Farhan (name changed) moved to Singapore in 2021 and did the responsible thing: he converted his savings account to NRO the same month. Four years later, filing his return, his CA asked why nearly a third of his NRO fixed deposit interest had vanished to TDS, while his colleague, who had opened an NRE deposit instead, had lost nothing at all on the exact same amount.
Both men had done everything “correctly.” One of them had simply picked the wrong account for what he was actually trying to do.
⚡ Quick Answer
NRE and NRO accounts solve different problems. An NRE account holds your foreign earnings in India, tax-free, fully repatriable, but exposed to currency conversion when you deposit. An NRO account holds Indian-source income, rent, dividends, pension, and is taxable, with interest taxed at 31.2% TDS, and repatriation capped at USD 1 million a year after formalities. Use NRE to park foreign savings and move money freely. Use NRO to receive and manage money that originates in India. Most NRIs need both, not one or the other.
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Why Your Resident Account Cannot Simply Continue
Once your residential status changes, holding a resident savings or current account becomes a FEMA violation, not a technicality but a real one, with penalties that compound the longer it continues. Your existing accounts need to be redesignated or replaced, and the choice between NRE and NRO is not cosmetic. It determines what gets taxed, what you can move abroad, and how much of your own interest income you actually keep.
NRO: For Money That Originates in India
An NRO account holds Indian-source income, rent, dividends, pension, interest on old investments, in savings, current, recurring or fixed deposit form. You can open it directly with foreign currency, which the bank converts to INR, or simply convert your existing resident account into one, which avoids opening anything new.
Interest earned attracts 31.2% TDS at the standard rate, comprising 30% tax plus 4% cess, before any DTAA relief. That figure surprises people every year, because it is deducted whether or not your actual tax liability, once computed at your applicable slab, ends up lower. You can hold an NRO account jointly with a resident Indian, useful if family in India depends on the funds, and up to USD 1 million can be repatriated annually, once documentation and tax compliance, including a chartered accountant’s certificate, are in order.
The DTAA Step Almost Everyone Skips
31.2% is the default TDS rate, not a fixed one. If India has a DTAA with your country of residence, and most Gulf and Western countries qualify, you can often bring that rate down meaningfully, sometimes to 10% or 15%, by submitting a Tax Residency Certificate and Form 10F to your bank before the interest is credited, not after. Miss this step and the excess TDS still comes back to you eventually, through your tax return, but it sits with the government for a year or more in the meantime, earning nothing for you.
On a meaningful fixed deposit, the DTAA paperwork alone is worth thousands of rupees a year. Most NRIs never file it because nobody at the bank counter mentions it exists.
NRE: For Money You Earned Abroad
An NRE account holds your foreign earnings, and can only be funded with foreign currency, which gets converted to rupees on deposit. It functions as savings, current or term deposit, and can be held jointly only with another NRI or a resident who qualifies as a FEMA-defined relative, never with an ordinary resident joint holder.
The appeal is straightforward: interest is entirely tax-free in India, and both principal and interest are fully repatriable without the formalities an NRO withdrawal requires. The trade-off is currency risk. Every rupee sitting in an NRE account is exposed to INR movement against your earning currency, so a strengthening rupee erodes the foreign-currency value of your deposit even while the rupee balance itself sits untouched.
Check – Outward Remittance – How can NRIs transfer Funds Overseas
Side by Side
| Feature | NRE Account | NRO Account |
|---|---|---|
| Best for | Holding foreign income, investments in India | Receiving Indian-source income like rent or dividends |
| Opening | New account required | Existing resident account can be converted |
| Tax on interest | Fully exempt | 31.2% TDS, reducible under DTAA |
| Repatriation | Fully and freely repatriable | Up to USD 1 million/year, after tax compliance |
| Funding source | Foreign remittance, NRE or FCNR transfers only | Indian income, non-repatriable credits |
| Joint holder | Another NRI, or a FEMA-defined resident relative | Another NRI, or a resident (former or survivor basis) |
The Other Accounts Worth Knowing
FCNR (Foreign Currency Non-Resident). A fixed deposit only, held for one to five years, in a designated foreign currency such as USD, GBP, EUR, AUD, CAD or JPY. Because the deposit stays in foreign currency throughout, it carries no currency risk, unlike NRE. Both interest and principal are tax-free and fully repatriable, and the deposit can run to maturity even if you return to India and become a resident before it matures.
