This article will help NRIs/OCIs clearly understand the differences between NRE, NRO and FCNR accounts, enabling them to make informed financial decisions regarding taxation, repatriation, and managing their income from India and abroad.
Table of Contents
- Introduction – Why NRE, NRO, and FCNR Matter for NRIs & OCIs
- Who is Eligible for NRE, NRO, and FCNR Accounts?
- What is an NRE Account? – Purpose, Features & Example
- What is an NRO Account? – Purpose, Features & Example
- What is an FCNR Account? – Purpose, Features & Example
- NRE vs NRO vs FCNR Comparison – Three-Column Table & Key Differences
- Tax Implications – Tax Rules for NRE, NRO, and FCNR Accounts
- Repatriation Rules – Limits, Forms & Compliance
- Documents Required – KYC Requirements for All Three Accounts
- When to Use Each Account – Situational Guide for NRIs
- FAQs – 14+ Common Questions Answered
- Conclusion – Choosing the Right Account Strategy
1. Introduction – Why NRE, NRO, and FCNR Matter for NRIs & OCIs
NRIs and OCIs often manage multiple sources of income—foreign earnings, rental income, dividends, pensions, and investment returns. Choosing the right account type is crucial to optimize tax benefits, repatriation, and currency risk.
- NRE Account: Ideal for foreign income deposited in India with tax-free interest.
- NRO Account: For income generated in India, with tax liability and limited repatriation.
- FCNR Account: A foreign currency fixed deposit, tax-free, with no INR conversion risk.
This guide explains all three, their differences, and when to use each.
2. Who is Eligible for NRE, NRO, and FCNR Accounts?
Under the Foreign Exchange Management Act (FEMA), all three accounts—NRE, NRO, and FCNR—can be opened by both Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
Key Points:
- Non-Resident Indian (NRI)
An Indian citizen who resides outside India for purposes such as employment, business, or an indefinite stay abroad. NRIs are the primary account holders for these specialized accounts. - Overseas Citizen of India (OCI) / Person of Indian Origin (PIO)
- The PIO card scheme has been merged into OCI. Current PIO cardholders are now treated as OCIs.
- OCI cardholders—foreign citizens of Indian origin—are treated at par with NRIs in terms of financial, educational, and economic facilities under FEMA.
Conclusion on Eligibility:
If you are an NRI or an OCI cardholder, you are eligible to open NRE, NRO, and FCNR accounts. This ensures financial parity across the Indian diaspora and sets the stage for the subsequent comparison of account types.
3. What is an NRE Account?
Purpose: Park foreign income in India, converted to INR.
Key Features:
| Feature | Details |
|---|---|
| Currency | INR |
| Deposits | Only foreign currency |
| Repatriation | Fully repatriable (principal + interest) |
| Interest Taxation | Tax-free in India |
| Joint Holding | Another NRI/OCI, or a Resident Indian close relative on a ‘Former or Survivor’ basis. |
| Risk | INR depreciation |
Example:
Salary earned in the USA sent to India via NRE account grows tax-free in INR and can be repatriated anytime.
4. What is an NRO Account?
Purpose: Manage income earned in India—rent, dividends, pensions, Indian FDs.
Key Features:
| Feature | Details |
|---|---|
| Currency | INR |
| Deposits | Indian or foreign currency |
| Repatriation | Up to USD 1 million per financial year |
| Interest Taxation | Taxable; TDS applies |
| Joint Holding | Any Resident Indian or another NRI/OCI |
| Risk | Subject to currency fluctuation; limited repatriation |
Example:
Rent from your Mumbai property should be deposited in your NRO account.
5. What is an FCNR Account?
Purpose: Fixed deposits in foreign currency without conversion to INR.
Key Features:
| Feature | Details |
|---|---|
| Currency | USD, GBP, EUR, JPY, etc. |
| Deposits | Foreign currency only |
| Repatriation | Fully repatriable |
| Interest Taxation | Tax-free in India |
| Joint Holding | Similar to NRE, FCNR can also be held with another NRI/OCI, or a Resident Indian close relative on a ‘Former or Survivor’ basis. |
| Risk | No currency conversion risk |
| Best For | NRIs wanting stable, currency-protected returns for 1–5 years |
Example:
Deposit USD earned abroad into an FCNR fixed deposit to avoid INR depreciation risk while earning tax-free interest.
