NRE vs. NRO vs. FCNR: The Only Guide You’ll Ever Need.
Becoming a Non-Resident Indian (NRI) comes with a major financial checklist. One of the first (and most confusing) tasks is sorting out your bank accounts. You can no longer hold a standard resident savings account, but the alternatives—NRE, NRO, and FCNR—often look like alphabet soup.
Which one allows you to send money back to foreign countries? Which one is tax-free? And which one should you use for your rental income in India?
In this guide, we break down the three major types of NRI accounts, weigh their pros and cons, and help you decide exactly which one fits your portfolio.
1. Non-Resident External (NRE) Account
Best for: Transferring foreign earnings to India for savings or investments.
An NRE account is a rupee-denominated account. You deposit foreign currency (USD, GBP, EUR), and the bank converts it into Indian Rupees (INR) at the current exchange rate.
Pros of NRE Accounts
- 100% Tax-Free: The biggest advantage is that interest earned on an NRE savings account or Fixed Deposit (FD) is tax-free in India.
- Full Repatriability: You can move your principal amount and the interest back to your country of residence at any time without restrictions.
- Joint Holding: You can hold this account jointly with another NRI.
Cons of NRE Accounts
- Exchange Rate Risk: Since your money is held in Rupees, you are exposed to currency fluctuations. If the Rupee weakens against the Dollar, your money loses value when you convert it back.
- No Indian Deposits: You generally cannot deposit Indian cash (Rupees) into this account; funds must originate from abroad.
2. Non-Resident Ordinary (NRO) Account
Best for: Managing income earned inside India (Rent, Dividends, Pension).
If you have tenants paying rent in Bangalore or you receive dividends from Indian stocks, that money generally cannot go into an NRE account. It must go into an NRO account.
Pros of NRO Accounts
- Essential for Local Income: It allows you to collect and manage funds generated within India.
- Joint Holding with Residents: Unlike NRE accounts, you can open an NRO account jointly with a resident Indian (e.g., your parent or spouse living in India).
Cons of NRO Accounts
- High Tax: Interest earned is taxable. The TDS (Tax Deducted at Source) on NRO accounts is significantly higher—typically 30% plus cess.
- Restricted Repatriation: Moving money from an NRO account back to a foreign country is strictly regulated. The limit is currently capped at $1 million USD per financial year, and it requires specific documentation (Forms 15CA and 15CB).
3. Foreign Currency Non-Resident (FCNR) Account
Best for: Investors who want to keep their money in foreign currency to avoid exchange rate loss.
Think of an FCNR account as a Fixed Deposit (FD) that stays in foreign currency (USD, GBP, JPY, etc.) rather than converting to Rupees.
Pros of FCNR Accounts
- Zero Exchange Risk: If you deposit $10,000, you withdraw $10,000 (plus interest). You don't have to worry about the Rupee crashing.
- Tax-Free: Like the NRE account, interest earned on FCNR deposits is exempt from Indian income tax.
- Fully Repatriable: You can transfer the principal and interest back abroad freely.
Cons of FCNR Accounts
- Low Liquidity: This is purely a Term Deposit product (1 to 5 years). It is not a savings account you can use for daily UPI transactions or payments.
- Forex Volatility: While you avoid Rupee risk, you are still tied to the performance of the foreign currency you selected.
| Feature | NRE Account | NRO Account | FCNR Account |
|---|---|---|---|
| Primary Use | Transferring foreign savings | Income earned in Indi | Foreign currency investment |
| Currency | Indian Rupees (INR) | Indian Rupees (INR) | Foreign (USD, GBP, etc.) |
| Tax in India | Tax-Free | Taxable (~30%) | Tax-Free |
Repatriation |
Fully Repatriable |
Restricted ($1M limit) |
Fully Repatriable |
Exchange Risk | Yes |
No |
No |
Final Verdict: Which Account Do You Need?
Most NRIs typically need a combination of accounts rather than just one. Here is how to choose based on your specific needs:
Choose NRE if: You want to send your overseas salary to India to support your family or invest in Mutual Funds, and you want the option to take the money back later.
Choose NRO if: You still have financial ties to India, such as a rental property, a pension, or an old savings account that needs to be converted.
Choose FCNR if: You are parking a large sum of money (e.g., $25,000+) for a fixed period and you are worried that the Indian Rupee might lose value against the Dollar.
The "Combo" Strategy
For most expats, the best setup is to open both an NRE and an NRO account. Use the NRE account for your foreign savings to enjoy tax-free interest, and use the NRO account to handle your local expenses and income in India.
4. Frequently Asked Questions (FAQs)
Q: Can I transfer money from my NRO account to my NRE account? A: Generally, no. Funds in an NRO account are non-repatriable and cannot be freely transferred to an NRE account (which is fully repatriable). To move funds from NRO to NRE, you typically need to provide a chartered accountant’s certificate (Form 15CB) and submit Form 15CA to the tax department, subject to the $1 million USD annual limit.
Q: What happens to my accounts if I return to India permanently? A: If you move back to India, you must inform your bank. Your NRE and FCNR accounts will typically be converted into Resident Foreign Currency (RFC) accounts or standard resident savings accounts. Your NRO account will be converted into a regular resident savings account.
Q: Is the principal amount in an NRE account safe from currency fluctuations? A: No. The principal in an NRE account is held in Indian Rupees. If the Rupee weakens against your foreign currency (e.g., USD or GBP) while your money is parked in India, you will get fewer dollars back when you convert it to repatriate. For protection against this, consider an FCNR account.
Q: Can I open these accounts jointly with a resident Indian? A:
NRE: No, you can only hold it jointly with another NRI.
NRO: Yes, you can hold it jointly with a resident Indian (like a parent or spouse) on a "Former or Survivor" basis.
Q: Do I need to pay tax in India on FCNR interest? A: No. Interest earned on FCNR deposits is fully exempt from Indian income tax as long as you maintain your NRI status.