NRE vs NRO vs FCNR Accounts: Rules, Tax and the $1M Limit (2026)

On 21 August 2026, Indian banks had collected $65.4 billion in fresh foreign currency deposits from non-residents under a Reserve Bank of India swap scheme. Ten days later the figure was $127.2 billion. Nearly half of the biggest NRI deposit drive in the country's history arrived in a final sprint, and almost all of it went into one kind of account: the FCNR(B). For most of the 2026 rupee slide, the question for families abroad was never whether to keep money in India. It was which of three accounts to keep it in, and the answer is more mechanical than the bank brochures suggest.

The three accounts are the Non-Resident External (NRE) account, the Non-Resident Ordinary (NRO) account and the Foreign Currency Non-Resident (Bank) deposit, usually written FCNR(B). All three are governed by the Foreign Exchange Management (Deposit) Regulations, 2016 and the RBI's Master Direction on deposits and accounts. They differ on three things that matter: where the money came from, what currency it sits in, and how freely it can leave India again. Get the first one right and the other two mostly follow.

Three accounts, three different jobs

The cleanest way to think about it is by source of funds. Money you earned abroad belongs in an NRE account or an FCNR(B) deposit. Money you earn or hold in India, such as rent from a flat in Coimbatore, a pension, dividends on shares bought before you left, or the proceeds of selling inherited land, belongs in an NRO account. The RBI describes NRO as an account for bona fide rupee transactions, which is a polite way of saying it is the bucket for everything Indian.

NRE and FCNR(B) share the same rules on repatriation, joint holding and loans. The difference is currency. An NRE account converts your dollars or dirhams into rupees the moment they land, so you carry the exchange rate risk. An FCNR(B) deposit keeps the money in the foreign currency itself. SBI, for example, offers FCNR(B) in US dollars, pounds, euros, Canadian and Australian dollars and yen, with terms from one to five years. FCNR(B) is a term deposit only. There is no FCNR savings account, which is why most NRIs run an NRE savings account alongside it as the day-to-day wallet.

What can go in and what can come out

The table below condenses the rules as the RBI sets them out. It is the part most people get wrong, usually by depositing Indian income into an NRE account because the interest is tax-free.

Two credits trip people up. First, current income such as rent can only go into an NRE account if the bank is satisfied that tax has been deducted or paid on it, so the default home for rent is still NRO. Second, NRO money can move to NRE, but that transfer counts against the USD 1 million annual cap and needs the tax paperwork described below. You cannot top up an NRE account from Indian income just by moving it between your own accounts.

The USD 1 million NRO rule, read properly

The NRO cap is widely misquoted. The rule allows repatriation of current income, meaning rent, interest, dividends and pension, without counting against any ceiling once tax is settled. On top of that, an NRI or person of Indian origin can send out up to USD 1 million per financial year from NRO balances, which covers capital such as sale proceeds or inheritance. Transfers into an NRE account count inside that million. Going above it needs RBI approval.

The paperwork changed this year. Since 1 April 2026, remittances fall under the Income-tax Act, 2025, and the old Forms 15CA and 15CB have been replaced by Forms 145 and 146 under the Income-tax Rules, 2026. Form 145 is the sender's declaration of what the money is and what tax applies. Form 146 is a chartered accountant's certificate, required for taxable remittances above Rs 5 lakh in a year, and it now carries a UDIN so the bank can check that it is genuine. If you claim a treaty rate, you quote your tax residency certificate number. Banks will not release a large NRO remittance without these forms, and they will not release it at all while tax on the underlying income is unpaid.

The NRO cap is a ceiling on capital, not on income. Most families never get near it.

How the interest is taxed

NRE interest is exempt from Indian income tax. The new law moved the exemption into a schedule but kept its logic, and the Income Tax Department's FAQs, as reported in July 2026, confirm it still turns on your status under FEMA rather than on the income-tax day count. That distinction matters for anyone who spends long stretches in India: you can be a non-resident for FEMA and still trip the tax residency tests, or the other way round. Check both.

FCNR(B) interest is also exempt while you are a non-resident, and it stays exempt during the transitional "resident but not ordinarily resident" (RNOR) period after you return, which is why returning NRIs often leave FCNR deposits to run to maturity.

NRO interest is fully taxable and the bank deducts tax at source. The base rate is 30 percent plus surcharge and a 4 percent cess, which works out to 31.2 percent for interest up to Rs 50 lakh and rises with the amount. A double taxation agreement can lower that. Under the India-UAE treaty the withholding rate on interest is 12.5 percent, provided you give the bank a tax residency certificate, Form 10F and a PAN. Note too that your country of residence may tax the interest as well, with credit for Indian tax. For how gifts and transfers to family are treated, see our guide to tax on money sent to India, and check your own position with a qualified adviser.

Joint holders, mandates and the resident relative

Joint holding is where the three accounts diverge in ways that matter for ageing parents. An NRE or FCNR(B) account can be held jointly with other NRIs, or with a resident relative, but only on a "former or survivor" basis. That means the resident can operate the account only after the NRI's death, or under a mandate, and the money is still treated as the NRI's. An NRO account can be held with any resident, again former or survivor.

