Most NRIs open their first non-resident account at the branch where the family already banks, usually on the relationship manager’s advice. It feels like paperwork. Under the Foreign Exchange Management Act, 1999 (FEMA), it decides what money can go into the account, what can leave India, how the interest is taxed and who can operate the account when you can’t.
Getting the NRE vs NRO account FEMA rules wrong rarely causes trouble in the first year. The problem surfaces later, when you try to remit sale proceeds abroad, when a parent who is a joint holder passes away, or when you move back to India and the tax department asks why you are still claiming exempt interest.
This guide explains how the NRE, NRO and FCNR(B) accounts differ, what a joint account between an NRI and a resident can and cannot do, and the mistakes we most often see clients trying to unwind.
NRE, NRO and FCNR(B): what each account is for
The short answer: NRE holds money you earned abroad, NRO holds money that arises in India, and FCNR(B) holds foreign earnings in foreign currency for a fixed term.
NRE (Non-Resident External) account. A rupee account funded from outside India. Permitted credits include inward remittances, transfers from your other NRE or FCNR(B) accounts, and maturity proceeds of investments made from NRE funds. The principal and interest can be sent abroad without a cap. Interest is exempt from Indian income tax while you are a person resident outside India under FEMA, and this exemption continues under the Income-tax Act, 2025. Because the balance sits in rupees, you carry the exchange-rate risk.
NRO (Non-Resident Ordinary) account. A rupee account for income that arises in India: rent, dividends, pension, interest, and sale proceeds of assets you held before you left. It can also receive foreign remittances. Interest is taxable, with TDS at 30% plus surcharge and cess unless a tax treaty rate applies and you furnish a Tax Residency Certificate. Repatriation is capped at USD 1 million per financial year, and each remittance needs Form 15CA and, in most cases, a chartered accountant’s certificate in Form 15CB. Transfers from NRO to NRE count against the same USD 1 million.
FCNR(B) (Foreign Currency Non-Resident) account. A term deposit held in a foreign currency such as US dollars, pounds or euros, for one to five years. There is no conversion into rupees, so the principal is protected from rupee depreciation. Principal and interest are fully repatriable, and interest is exempt while you are an NRI or RNOR. It is a deposit, not an operating account, so you cannot use it for day-to-day payments.
| NRE | NRO | FCNR(B) | |
|---|---|---|---|
| Currency | Indian rupees | Indian rupees | Foreign currency |
| Typical source of funds | Earnings abroad | Income arising in India | Earnings abroad |
| Repatriation | Free, no cap | Up to USD 1 million per financial year | Free, no cap |
| Tax on interest in India | Exempt while non-resident | Taxable, 30% TDS plus surcharge and cess | Exempt while NRI or RNOR |
| Account form | Savings, current, term deposit | Savings, current, term deposit | Term deposit only (1–5 years) |
| Joint holding with a resident | Close relative, “former or survivor” only | Resident, “former or survivor” only | Close relative, “former or survivor” only |
How to choose between them
Most NRIs need an NRO account whether they want one or not. Once you become a person resident outside India, any income that arises in India has to be received in an NRO account. Rent from a flat in Pune cannot be credited to an NRE account, however convenient that would be.
The NRE account is the right home for savings you send from abroad and may want to take back. If you are earning in Dubai or London and building a corpus in India, keep it in NRE so the interest stays tax-free and the money stays fully repatriable.
FCNR(B) makes sense for a lump sum you will not touch for a year or more, particularly if you expect to need it in foreign currency later. A family planning to fund a child’s university fees in the US, or an NRI who intends to retire abroad, avoids two rounds of currency conversion. If you think you may need the money within a year, an FCNR(B) deposit is a poor fit, because premature withdrawal can cost you some or all of the interest.
One point that catches many people: FEMA residence and income-tax residence are tested differently. Under FEMA, you become non-resident when you leave India for employment, business or any purpose showing an intention to stay outside for an uncertain period. The day you take up a job abroad matters more than how many days you spend in India. Your bank account status should follow your FEMA status, not your tax return.
Joint accounts between an NRI and a resident
An NRI can hold an account jointly with a resident family member, but the resident usually cannot use it. The rules depend on whose account it is.
