NRE, NRO, FCNR — the three accounts and their tax.

NRE (Non-Resident External) Account:

• Rupee-denominated.
• Funded from foreign-currency inward remittances or transfers from another NRE / FCNR account.
• Interest is fully exempt from Indian income tax under Section 10(4)(ii) — a major incentive for NRIs.
• Principal and interest are fully repatriable (no USD 1M cap).
• Joint account only with another NRI (not with a Resident).

NRO (Non-Resident Ordinary) Account:

• Rupee-denominated.
• Funded from India-source income (rent, dividend, pension, salary earned in India).
• Interest is fully taxable in India as interest income — TDS at 30% + surcharge + cess deducted by the bank at source.
• Repatriation capped at USD 1 million per financial year with Form 15CA + 15CB.
• Joint account allowed with Resident Indian relative.

FCNR (Foreign Currency Non-Resident) Deposit:

• Foreign-currency denominated (USD, GBP, EUR, JPY, AUD, CAD) — no exchange risk for the NRI.
• Only term deposit (1 to 5 years); no FCNR savings account.
• Interest is fully exempt from Indian income tax under Section 10(4)(ii).
• Principal and interest are fully repatriable (no USD 1M cap).
• Protects NRI corpus from INR depreciation.

NRE Savings Account interest: Nil Indian tax (Section 10(4)(ii)).

NRE Fixed Deposit interest: Nil Indian tax (Section 10(4)(ii)). Important: this exemption applies only while the account holder is NRI. On becoming Resident, the exemption ends from the re-designation date.

NRO Savings Account interest: Fully taxable in India at the NRI's slab rate. The bank deducts TDS at 30% + surcharge + cess at source. If the actual slab rate is lower, refund via ITR filing.

NRO Fixed Deposit interest: Same as NRO Savings — fully taxable; TDS at 30% deducted at source.

FCNR interest: Nil Indian tax (Section 10(4)(ii)). Foreign-currency protected.

DTAA relief on NRO interest: treaty rate (typically 10-15%) overrides 30% domestic withholding if TRC + Form 10F are filed with the bank in advance. Many NRIs miss this and pay 30% unnecessarily.

From NRE: freely repatriable; no cap. Bank processes outward remittance to the NRI's overseas account on request. Form 15CA / 15CB generally not required (NRE funds are considered foreign-origin).

From NRO: up to USD 1 million per financial year (April to March). Form 15CA + Form 15CB required.

From FCNR: freely repatriable in the foreign currency of the deposit; no exchange, no cap.

Transfer between accounts: NRE to NRO is permitted (NRE loses its 'external' character once in NRO). NRO to NRE is NOT permitted without specific authorisation — this is a common FEMA trap. NRE to FCNR and FCNR to NRE transfers are permitted.

When the NRI returns to India permanently and becomes Resident:

• NRE and NRO accounts must be re-designated as Resident accounts within reasonable time (practically 60-90 days post-return).
• NRE Fixed Deposits can be converted to RFC (Resident Foreign Currency) deposits — useful if the NRI wants to retain the foreign-currency corpus but is now Resident.
• FCNR deposits can continue until maturity even after becoming Resident, but the exemption on interest ends from the re-designation date; interest from re-designation onward is taxable.
• RFC Account (Resident Foreign Currency): allows Returning NRIs to continue holding foreign currency balances; interest taxable but useful for ongoing foreign-currency obligations.

Failure to re-designate: FEMA breach; bank may freeze the account; penalty under FEMA Section 13 up to 3 times the amount involved.