Power of attorney holders on an NRO account are tightly fenced. They can make local rupee payments and remit current income, but they cannot repatriate capital to anyone except the account holder, cannot make gifts to residents from it and cannot move money to another NRO account. If the plan is for a sibling in India to manage a parent's bills, an NRO account with a mandate usually fits better than trying to stretch an NRE account. Our piece on caring for parents from abroad covers the practical setup.

The 2026 FCNR(B) rush and what it tells you

The summer's numbers show how sensitive NRI money is to price. With the rupee at a record 96.25 to the dollar in May 2026, as oil climbed above $110 a barrel, the RBI announced a concessional swap facility on 5 June and opened it on 8 June. Banks that raised fresh three to five year FCNR(B) deposits could swap the dollars with the central bank, which took on the hedging cost, and deposits raised this way were exempted from reserve requirements. On 17 June the RBI also lifted, until 30 September, the ceiling on fresh three to five year FCNR(B) rates and the rule tying long NRE rates to domestic ones.

The RBI's own tallies show $17.4 billion by 17 July and $36.7 billion by 31 July. The window, due to run to the end of September, was closed early on 31 August at $127.2 billion, with most money in five-year deposits.

The flip side showed up in NRE accounts. In April to July 2026, net NRE inflows were just $207 million against $2.42 billion a year earlier, while FCNR(B) took $34.53 billion, according to RBI data reported by IANS. NRE outstanding fell from $102.03 billion to $98.02 billion over the year. When the rupee is falling, people prefer the account that does not convert. The lesson for anyone deciding now is that the window has closed, the special rates applied only to deposits opened in it, and new FCNR(B) deposits are back under normal pricing.

A worked example: one family, three accounts

Take an engineer working in Abu Dhabi whose father in Thrissur has passed away, leaving a flat. The numbers below use real tax rates and limits; the interest rates are illustrative assumptions, not quotes.

• Salary savings. She sends AED 4,000 a month to India. Kept in an NRE fixed deposit of Rs 10 lakh at an assumed 6.5 percent, it earns Rs 65,000 a year with no Indian tax. The UAE does not levy personal income tax, so that is the full return, but the rupee value of her savings moves with the exchange rate.
• Dollar reserve. A separate $20,000 sits in a five-year FCNR(B) deposit. If the rupee weakens, the deposit's value in her home currency does not change, and the interest is tax-free in India.
• Inherited flat. The flat sells for Rs 1.2 crore. The proceeds must go to an NRO account. At an illustrative Rs 95 to the dollar, USD 1 million is about Rs 9.5 crore, so the whole sale fits inside one year's cap. Before the bank sends it, capital gains tax must be settled, she files Form 145, and a chartered accountant issues Form 146.
• Parked proceeds. If Rs 10 lakh of the sale money stays in an NRO fixed deposit at an assumed 7 percent, interest is Rs 70,000. Default TDS at 31.2 percent is Rs 21,840. With a UAE tax residency certificate and Form 10F, the treaty rate of 12.5 percent cuts that to Rs 8,750, a saving of Rs 13,090 a year.

The order of operations matters more than the rates. Paperwork for the treaty rate should be with the bank before the first interest credit, not after, because recovering over-deducted tax means filing a return and waiting for a refund.

Mistakes that cost real money

• Keeping a resident savings account after leaving. FEMA requires resident accounts to be redesignated as NRO once you become a non-resident.
• Putting Indian rent into NRE. Unless tax has been dealt with, rent belongs in NRO. Mixing it into NRE muddies the tax-free status of the whole balance.
• Assuming NRE is tax-free everywhere. It is exempt in India. The US, UK and Canada generally tax worldwide interest of their residents.
• Ignoring the FEMA and tax mismatch. A long visit home can change your tax residency even while your accounts are correctly non-resident. Read our FEMA rules for NRIs explainer alongside the tax rules.

For moving money into these accounts in the first place, the cost of the transfer often outweighs a quarter-point of interest. Our corridor guides on UAE to India and the cost of sending money home show where the spread goes.

What to watch next

• 16 October 2026: last date for banks to use the RBI swap on FCNR(B) deposits raised in the window. After that, the facility's deposit leg is done; the five-year deposits it created mature in 2031, which is a refinancing question for banks to watch.
• 31 December 2026: the parallel swap window for external commercial borrowings and overseas foreign currency borrowings closes.
• RBI deposit regulations: whether the temporary removal of NRE and FCNR(B) rate ceilings, which lapsed on 30 September, returns if the rupee comes under pressure again.
• Tax year 2026-27 returns: the first returns under the Income-tax Act, 2025 will be filed in 2027. Watch for final section mappings and any change in how the NRE exemption is drafted.

This article explains rules as published by the RBI and the Income Tax Department. It is general information, not tax or legal advice. Rules change and individual circumstances differ, so check your position with a qualified adviser before moving money. If you are planning to return, our moving back to India money checklist covers what happens to each account.

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