When the NRI is the primary holder. RBI permits an NRE account or FCNR(B) deposit to be held jointly with a resident relative only on a “former or survivor” basis. An NRO account can be held jointly with a resident on the same basis. In plain terms, only the NRI operates the account during their lifetime. The resident steps in as survivor after the NRI’s death, or operates it earlier only under a power of attorney, and then only for permitted local payments. A parent in Lucknow cannot simply withdraw from their son’s NRE account because their name is on the passbook.
When the resident is the primary holder. A resident individual may add an NRI close relative to their own resident savings or deposit account on an “either or survivor” basis. The account remains a resident account for every purpose. The NRI can operate it only on the resident’s behalf for domestic payments, cannot put their own money into it, and cannot treat the balance as theirs. If the NRI becomes the survivor, the account must be redesignated as an NRO account, and RBI places the burden of telling the bank on the NRI.
Who counts as a close relative. RBI relies on the definition of “relative” in the Companies Act, 2013. That covers spouses, parents, children and their spouses, and siblings, among others. Cousins, uncles, aunts and friends do not qualify.
The practical risk is a mismatch between what the family intends and what the account allows. Adding a child abroad to a parent’s account is a sensible succession step. Using that account to move the parent’s savings to the child’s NRE account, or abroad, is not permitted without following the remittance route.
Mistakes that are hard to undo
1. Keeping a resident savings account after moving abroad
This is the most common lapse we see. When you become a person resident outside India, your existing resident accounts must be redesignated as NRO accounts. Many people keep using the old account for years, sometimes with mutual fund folios and a demat account still linked to it under resident status. Fixing it means more than a form at the bank. Investment records, KYC and the tax treatment of past interest may all need correcting, and a long-running contravention may need to be regularised through compounding under FEMA.
2. Crediting Indian income to an NRE account
Rent, dividends from Indian shares or proceeds from selling a property bought while you were resident are not permitted credits to an NRE account. Once they go in, the account no longer holds only foreign-sourced money. That weakens your position on repatriation and on the interest exemption, and the bank may have to reverse the entries. Route Indian income to NRO first, then move it to NRE within the USD 1 million limit with the required certificates.
3. Treating NRO money as freely repatriable
NRO balances can be sent abroad, but only within USD 1 million per financial year, after tax has been paid, and with Form 15CA and usually Form 15CB. A large property sale late in the financial year can leave part of the proceeds waiting for the next year’s limit. Plan the timing before you sign the sale deed, not after.
4. Choosing the wrong joint-holding mandate
Some branches open NRE accounts with a resident parent on an “either or survivor” mandate. FEMA does not allow that for an NRE account. If the resident has been operating it, those withdrawals may need explaining. When a joint holder dies, a wrong mandate or a missing nomination can also turn a simple transfer into a claim process with the bank. Check the mandate printed on your account opening form, and update nominations while everyone is available to sign.
5. Not redesignating accounts when you return to India
When you move back for employment, business or an uncertain period, your NRE and NRO accounts should be redesignated as resident accounts, or the NRE balance moved to a Resident Foreign Currency (RFC) account. NRE interest stops being exempt once you are resident under FEMA. People who leave the NRE account running and keep claiming the exemption often hear about it through a tax notice years later. An FCNR(B) deposit can run until maturity, and its interest stays exempt while you are RNOR, so a returning NRI has some room to plan. That room is lost if nobody looks at the accounts until after the first tax return.
FAQs
Can I transfer money from my NRO account to my NRE account?
Yes, within the USD 1 million per financial year limit that applies to NRO repatriation. The bank will ask for Form 15CA and usually a CA certificate in Form 15CB showing that tax on the funds has been paid.
Can my parents operate my NRE account in India?
Not as joint holders while you are alive. A resident relative on an NRE account holds it on a "former or survivor" basis. They can operate it only under a power of attorney you give them, and only for permitted local payments.
Can an NRI be added to a parent's resident savings account?
Yes, if the NRI is a close relative. The account stays a resident account, the NRI can only operate it on the parent's behalf for payments in India, and it must be redesignated as NRO if the NRI becomes the survivor.
Is NRE interest still tax-free under the new Income-tax Act?
Yes. The exemption for NRE interest has been carried into the Income-tax Act, 2025, and continues to depend on your being a person resident outside India under FEMA.
What happens to my FCNR(B) deposit if I move back to India?
It can continue until maturity at the contracted rate. Interest remains exempt while you are RNOR. On maturity, the proceeds go to a resident or RFC account.