Money & Taxes
NRE vs NRO Accounts: The Complete Guide to Indian Banking Abroad
7 min read · Updated July 12, 2026
Once you become a non-resident under Indian exchange-control law, your ordinary Indian savings account is no longer the right vehicle — FEMA expects you to move to the NRI account system. Most people never do, creating a quiet compliance gap. Here is the whole system, including the US-side rules that surprise people.
The account types and what each is for
NRE (Non-Resident External): funded from abroad in foreign currency, held in rupees. Fully repatriable — principal and interest can move back out freely — and the interest is exempt from Indian income tax while you qualify as non-resident. This is the account for money you earn in America and park in India.
NRO (Non-Resident Ordinary): the home for India-source income — rent, dividends, pension, proceeds of sales. Interest is taxable in India with TDS deducted at NRI rates; repatriation is permitted up to USD one million per financial year with a chartered accountant's certification (Forms 15CA/CB path).
FCNR(B): fixed deposits held in foreign currency (dollars included), eliminating rupee exchange risk for the deposit term, with Indian-tax-free interest for non-residents. The third tool, used mainly for larger parked sums.
The conversion step almost everyone skips
FEMA requires that when your status changes to non-resident, resident savings accounts be re-designated as NRO — banks have a standard form-and-KYC process, doable by mail or on an India trip. Existing FDs can generally run to maturity after redesignation; new deposits belong in the NRI system.
The same duty applies in reverse when you return to India for good (accounts convert back; RFC accounts can hold your foreign currency) — our Returning to India guide covers that direction. Holding an ordinary resident account for years while living in America is the most common FEMA housekeeping failure in the diaspora; it is fixable, and fixing it also cleans up your interest-rate and TDS treatment.
The US tax layer on top
India's NRE tax exemption does not travel: for a US tax resident, interest from NRE, NRO and FCNR accounts is all reportable, taxable US income (with foreign tax credit for Indian TDS actually paid). Brokers of 'tax-free NRE interest' are describing Indian law only.
Disclosure thresholds compound quietly: every Indian account — including small dormant ones — counts toward the $10,000 aggregate FBAR trigger and the higher FATCA (Form 8938) thresholds. The penalty regime for missed disclosure is disproportionate to the balances involved; our NRI Tax 101 guide covers the filings themselves.