NRE, NRO and FCNR Accounts

India offers non-residents three kinds of bank account, one for each kind of money, and the Indian tax treatment of their interest differs. The US treatment does not: if you are a US tax resident, the interest from all three is taxable on your US return. This chapter explains what each account is for, how India taxes it, how the US taxes it, and what changes when you move back. The full comparison of what each one leaves you after both countries' tax is in the calculator linked at the end.

What each account is for

The Reserve Bank of India sets the rules (RBI, FAQs on accounts in India by non-residents, 16 January 2025; the visa-shelf chapter NRE and NRO Accounts and Bringing Money Over covers the same ground from the US side). In summary:

An NRE account takes only money that has not lost its repatriable character: foreign remittances, transfers from other NRE or FCNR(B) accounts, and current income such as rent, dividends or pension that is still repatriable. An NRO account is where money that arose in India lives, and balances beyond current income can leave India only within the limit in the next paragraph. Rupee gifts or loans made by a resident to a non-resident relative within the Liberalised Remittance Scheme may be credited to the relative's NRO account.

NRIs and Persons of Indian Origin may remit up to $1,000,000 per Indian financial year from NRO balances, together with their other eligible assets, and funds can move from NRO to NRE within that same facility. Chapter 4 covers how to do it. An NRE account can be held jointly with a resident relative on a "former or survivor" basis, and the resident relative can operate it under a power of attorney, though only for local payments or for sending money to you.

How India taxes the interest

NRE. Schedule IV to the Income-tax Act, 2025 (the schedule of income not included in the total income of non-residents), Sl. No. 1, leaves out interest on an NRE account for an individual who is resident outside India as defined in FEMA, or whom the Reserve Bank has permitted to maintain the account. It was section 10(4)(ii) of the 1961 Act. The condition is FEMA status, not your income-tax status, a distinction chapter 1 drew.

FCNR(B). Interest on a foreign-currency deposit with a scheduled bank was exempt under section 10(15)(iv)(fa) of the 1961 Act for a non-resident or a person not ordinarily resident, where the Reserve Bank has approved the deposit. Schedule IV of the 2025 Act, Sl. No. 14, lists that clause by its old number and says the exemption continues "subject to the conditions as specified therein". We read the old clause on the Income Tax Department's page for an earlier version of the 1961 Act, and Schedule IV's cross-reference to it. On that reading the exemption carries over, still for a non-resident or a person not ordinarily resident, but we have not read the clause as it stands for 2026-27. Because the 2025 Act points back to the old Act instead of restating the words, ask a Chartered Accountant to confirm the position for your own deposit.

NRO. Interest is taxable in India. The bank deducts tax at source under section 393(2) of the 2025 Act (Sl. No. 17, formerly section 195 of the 1961 Act), at the "rates in force", which the Act defines as the rate in the Finance Act for the year or the treaty rate, whichever applies (section 2(90)(c)). Part II of the First Schedule to the Finance Act gives 30% on a non-resident's other income, and banks commonly deduct at that rate plus a cess of 4%, which gives 31.2% before any surcharge. We read Part II in the Finance Bill, 2026 as introduced, and its memorandum says the deduction rates continue unchanged; a Chartered Accountant should confirm the Act as passed. That deduction is a prepayment, not the final bill: your actual Indian tax is worked out on your Indian return, where a lower slab can mean a refund. Without a valid PAN the Act sets a floor of 20% (section 397(2)), and the rate in force is higher anyway.

The India-US treaty caps India's tax on this interest at 15% where the beneficial owner is a US resident (Article 11(2)(b)). To claim it a non-resident needs a certificate of residence from the US and has to give the bank the information the 2025 Act requires (section 159(8); chapter 7). If the bank does not apply the treaty rate at source, the excess can be claimed back by filing an Indian return.

How the US taxes it

If you are a US citizen, a green card holder or a resident under the substantial presence test, interest on every one of the three accounts is ordinary income on your Form 1040 in the year it is paid or credited, at your own bracket. The exemption in India does not follow it across, and the treaty's saving clause stops a US resident from using the treaty to cut US tax (chapter 5). Most states with an income tax tax this interest too. The short answer on FCNR(B) is on the answer page about FCNR interest.

A deposit of $40,000 at 4.0% earns $1,600 in 1 year. For a single filer with $160,000 of wages the 2026 federal tax is $27,134; with the interest added, so that total income is $161,600, it is $27,518. The interest was taxed at 24.0%, the top bracket reached, before state tax. The rate printed on an Indian deposit is a pre-tax rate in every case, so compare it with a US account's pre-tax rate, not with an after-tax figure.

For NRO interest the US lets you credit Indian income tax through the foreign tax credit, but only the amount figured at the treaty rate. IRS Publication 514 says that where a treaty country requires you to pay the full tax and claim a refund, the qualified foreign tax is the amount figured at the lower treaty rate, because the excess is refundable. So Indian tax withheld above the treaty rate is something to reclaim in India, not to credit in the US. Chapter 5 works through this.

Two timing questions are worth a conversation with your preparer in the first year. A deposit that adds interest to the principal and pays at maturity may still create US income every year it accrues. And a bank's interest certificate follows the Indian financial year, so ask for the calendar-year figure the US return needs.

Currency and reporting

A rupee deposit earns rupees. Your US tax is in dollars and so is much of your spending, so a high rupee rate can be a lower dollar return if the rupee falls against the dollar over the term. An FCNR(B) deposit stays in dollars. The rupee keep-or-bring calculator tests this at your own numbers.

All three accounts are foreign accounts for the US. They count toward the FBAR and Form 8938 at their highest balance in the year, which chapter 3 explains.

When you move back to India

For the RBI, an NRE account should be redesignated as a resident account, or the money moved to an RFC account, immediately when the holder returns to India for employment or changes residential status. An NRO account may be redesignated as a resident account when the holder returns to stay in India for an uncertain period. FCNR(B) deposits may run to maturity at the contracted rate if the holder wishes, and are then converted into a resident rupee deposit or an RFC account. The tax exemption on NRE interest depends on FEMA status, so it can end when you return even if you are still RNOR for income tax. Plan the redesignation date with your bank and a Chartered Accountant together.