NRE vs NRO vs FCNR: Which Account Do You Actually Need?

Once you become an NRI, you are legally required to stop using your regular resident savings account -- FEMA (the Foreign Exchange Management Act) does not allow a "person resident outside India" to hold an ordinary domestic savings account. You need one of three NRI-specific account types instead, and each one exists to handle a different kind of money: income you earn abroad and want to keep in India, income you earn IN India (rent, dividends, pension), and foreign-currency deposits you want to hold without conversion risk.

The account you pick is not just a banking preference -- it directly determines whether your money is taxed in India, and how easily you can move it back out. Getting this wrong is one of the most common and costly NRI mistakes: depositing India-sourced rent into an NRE account (not allowed), or leaving foreign salary sitting in a taxable NRO account by default (needlessly taxable).

A Non-Resident External (NRE) account holds money you earned OUTSIDE India (salary, business income abroad) that you choose to bring into India, converted into and held in Indian rupees. Both the principal and all interest earned are completely exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act -- no TDS, no tax owed, as long as you remain an NRI.

The tradeoff for this tax-free status is a strict rule on what you can deposit: only foreign-earned money. You cannot deposit rent, dividends, or any other India-sourced income into an NRE account -- doing so is a FEMA violation. In exchange, an NRE account is fully and freely repatriable: both the principal and the interest can be transferred abroad at any time, in any amount, with no annual cap and no CA certification required.

A Non-Resident Ordinary (NRO) account is where India-sourced income must go: rent from a property you still own in India, dividends from Indian shares/mutual funds, pension, or interest from investments made before you became an NRI. Unlike NRE, NRO interest is fully taxable in India as "Income from Other Sources" -- and it is taxed harshly at source: a flat 30% TDS (31.2% with cess) under Section 195, deducted from the very first rupee of interest, with no threshold at all.

This is a much steeper TDS rate than a resident earns on their own FD interest (10% TDS under Section 194A, and only above a ₹50,000/₹1,00,000 threshold) -- the bank simply cannot know an NRI's actual tax slab, so it withholds at the maximum rate by default. If your real liability is lower (or your treaty country qualifies for DTAA relief), you reconcile the difference when you file your Indian income tax return, or reduce the upfront TDS with a lower-deduction certificate.

NRO repatriation is capped: an NRI can move up to USD 1 million per financial year out of NRO balances (principal, after all applicable taxes are paid), and amounts above ₹5 lakh require a Chartered Accountant's certificate confirming taxes have been settled -- historically Form 15CA/15CB, replaced by Form 145/146 for remittances made from April 1, 2026 onward (see this site's "What's Changing for NRIs from April 2026" guide).

A Foreign Currency Non-Resident (FCNR) account is a term deposit held in a foreign currency itself (USD, GBP, EUR, and several others) rather than in rupees -- your money is never converted to INR at all. This means FCNR deposits carry zero currency-conversion risk: what you deposit in USD, you get back in USD (plus interest), regardless of how the rupee moves during your deposit tenure.

Tax treatment mirrors NRE: FCNR interest is fully exempt from Indian income tax under the same Section 10(4)(ii), and the account is fully and freely repatriable, just like NRE. The tradeoff is that your return is now tied to foreign-currency interest rates (which are usually lower than INR rates) rather than Indian ones, and if you eventually want the money in rupees, you take on conversion risk at that later point instead of now.

Most NRIs need more than one -- they are not mutually exclusive. A typical setup: NRE for your foreign salary/savings (tax-free, freely repatriable), NRO for any India-sourced income you still have (rent from a property, dividends, a pension) because the law requires it, and FCNR only if you specifically want to avoid currency risk on money you plan to keep for a fixed term and might eventually spend in that same foreign currency.

If you have no India-sourced income at all and no property or investments left behind, you may only need an NRE account. If you still own property or investments in India, you will need an NRO account regardless of what else you hold, since that income has nowhere else to legally go.