NRE vs NRO vs FCNR Accounts: Which One Should an NRI Choose?

Non-Resident Indians often juggle income from abroad and India, alongside concerns about taxes, repatriation and currency fluctuations. The right NRI bank account or combination can simplify this while maximizing returns and flexibility.

NRE accounts suit overseas earnings remitted to India, offering tax-free interest and unrestricted repatriation. NRO accounts handle Indian-sourced income like rent or dividends, with taxable interest but manageable repatriation. FCNR accounts protect foreign currency savings from rupee volatility through term deposits in currencies like USD or GBP.

This guide compares features, pros/cons and scenarios to help choose the best fit. Rates vary by bank and tenure; always check current offerings. For personalized planning, consult experts at ezyLegal.

Who Qualifies as an NRI?

Under the Income Tax Act and FEMA, an Indian citizen or Person of Indian Origin becomes an NRI if they do not meet resident criteria: staying in India 182+ days in a financial year or 60+ days in the year plus 365+ days over four prior years (with exceptions for crew/employment abroad).

NRIs cannot hold regular resident accounts; banks redesignate them as NRO upon status change for compliance.

Why NRIs Need Specialised Accounts

FEMA mandates dedicated accounts for managing funds. These allow parking overseas earnings, handling Indian income or holding foreign currency, with benefits like tax exemptions and repatriation ease.

NRIs can hold multiple types simultaneously, often the smartest approach for diverse needs.

Key Features of Each Account

NRE Account: For Overseas Earnings in Rupees

Deposit foreign income converted to INR. Ideal for remittances to cover Indian expenses or investments.

• Tax: Interest is fully exempt in India.
• Repatriation: Principal and interest are freely transferable abroad.
• Currency Risk: Exposed to INR fluctuations.
• Types: Savings, current, fixed/recurring deposits.
• Joint Holding: With another NRI or resident close relative (former/survivor basis).

NRO Account: For Income Earned in India

Mandatory for domestic sources like rent, dividends or pensions. Resident accounts convert to NRO on NRI status.

• Tax: Interest taxable (~30% TDS + surcharge/cess).
• Repatriation: Current income freely; overall up to USD 1 million per FY (after taxes/documentation).
• Currency Risk: Held in INR.
• Types: Savings, current, fixed/recurring deposits.
• Joint Holding: With residents or NRIs.

FCNR Account: For Foreign Currency Savings

Term deposits in designated currencies (USD, GBP, EUR, AUD, CAD, JPY, etc.), shielding from exchange risks.

• Tax: Interest is exempt in India.
• Repatriation: Full for principal and interest.
• Currency Risk: None, matures in original currency.
• Types: Fixed deposits only (1-5 years).
• Joint Holding: With other NRIs.

All qualify for DICGC insurance up to ₹5 lakh (or equivalent) per depositor per bank.

Comparison Table: NRE vs NRO vs FCNR

Feature	NRE	NRO	FCNR
Purpose	Overseas income in INR	Indian-sourced income	Foreign currency savings
Currency	INR	INR	Foreign (USD, GBP, etc.)
Fund Source	Abroad only	India or abroad	Abroad only
Interest Tax (India)	Exempt	Taxable (~30%)	Exempt
Repatriation	Full & free	Up to USD 1M/FY (after tax)	Full & free
Exchange Risk	Yes	Yes	No
Account Types	Savings, FD, RD, Current	Savings, FD, RD, Current	FD only (1-5 years)
Joint with Resident	Yes (close relative)	Yes	No
Loans Against	Yes	Yes	Yes

Pros and Cons

NRE Pros: Tax-free growth, easy repatriation, flexible types.

NRE Cons: Currency risk, no Indian income deposits.

NRO Pros: Handles local earnings, investment access.

NRO Cons: Tax on interest, repatriation limits/documentation.

FCNR Pros: No currency risk, tax-free, higher potential in low-rate countries.

FCNR Cons: Fixed tenure only, premature penalties, rates vary globally.

Real-World Scenarios

1. Pure Overseas Income: NRE for remittances, tax-free FDs, easy spending in India.
2. Rental/Property Income: NRO mandatory, credit rent, pay taxes, repatriate within limits.
3. Currency Hedge: FCNR in USD/GBP for long-term savings protected from rupee drop.
4. Mixed Portfolio: Many hold all three, NRE for liquidity, NRO for rent, FCNR for hedge.
5. Returning NRI: Transfer to RFC (taxable interest but foreign currency hold).

Practical Tips

• Compare rates across banks (e.g., SBI, HDFC, ICICI). FCNR often beats home-country savings.
• Use NRE for India expenses to avoid conversion fees.
• Plan repatriation early for NRO (CA certificate needed).
• Monitor status changes; returning permanently requires redesignation to RFC/resident.
• DIY opening online possible; attest documents if abroad.

These choices align banking with goals, minimizing taxes/risks.

For help opening accounts, compliance or tax advice, reach out to ezyLegal.

Frequently Asked Questions: NRE vs NRO vs FCNR Accounts – Which One Should an NRI Choose

Q1. What is the main difference between NRE, NRO and FCNR accounts?

Ans1. NRE for foreign income in INR (tax-free, full repatriation); NRO for Indian income (taxable, limited repatriation); FCNR for foreign currency deposits (no exchange risk, tax-free).

Q2. Which account is best for rental income in India?

Ans2. NRO is mandatory for domestic sources like rent.

Q3. Is interest on NRE and FCNR taxable in India?

Ans3. No, fully exempt while NRI.

Q4. How does FCNR protect against currency risk?

Ans4. Deposits/mature in foreign currency, no INR conversion.

Q5. Can NRIs hold all three accounts?

Ans5. Yes, common for comprehensive management.

Q6. What is the NRO repatriation limit?

Ans6. USD 1 million per FY (after taxes/documentation).

Q7. Which offers better rates for USD savings?

Ans7. FCNR often higher than overseas banks, but compare current quotes.

Q8. Can Indian income go into NRE?

Ans8. No, violates FEMA; use NRO.

Q9. Are these accounts insured?

Ans9. Yes, DICGC up to ₹5 lakh (or equivalent) per bank.

Q10. What happens on return to India?

Ans10. Redesignate NRE/FCNR to RFC (interest taxable).

Q11. Which avoids exchange rate losses best?

Ans11. FCNR holds original currency.

Q12. Can I transfer between accounts?

Ans12. Yes (e.g., NRE to FCNR), but rules apply.

Q13. Is joint holding possible?

Ans13. Varies, NRO is the most flexible.

Q14. Are premature withdrawals penalized?

Ans14. Yes, especially FCNR before 1 year (no interest).

Q15. Which for investments in India?

Ans15. NRE/NRO, easier access to markets.

Q16. Tax in residence country?

Ans16. Possible on interest, check DTAA.

Q17. Minimum balance/fees?

Ans17. Bank-specific; often low for NRIs.

Q18. Online opening possible?

Ans18. Yes, with attested docs.

Q19. Best for short-term liquidity?

Ans19. NRE savings.

Q20. Returning NRI options?

Ans20. RFC for foreign funds.