NRO vs NRE vs FCNR — Which Account Should an NRI Open?

Within weeks of leaving India, every NRI hits the same problem — your old resident savings account is technically illegal once you become a non-resident under FEMA, and you do not yet know which of the three special NRI accounts you actually need. This is the single most-Googled NRI banking question. The honest answer is: most NRIs need at least two accounts, sometimes three — each serves a different purpose, and choosing wrong creates either tax leakage, FEMA exposure, or repatriation friction down the line.

30-second pick

• Indian-sourced income (rent, dividends, pension, sale proceeds, mutual fund redemptions) → NRO account.
• Foreign earnings you want to remit to India and keep fully repatriable → NRE account.
• Foreign earnings as a fixed deposit, in foreign currency, without rupee depreciation risk → FCNR(B) account.
• Most NRIs need an NRO and an NRE. Add FCNR(B) if you are parking USD/GBP/EUR/CAD/AUD/JPY for 1 year+ without converting.

Side-by-side comparison

NRO — for what arrives in India

The NRO (Non-Resident Ordinary) account is what your old resident savings account converts into. Any income that arises in India — rent from a property you let out, dividends from Indian shares, sale proceeds of mutual funds, pension from your former Indian employer, sale of inherited property — flows into an NRO account.

• Indian-source income MUST go through an NRO account by FEMA rules. Letting it credit to your old (now invalid) resident savings account is a FEMA contravention.
• Interest on NRO is taxable at 30% (plus surcharge and cess), deducted at source by the bank.
• Repatriation from NRO is capped at USD 1 million per financial year (post-tax balance) — large by most retail measures but not unlimited.
• A resident close relative (parent, spouse, child) can be a joint holder on 'former or survivor' basis — useful for a family member operating the account locally on the NRI's behalf.

NRE — for what you send from abroad

The NRE (Non-Resident External) account is for money you have earned abroad and want to remit to India. Once funds land in INR in your NRE, both the principal and interest are fully repatriable (no annual cap), and the interest is exempt from Indian income tax.

• Only foreign earnings can be credited — Indian-source income cannot be deposited into NRE. Your bank will block such deposits.
• Interest on NRE savings and FD is exempt under Section 10(4)(ii) of the Income Tax Act. No TDS, no reporting in your India ITR.
• Principal AND interest are freely repatriable — you can transfer the entire balance back to your foreign account at any time, no documentation barrier.
• Currency risk lies with you — funds are held in INR. If the rupee depreciates against your home currency, your effective return drops.
• Cannot have a resident joint holder. Both holders must be NRI / PIO / OCI.

FCNR(B) — for currency-risk-free deposits

FCNR(B) — Foreign Currency Non-Resident (Bank) — is a fixed deposit only, in eight permitted foreign currencies (USD, GBP, EUR, JPY, CAD, AUD, HKD, SGD). The bank holds your deposit in the original currency for 1 to 5 years and returns it in the same currency at maturity. Interest is also paid in the deposit currency.

• Best fit when you want INR exposure on the upside, currency neutrality on the downside — but specifically want to lock USD/GBP/EUR for 12 months or more.
• Interest is tax-exempt in India under Section 10(15)(iv)(fa).
• Principal and interest are freely repatriable — no annual cap, no TDS.
• Rates are typically lower than NRE FDs in INR (the bank is taking the currency risk you are avoiding).
• Premature withdrawal usually denies interest — plan the tenor to match your liquidity needs.

Taxability — the real reason it matters

Repatriation rules — moving money back out

• NRE and FCNR(B): freely and fully repatriable. Both principal and interest. No annual cap. Bank pushes to foreign account on request.
• NRO: capped at USD 1 million per financial year (post-tax). Requires Form 15CA (online declaration by remitter) plus Form 15CB (CA certificate confirming tax position). Without 15CB, the bank will not release the remittance.
• Funds in NRO that originated from inheritance, sale of inherited property, or legacy income are also subject to the USD 1 million cap — no separate exemption.
• Once the USD 1 million cap is used up in a financial year, any further repatriation must wait until the next FY (1 April).

Joint holders and operations

• NRO — resident close relative permitted as 'former or survivor' (the resident can operate the account but not initiate transactions independently in the NRI's lifetime).
• NRE / FCNR(B) — both holders must be NRI / PIO / OCI. A resident relative cannot be added.
• All three account types support cheque book, debit card, net banking and mobile banking. NRE and FCNR(B) do not support local UPI in India for the NRI (NRO does).
• For day-to-day operations in India (paying property tax, utility bills, transferring to a resident relative), the NRO is the working account. NRE / FCNR(B) is the parking account.

When to switch on return to India

On return to India and change of residential status under FEMA, you must re-designate your accounts within a reasonable period (banks typically expect within 90 days of becoming a resident):

• NRE savings / current → re-designated as Resident Rupee account. Interest from the date of re-designation becomes taxable.
• NRE fixed deposits → can continue till maturity at the contracted rate; interest is exempt only until the date you became a resident, taxable from that date onwards.
• FCNR(B) fixed deposits → can continue till maturity at the contracted rate; interest exempt until date you became resident, taxable thereafter. Some banks offer to roll over into Resident Foreign Currency (RFC) account on maturity.
• NRO accounts → re-designated as Resident accounts.
• Funds remitted to India during your NRI period that were held in NRE/FCNR can be transferred to an RFC (Resident Foreign Currency) account post-return — RFC retains tax exemption on interest if you qualify as RNOR.

Common mistakes

• Continuing to operate an old resident savings account after becoming NRI — FEMA contravention, compoundable but expensive.
• Depositing Indian-source income into NRE — bank usually blocks; if it slips through, FEMA violation and tax exposure.
• Letting NRO interest TDS deduct at 30% without applying DTAA reduction — refund battle of 12-15 months instead of correct deduction up front.
• Forgetting to file Form 15CB before NRO repatriation — bank will reject the transfer.
• Not re-designating accounts on return to India — FEMA contravention on the resident side.
• Holding only an NRE account and parking sale proceeds of inherited property there — should go through NRO, then repatriated within the USD 1 million cap.
• Believing FCNR(B) avoids tax in country of residence — it doesn't. The exemption is only Indian. US, UK, UAE may still tax the interest based on their domestic rules.