NRI account types (NRE, NRO, FCNR) have different tax treatment. Mixing them up leads to TDS surprises, blocked remittances or wrong ITR reporting. This guide explains which account gets which tax treatment, the repatriation rules, and how to report each in your ITR.
Section references below are to the Income-tax Act, 1961, which governs FY 2025-26 (AY 2026-27). From 1 April 2026 (Tax Year 2026-27) the Income-tax Act, 2025 applies: TDS on payments to non-residents moves from Section 195 to Section 393(2), Form 15CA and 15CB become Forms 145 and 146, and Form 10F becomes Form 41 under the Income-tax Rules, 2026.
Three NRI Account Types: Quick Comparison
| Feature | NRE | NRO | FCNR (B) |
|---|---|---|---|
| Currency | Indian rupees | Indian rupees | Foreign currency (USD, GBP, EUR etc.) |
| Source of funds | Foreign earnings, funds from abroad | India-source income (rent, dividend, pension) and foreign inflows | Foreign earnings |
| Interest tax (while non-resident) | Exempt, Section 10(4)(ii) | Taxable at slab rate | Exempt, Section 10(15)(iv)(fa) |
| TDS on interest | Nil | Section 195: 30% plus surcharge and 4% cess, no threshold | Nil |
| Repatriation | Freely repatriable | Current income after tax; balances up to USD 1 million per financial year | Freely repatriable |
| Form of account | Savings, current, term deposit | Savings, current, term deposit | Term deposit only (1 to 5 years) |
NRE Account: Foreign Earnings, Interest Exempt
NRE (Non-Resident External) account: a rupee account for funds earned or held outside India.
Who can open: a person resident outside India under FEMA (an NRI or OCI cardholder). When you return to India for good, the account must be redesignated as a resident account or transferred to an RFC account.
Tax treatment:
- Interest on NRE deposits is exempt under Section 10(4)(ii) of the Income-tax Act, 1961, for an individual who is a person resident outside India under FEMA.
- Once you become a resident, interest earned after that date is taxable.
- No TDS is deducted on NRE interest.
Repatriation: principal and interest are freely repatriable.
Example:
- An NRI keeps Rs 8 lakh in an NRE fixed deposit at 7%.
- Annual interest: Rs 56,000.
- Tax on interest: Rs 0, and no TDS.
NRO Account: India-Source Income, Taxable
NRO (Non-Resident Ordinary) account: a rupee account to receive and manage income earned in India, such as rent, dividends, pension and interest.
Tax treatment:
- Interest on NRO deposits is fully taxable in India and is reported in Schedule OS (Income from Other Sources).
- TDS: the bank deducts tax under Section 195 at 30% plus applicable surcharge and 4% cess (31.2% where no surcharge applies). There is no minimum threshold for non-residents; the Section 194A thresholds apply to residents only.
- You can claim a lower treaty rate under the relevant DTAA by giving the bank a Tax Residency Certificate (TRC) and Form 10F (Form 41 from 1 April 2026). Many treaties cap tax on interest at 10% to 15%.
- If the TDS exceeds your actual tax liability, you can claim the excess as a refund by filing an ITR.
Repatriation:
- Current income credited to the NRO account (rent, interest, dividend, pension) can be remitted abroad after tax is paid.
- Other balances (for example sale proceeds of property or savings from before you became NRI) can be repatriated up to USD 1 million per financial year.
- Remittances from 1 April 2026 need Form 145 (formerly Form 15CA) and, where applicable, a chartered accountant's certificate in Form 146 (formerly Form 15CB).
Example:
- NRO fixed deposit: Rs 10 lakh at 7%, interest Rs 70,000.
- TDS at 31.2% (30% plus 4% cess, no surcharge at this income): Rs 21,840.
- If the NRI's total taxable Indian income under the new regime is only this Rs 70,000, the tax payable is nil (income below Rs 4 lakh), so the full Rs 21,840 can be claimed as a refund in the ITR. Note: the Section 87A rebate is not available to non-residents, but here the income is below the basic exemption limit.
- The Rs 70,000 interest, being current income, can be remitted abroad after tax.
FCNR (B) Account: Foreign Currency Deposit, Interest Exempt
FCNR (B) (Foreign Currency Non-Resident, Banks): a term deposit held in a foreign currency, which protects you from rupee depreciation.
- Tenure: 1 to 5 years.
- Tax treatment: interest is exempt under Section 10(15)(iv)(fa) when paid to a non-resident or a person who is resident but not ordinarily resident (RNOR). So a returning NRI can hold an FCNR deposit until maturity, and interest stays exempt while he is RNOR.
- TDS: nil while the exemption applies.
- Repatriation: freely repatriable in the deposit currency.
Example:
- An NRI deposits USD 50,000 in a 1-year FCNR deposit at 4.5%.
- Interest: USD 2,250, tax in India: nil.
- Maturity value of USD 52,250 can be remitted abroad in full.
ITR Reporting for NRI Accounts
- NRE interest: exempt. If you are filing a return anyway, disclose it as exempt income in Schedule EI.
- FCNR interest: exempt while you are non-resident or RNOR. Disclose it in Schedule EI when filing.
- NRO interest: taxable. Report in Schedule OS of ITR-2 (or ITR-3 if you have business income) and claim the TDS credit shown in Form 26AS/AIS.
- A non-resident is taxed only on income received, accruing or arising in India, so foreign salary and foreign investment income are not reported in the Indian ITR. Schedule FSI (foreign source income) applies to residents, not to NRIs.
Common Mistakes NRIs Make
Mistake 1: Keeping the NRE account after returning to India
After you return for good, interest on NRE deposits is no longer exempt. Redesignate the account and report the interest.
Mistake 2: Not reporting NRO interest
NRO interest is taxable. TDS by the bank does not remove the obligation to file if you are otherwise required to, and filing is often the only way to recover excess TDS.
Mistake 3: Ignoring treaty benefits on NRO interest
Without a TRC and Form 10F (Form 41 from 1 April 2026), the bank deducts at 30% plus surcharge and cess even if the DTAA rate is lower.
Mistake 4: Moving money from NRO to NRE without paperwork
Transfers from NRO to NRE count against the USD 1 million per year limit and need Form 145/146 (formerly 15CA/15CB) where applicable.
Key Takeaways
- NRE and FCNR interest: exempt while you are non-resident (FCNR also while RNOR).
- NRO interest: taxable, TDS under Section 195 at 30% plus surcharge and cess; claim DTAA relief with TRC and Form 10F (Form 41 from 1 April 2026).
- Repatriation from NRO: current income after tax, plus up to USD 1 million a year from balances.
- ITR: report NRO interest in Schedule OS of ITR-2 or ITR-3; disclose exempt NRE/FCNR interest in Schedule EI.
Income-tax Act 1961: Section 10(4)(ii) (NRE interest), Section 10(15)(iv)(fa) (FCNR interest), Section 195 (TDS on payments to non-residents), Section 6 (residential status); Income-tax Act 2025, Section 393(2) (TDS on payments to non-residents from 1 April 2026); Income-tax Rules 2026 (Forms 41, 145, 146); RBI Master Direction on Deposits and Accounts and FEMA (Deposit) Regulations, 2016 (NRO repatriation up to USD 1 million per financial year).
