NRE, NRO and FCNR accounts explained

Once you live abroad, your ordinary Indian savings account should be converted, and the bank accounts you use for property, loans and investments in India fall into three main types. They are created under the Foreign Exchange Management (Deposit) Regulations, 2016. Choosing the right one affects tax, whether you can send money back abroad, and how smoothly your home loan is repaid.

The short version

NRE account: your money from abroad, in rupees

The Non-Resident External account is for money you earn abroad. You send foreign currency in, the bank converts it to rupees, and you can spend it in India or send it back abroad at any time, principal and interest. Interest is exempt from Indian income tax while you are a person resident outside India under FEMA. The exemption ends from the date you become resident again.

Because it is fully repatriable, an NRE account is the cleanest source for property payments and EMIs: money that went into the property from NRE funds counts towards what you can repatriate when you sell.

You cannot deposit Indian income such as rent into an NRE account, and you cannot hold it jointly with a resident.

NRO account: for income you earn in India

The Non-Resident Ordinary account is for money that arises in India: rent from your flat, a pension, dividends, or proceeds from selling property. It can also receive money from abroad. Interest is taxable in India, and tax is usually deducted at source.

Money in an NRO account is not freely repatriable. You can send abroad your current income (such as rent, net of tax), and up to USD 1 million per financial year from the balance, for example from property sale proceeds, subject to tax compliance. Banks usually ask for the income tax forms 15CA and, where applicable, a chartered accountant's certificate 15CB.

An NRO account can be held jointly with a resident relative, which is useful if a parent or sibling in India helps manage your affairs.

FCNR(B) account: deposits that stay in foreign currency

The Foreign Currency Non-Resident (Bank) account is a term deposit held in a foreign currency such as US dollars, pounds or dirhams where offered, for one to five years. Because the money never converts to rupees, you avoid rupee exchange risk. Principal and interest are fully repatriable, and interest is exempt from Indian tax while you are non-resident (or "resident but not ordinarily resident") for tax purposes.

FCNR(B) is a deposit, not a transaction account, so it is less useful for paying EMIs directly. Many NRIs use it for savings and an NRE account for spending.

Which account for a home loan?

Lenders typically ask you to repay EMIs by standing instruction from an NRE or NRO account. Common set-ups:

• Salary abroad, no Indian income: EMI from an NRE account, topped up by monthly remittance.
• Rented property: rent into the NRO account and EMI from it, topping up from abroad if rent is not enough.
• Joint borrower in India: the resident co-applicant's account may be used, depending on the lender.

Keep your EMI account funded a few days ahead, as international transfers can take time, and missed EMIs affect your Indian credit score.

When you return to India

NRE and NRO accounts must be re-designated as resident accounts when you return for employment or for an uncertain period. Tell your bank promptly and give proof of your changed status. FCNR(B) deposits can continue to maturity at the agreed rate; on maturity they become resident rupee deposits or, if you are eligible, a Resident Foreign Currency (RFC) account. See our guide on moving back to India.

This is general information, not legal or tax advice. Rules change; check with your bank or a qualified professional before acting.