above that need RBI approval.

Joint holding

An NRE account can be held with another NRI, or with a resident relative on a “former or survivor” basis. The resident relative can operate it only as a power of attorney holder during your lifetime. FCNR(B) follows the NRE rules.

NRO accounts can be held jointly with residents. This makes NRO the practical choice when a parent in India needs to pay bills from the same account.

Currency risk and the 2026 rate window

NRE and NRO deposits are in rupees. If the rupee weakens while your deposit runs, you get fewer dollars back at maturity. FCNR(B) removes that risk because principal and interest stay in the foreign currency.

In 2026, RBI briefly removed the interest-rate ceiling on fresh FCNR(B) deposits of 3 to 5 years. It also relaxed the cap on NRE deposits of 3 years and above. The relaxation started on 17 June 2026 and was meant to last until 30 September 2026.

On 25 August 2026, RBI cut the window short to 31 August 2026. Deposits booked or renewed by that date keep their contracted rate. From 1 September 2026, the normal ceilings apply again to new and renewed deposits.

Worked example

Priya lives in Dubai and holds three deposits in India for tax year 2026-27. Assume each earns the interest shown below.

Deposit Principal Rate (assumed) Interest
NRE FD Rs 20,00,000 7% Rs 1,40,000
NRO FD Rs 10,00,000 7% Rs 70,000
FCNR(B) USD USD 50,000 5% USD 2,500

NRE: Rs 1,40,000 is exempt. No TDS.

NRO: TDS at 30% plus 4% cess is 31.2%. Surcharge does not apply at this income level. Rs 70,000 x 31.2% = Rs 21,840 deducted. She receives Rs 48,160.

If Priya files a TRC and Form 41, the India-UAE treaty caps tax on her interest at 12.5%. Rs 70,000 x 12.5% = Rs 8,750. That is Rs 13,090 less tax than the default deduction.

FCNR(B): USD 2,500 is exempt and paid in dollars. If the rupee had moved from Rs 88 to Rs 92 per dollar over the year, her FCNR deposit would be unaffected. An NRE deposit converted back to dollars would have lost about 4.3% of its dollar value from the currency move alone (4 / 92).

What happens when you return to India

When you come back to live in India, your FEMA status changes on return. The bank must be told.

  • NRE: Redesignate it as a resident rupee account, or move the money into an RFC (Resident Foreign Currency) account. RBI’s FAQs say this should happen immediately on return.
  • NRO: Redesignate it as a resident account.
  • FCNR(B): You can keep it to maturity at the contracted rate. At maturity, it converts to a resident rupee deposit or an RFC account.

An RFC account lets you keep foreign currency you brought back, so you avoid currency risk after return. Interest on RFC is taxed like resident deposits once you are ordinarily resident. If you move abroad again, RFC money can go back into NRE or FCNR(B).

Common mistakes

  • Keeping a resident savings account after leaving India. Once you become a person resident outside India under FEMA, your resident accounts must become NRO. SBI’s FAQs say plainly that an NRI cannot hold a domestic account. Inform every bank, including small branches and old salary accounts.
  • Putting Indian rent into NRE without the bank’s approval. It breaks the audit trail and can cause repatriation problems later.
  • Assuming NRE interest stays tax-free after return. It stops when your FEMA status changes, not when your RNOR period ends.
  • Ignoring tax at home. A US or UK resident usually has to declare NRE and FCNR interest on the home tax return.
  • Leaving TDS at 31.2% when a treaty rate applies. Many NRIs never file a TRC and lose the difference.
  • Breaking an FCNR(B) deposit within a year. Banks generally pay no interest on FCNR(B) deposits closed before one year.

If you hold large NRO balances or are planning a return, a chartered accountant can map each account to your FEMA and tax status.

What to do next

Sources

This guide explains the rules as they stood on 25 October 2026. It is general information, not tax, legal or financial advice. Rules change, and individual cases have exceptions, so confirm your position with a chartered accountant before acting. Spotted an error? Tell us and we will correct it.