NRI Bank Accounts in India: NRE vs NRO vs FCNR Taxation & Repatriation Limits

A Non-Resident Indian (NRI) managing money between India and abroad has three distinct account types available under FEMA regulations, and choosing the wrong one — or mixing funds between them incorrectly — creates both tax and repatriation complications that are far easier to avoid upfront than to unwind later.

1. The Three Account Types Compared

2. NRO Account Taxation in Detail

Income credited to an NRO account — rent from Indian property, dividends from Indian companies, pension, or interest on the NRO deposit itself — is taxable in India regardless of the account holder's non-resident status, because the source of income is India.

• TDS on NRO interest: Banks deduct tax at source on NRO interest income. Under the Income Tax Act, 1961 (governing FY 2025-26/AY 2026-27, the current filing year), this deduction falls under Section 195, generally at 30% plus applicable surcharge and cess (subject to a lower rate under the applicable Double Taxation Avoidance Agreement, DTAA, where the NRI furnishes a valid Tax Residency Certificate and Form 10F). From Tax Year 2026-27 (income earned from 1 April 2026 onward), this TDS obligation on non-salary payments to non-residents is governed by the Income Tax Act, 2025, under its consolidated non-salary TDS provision (Section 393) — the underlying deduction principle and DTAA relief mechanism remain the same; only the section citation changes.
• DTAA relief: Where India has a DTAA with the NRI's country of residence, the treaty rate (often lower than the domestic 30%) can be claimed at source by furnishing the Tax Residency Certificate (TRC) from the country of residence and a self-declaration in Form 10F, or claimed as a refund when filing the Indian income tax return if the bank deducted at the higher domestic rate.
• Filing obligation: An NRI with NRO income (or any other India-sourced income exceeding the basic exemption threshold) is required to file an Indian income tax return, even though tax has already been deducted at source — filing is often necessary to claim a refund of excess TDS or to formally establish DTAA relief.

3. Repatriation Limits and Documentation

• NRE and FCNR accounts are fully and freely repatriable in both principal and interest — there is no cap, since the underlying funds originated from abroad in the first place.
• NRO accounts are subject to a repatriation limit of USD 1 million per financial year (covering current income and eligible capital account transactions from the NRO account, combined), under FEMA regulations. Repatriation beyond routine current income (rent, dividend, pension credited and immediately transferable) requires the standard remittance certification process.
• Form 15CA/15CB requirement: Any remittance abroad from an NRO account (beyond specified small-value exemptions) requires Form 15CB — a Chartered Accountant's certificate confirming the nature of the remittance, applicable tax rate, and TDS compliance — followed by the remitter filing Form 15CA on the income tax e-filing portal, which the bank requires before releasing the remittance.

4. Common Practical Mistakes

1. Crediting Indian-sourced income into an NRE account. This is a FEMA violation — NRE accounts may only be funded from foreign remittances or from another NRE/FCNR account, never from rent, dividends, or other India-sourced income, which must go into an NRO account.
2. Assuming FCNR and NRE interest are always fully tax-free regardless of residential status changes. The Section 10(4) exemption is tied to the account holder's non-resident status at the time the interest accrues — an individual whose residential status under Section 6 changes to "resident" (e.g. after returning to India and staying beyond the prescribed threshold) loses this exemption on interest accruing after that change, even if the account itself continues to be labelled NRE/FCNR until formally redesignated.
3. Delaying redesignation of accounts on return to India. On becoming a resident, NRE/FCNR accounts should be redesignated (typically to Resident Foreign Currency (RFC) accounts, where eligible) or converted — continuing to operate them as NRE/FCNR post-residency-change is both a FEMA and tax-reporting issue.
4. Not obtaining the TRC/Form 10F before the bank deducts TDS, resulting in tax deducted at the higher 30% domestic rate rather than the applicable (often lower) DTAA rate — recoverable only by filing an Indian return and claiming a refund, which ties up the funds for a filing cycle unnecessarily.

Related Advisory Services & Practice Guides

• Access expert statutory assistance for Income tax advisory & compliance with our senior Chartered Accountants.
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