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RFC (Resident Foreign Currency). This is the account you open after you return, not before. It lets returning NRIs keep foreign currency earned abroad accessible in India, useful if you expect to send money abroad again, for a child’s foreign education or a future move.
SNRR (Special Non-Resident Rupee). A business-purpose account for non-residents with rupee-denominated commercial activity in India, external commercial borrowing, trade credit, trade invoicing. It earns no interest, is freely repatriable, and cannot receive transfers from an NRO account. Relevant if you run a business with Indian rupee transactions, not for personal banking.
Why the Wrong Account Choice Survives for Years
Farhan is a supply chain manager. He tracks cost variances for a living. So why did a 31.2% drag on his interest go unnoticed for four years?
Because of default bias, the tendency to stick with whatever option was presented first, treating it as the safe or normal choice rather than one decision among several. When Farhan’s bank converted his account, NRO was the default path offered at the counter, the simplest paperwork, the fastest conversion. Nobody asked what the money was actually for. He never revisited the decision because nothing forced him to; the account worked, statements arrived, and TDS being deducted looked like tax being paid correctly, not tax being paid unnecessarily.
The account that gets chosen by default is rarely the account that fits the purpose. It is simply the one that required the least conversation at account-opening.
Frequently Asked Questions
Can I hold both an NRE and an NRO account?
Yes, and most NRIs with any meaningful financial activity in both countries should. Use NRE for foreign savings you want to keep tax-free and mobile, NRO for anything Indian-source.
Is NRO interest really taxed at 31.2% even at low income?
Yes, TDS is deducted at that flat default rate regardless of your actual applicable slab. If your real tax liability is lower, you recover the excess by filing a return. Filing Form 10F with a TRC in advance can lower the TDS rate itself under DTAA, rather than waiting for a refund.
Which account should my Indian salary go into if I work remotely for an Indian company?
NRO, not NRE. Indian-source salary is Indian income by definition, and NRE accounts can only be funded with foreign currency.
What happens to my FCNR deposit if I return to India before it matures?
It can run to maturity even after your status changes to resident. At maturity, the proceeds move to an appropriate resident or RFC account.
Can a resident Indian be a joint holder on my NRE account?
Only if they qualify as a FEMA-defined relative, and even then on specific terms. An ordinary resident joint holder is not permitted on an NRE account, unlike on an NRO account.
Not sure your accounts match what you actually need them for?
We help NRIs set up the right mix of NRE, NRO and FCNR accounts, and file the DTAA paperwork that most banks never mention.
The right account was never the complicated part. It was simply never explained at the counter.
Pick the account for what the money is, not for what is easiest to open.
💬 Your Turn
Did you choose your NRE or NRO account deliberately, or did your bank simply default you into one? Tell us what actually happened.
Can I deposit funds from India into NRE? e.g. a gift from my mother?
No, an NRE account can only be funded with foreign currency remitted from abroad, or transfers from another NRE/FCNR account. A gift from your mother sent within India needs to go into your NRO account instead. As your parent, she’s a relative under tax law, so the gift itself is fully exempt regardless of amount, it’s just the account type that’s restricted, not the tax treatment.
AS per new TCS rules, (which says resident to NRO transfer attractsTCS) if i become NRI and I convert my resident account to NRO account would I need to pay TCS
Converting your own resident account to NRO is a redesignation, not a remittance, so it doesn’t fall under LRS and TCS doesn’t apply. TCS on LRS is triggered when a resident sends money abroad or gifts funds into someone else’s NRO account above the threshold. Simply relabelling your own existing account carries no TCS.
1. I transfer money via Transferwise app from Japan to my Indian bank account in which service fee will be deducted automatcially? will there be any tax applicable on the money I sent to my own savings bank account?2. Transfrwise automatically deposits my Japanese yen in INR to my Indian account. Will it attract tax in this case also?3. I was unable to convert my savings bank account to either NRE or NRO account after change in status of my residence. Is it mandatory for me to convert it?4. I have to invest in mutual funds and stocks and also I need some portion of money in the bank to support my family. which account is suited for me in between NRE and NRO?
