NRE vs NRO vs FCNR — which Indian account should you use?

NRE is for money coming IN from abroad. NRO is for money earned INSIDE India. FCNR is an NRE-style deposit held in foreign currency instead of INR. Getting this distinction right at the credit stage prevents 90% of the FEMA cleanup work we see later.

Rupee account funded only from foreign earnings (salary credits, overseas transfers, FCNR maturity proceeds). Both principal and interest are freely repatriable with no annual cap, and interest is tax-free in India for qualifying NRIs. Cannot accept Indian rent, Indian dividends, Indian sale proceeds or local cash directly — those credits are FEMA breaches and banks may reverse them. Joint holding is permitted with another NRI / OCI on either-or-survivor basis, and with a resident close relative only on former-or-survivor basis.

Rupee account for India-source income: rent, dividends, interest, pension, gifts, inheritance, sale proceeds. Interest is taxable in India and TDS is deducted at 30% plus surcharge / cess (subject to DTAA relief if you file Form 10F + tax residency certificate). Repatriation from NRO is capped at USD 1 million per person per financial year, requires Form 15CA / 15CB, and assumes Indian tax on the underlying income has been settled. Most resident accounts must be redesignated as NRO the moment you become a FEMA non-resident.

Term deposit (1 to 5 years) held in a designated foreign currency — USD, GBP, EUR, JPY, CAD, AUD and a few others. Principal and interest are freely repatriable in the original currency with no INR conversion at exit, and interest is tax-free in India for qualifying NRIs. Insulates India savings from INR depreciation but locks the funds for the deposit tenor. On return to India, FCNR can usually continue until maturity and then convert into a Resident Foreign Currency (RFC) account.

Currency — NRE: INR; NRO: INR; FCNR: foreign currency. Source of funds — NRE: foreign only; NRO: Indian or mixed; FCNR: foreign only. Repatriability — NRE: fully; NRO: capped at USD 1 million per year; FCNR: fully. Indian tax on interest — NRE: exempt; NRO: taxable with TDS; FCNR: exempt. Currency risk — NRE: yes (INR); NRO: yes (INR); FCNR: no. Typical use — NRE: salary parking and free repatriation; NRO: receiving Indian income; FCNR: currency-hedged India savings.

Salaried NRI with no Indian assets — NRE is usually enough; open NRO only if Indian income starts. NRI with rental property, mutual funds or inherited assets in India — NRE plus NRO is mandatory; FCNR optional. NRI worried about INR depreciation — add FCNR for the portion of savings you want currency-protected. Returning NRI within 12–24 months — minimise new NRE deposits and time FCNR tenors to mature near or after your return so you preserve the currency lock and tax-free interest.

Crediting Indian rent or sale proceeds into an NRE account (the single most common breach). Continuing a resident savings account after becoming an NRI instead of redesignating it as NRO. Adding a resident spouse as joint primary holder on an NRE account on either-or-survivor basis. Skipping Form 10F / tax residency certificate and overpaying TDS on NRO interest. Treating FCNR like a regular fixed deposit and breaking it early — premature withdrawal usually forfeits interest.

Setting up the right structure at the start is cheap. Cleaning up wrong-bucket credits, mis-designated accounts and missed TDS later costs significantly more — and can stall a property sale, an inheritance remittance or a return-to-India plan for months. Get the design right before the first credit hits.