6. NRE vs NRO vs FCNR: Three-Column Comparison
| Feature | NRE Account | NRO Account | FCNR Account |
|---|---|---|---|
| Who Can Open | NRIs/OCIs | NRIs/OCIs | NRIs/OCIs |
| Source of Funds | Foreign income | Indian or foreign income | Foreign currency deposits |
| Currency | INR | INR | USD, GBP, EUR, JPY, etc. |
| Taxation | Tax-free | Taxable at 30% TDS | Tax-free |
| Repatriation | No limit | USD 1 million/year | No limit |
| Joint Account | With NRI/OCI, or Resident Close Relative (Former/Survivor). | Any Resident Indian or another NRI/OCI | With NRI/OCI, or Resident Close Relative (Former/Survivor). |
| Risk | Currency fluctuation | Currency fluctuation & limited repatriation | No currency risk |
| Best For | Foreign earnings in India | Domestic Indian income | Long-term foreign currency fixed deposits |
7. Tax Implications
- NRE: Interest completely tax-exempt in India.
- NRO: Interest taxable at 30% + surcharge; TDS deducted. DTAA can reduce TDS.
- FCNR: Interest completely tax-free.
Tip: Submit TRC, Form 10F, and self-declaration under DTAA to reduce TDS for NRO interest.
8. Repatriation Rules
| Account | Repatriation Limit | Requirement |
|---|---|---|
| NRE | No limit | Bank request, Form A2, ID proof |
| NRO | USD 1 million/year | Form 15CA, 15CB, tax compliance |
| FCNR | No limit | Bank request, ID proof |
NRE and FCNR offer unlimited repatriation, making them ideal for moving funds abroad freely, while NRO repatriation is capped at USD 1M/year.
9. Documents Required
| Document | NRE | NRO | FCNR |
|---|---|---|---|
| Passport & visa | Yes | Yes | Yes |
| Overseas address proof | Yes | Yes | Yes |
| PAN card | Yes | Yes | Yes |
| Indian address proof | No | Yes | No |
| Recent photos | Yes | Yes | Yes |
Accounts can be opened online with banks like SBI, HDFC, ICICI, Axis, etc.
10. When to Use Each Account
| Situation | Recommended Account |
|---|---|
| Salary abroad | NRE |
| Property rent in India | NRO |
| Foreign currency FD | FCNR |
| Repatriate foreign earnings | NRE or FCNR |
| Pension, dividends, Indian FD | NRO |
| Tax-free growth | NRE or FCNR |
| Property sale proceeds | NRO (with CA) |
11. Frequently Asked Questions (FAQs)
- Can I open all three accounts simultaneously?
Yes, NRIs/OCIs can hold NRE, NRO, and FCNR accounts at the same time. - Which account should I use for foreign salary?
NRE or FCNR. Both offer tax-free interest and full repatriation. - Can I transfer money from NRO to NRE/FCNR?
Yes, with Form 15CA + 15CB, subject to USD 1M repatriation limit. - Is interest from NRE/FCNR taxable?
No, both are tax-free in India. - Is NRO interest taxable?
Yes, at 30% TDS unless reduced under DTAA. - Do I need PAN for repatriation?
Yes, mandatory for NRO and sometimes for FCNR/NRE as bank KYC requirement. - Can I deposit Indian rental income in NRE/FCNR?
No. Must go to NRO. - Do I need to convert foreign currency for NRE?
No, bank converts automatically. FCNR keeps currency in original form. - What happens if I return to India permanently?
Convert NRE/NRO to resident accounts or RFC depending on your residency. - Are there repatriation deadlines?
Best to repatriate within the financial year; NRO requires tax compliance. - Can DTAA reduce NRO TDS?
Yes, submit TRC, Form 10F, and self-declaration. - What currencies are allowed in FCNR?
USD, GBP, EUR, JPY, CAD, AUD, and some others depending on bank. - Is FCNR suitable for short-term deposits?
Generally 1–5 years; early withdrawal may incur penalties.
12. Conclusion – Choosing the Right Account Strategy
- NRE: Foreign earnings, tax-free, full repatriation.
- NRO: Domestic income, taxable, limited repatriation.
- FCNR: Foreign currency deposits, tax-free, no INR risk.
A smart NRI/OCI often uses all three accounts strategically to maximize tax efficiency, manage currency risk, and ensure compliance. Always consult a CA for property sales, NRO repatriation, or complex transactions.
Disclaimer: This article is for informational purposes only. Regulations can change, and individual situations may vary. Always verify details before making decisions.