1) The Wise service fee itself isn’t taxed, it’s just a transaction cost. 2) If it’s your own already-taxed foreign salary, receiving it isn’t taxed again merely on receipt, but it should route through NRO now, not your old savings account. 3) Yes, converting is mandatory under FEMA once you’re NRI, not optional. 4) Use NRO for funds you’ll spend or send to family, NRE for the portion you want fully repatriable and tax-free for investing.
If I am an NRI living in Canada and I receive an income from a company in USA as a contract employee in my NRE account is that taxable in India?
If the work is genuinely performed outside India for a foreign company, that income is generally foreign-source and not taxable in India for a non-resident, regardless of which account receives it. NRE is meant for such genuine foreign remittances, so that part is fine. Worth confirming the specifics with a CA given contract income can sometimes raise separate questions depending on where the client is based.
I have nri account now I want open fix diposit account can you please help me
Happy to help you think this through. Whether an NRE or NRO fixed deposit suits you depends on whether the money is foreign earnings you want tax-free and repatriable (NRE) or Indian-source funds (NRO, taxable with TDS, DTAA can reduce it). Your bank’s NRI desk can open either against your existing NRI account fairly quickly.
I have resident Dmat account which is connected to Resident SB account . Bank said it is ok keep it . I don not want to sell my stock they are in red.. what is your advice . Can I get another NRO account and Dmat transfer all stocks then close ??
A resident demat linked to a resident savings account isn’t compliant once you’re NRI, regardless of what the bank said informally. You don’t need to sell anything at a loss. Open an NRO demat with a PIS account, and your existing holdings can usually be transferred off-market into it, then the resident account can be closed.
It is regarding buying travelling medical insurance as an OCI card holder
This is a bit outside NRE/NRO account scope, but happy to point you in the right direction, several Indian insurers offer travel and visitor medical cover for OCI cardholders visiting India. Worth comparing a couple of dedicated NRI/visitor health policies directly with insurers rather than a standard domestic travel plan.
Me 70 & my wife 67 are Canadian citizens with OCI cards and are planning to visit India for about 5 months so weddings and travelling and are wondering if there’s any medical travelling insurance we can buy in India ? Will much appreciate your assistance.
For visitors your age on an extended trip, look specifically at visitor/OCI medical insurance plans rather than standard travel policies, several Indian insurers offer these with reasonable coverage for a multi-month stay. Comparing two or three quotes directly with insurers before you travel is worth the time given the length of your visit.
I am nri since 2017.my sb account is in india. shoul i convert it to nro account.
Yes, that account should have been converted to NRO back in 2017 when your status changed. Holding a resident account as an NRI is a FEMA non-compliance that carries a real penalty risk the longer it continues. Convert it now rather than waiting further, most banks can do this in a few working days.
I am an US Citizen and have an OCI. If my uncle (mothers brother) gives me a gift of more than INR 5 lakhs by transferring money into my NRO account in India, will I have to pay any gift tax in India? Same question as above but what if my mother transfers money into my NRO account? Thank you.
Both are exempt from gift tax regardless of amount. Under Section 56(2)(x), a relative for this purpose includes your mother directly, and also the brother or sister of either parent, so your maternal uncle qualifies too. Keep some documentation of the transfer source in case it’s ever asked about later, but no tax arises in either case.
I will be moving to Canada next year. I have invested in few mutual funds through the Groww app, I would like to hold on to my units and redeem it later in time. Moreover I would like to continue my SIP. Is it possible as I have heard investment for Canada resident is not allowed. For redemption is it enough to just convert my registered bank account to an NRO account and redeem it?
You can continue holding your existing units and even keep the SIP running as an NRI, but you’ll need to update your KYC to NRI status and link an NRO account, since a resident account won’t stay valid. Canada-based NRIs do face restrictions with several AMCs due to FATCA, a handful like SBI, UTI and ICICI Prudential still accept Canada-based investors, so check if your funds are with one of those before assuming redemption is the only option.
Can an NRI Open a HUF account in an Indian bank?
Hi Kas
No, NRI cannot open HUF account.