NRE vs NRO FD: what NRIs should know

NRI Dash Research Team · Last reviewed: 2024-01-15

NRE and NRO fixed deposits can look similar because both are rupee deposits held with Indian banks, but the source of money, tax treatment and repatriation rules differ significantly. Choosing the wrong account type for a deposit can create avoidable tax liabilities or complicate repatriation later.

NRE FD — for overseas income

An NRE (Non-Resident External) fixed deposit holds money that originated outside India and was remitted in. Interest earned on an NRE FD is generally exempt from Indian income tax under Section 10(4) while the depositor maintains NRI status under FEMA. Principal and interest are both freely repatriable — you can transfer the maturity proceeds back to your overseas account without RBI approval or tax clearance.

NRO FD — for India-sourced income

An NRO (Non-Resident Ordinary) fixed deposit holds money earned inside India — rent from a tenant, dividends from Indian shares, pension payments, or proceeds from selling an Indian asset. NRO FD interest is generally taxable in India at 30% TDS. Repatriation from NRO accounts is subject to the USD 1 million per financial year facility and requires tax documentation including Form 15CA/CB from a Chartered Accountant.

Key differences at a glance

Source of funds: NRE accepts foreign-origin remittances; NRO accepts India-sourced income. Tax on interest: NRE is generally exempt; NRO attracts 30% TDS. Repatriation: NRE is freely repatriable; NRO follows the USD 1M annual facility with tax compliance. Currency risk: both are rupee deposits — the INR/foreign currency rate affects the foreign-currency value at maturity.

Which should you open?

If the money originated abroad, open an NRE FD for the tax exemption and repatriation flexibility. If the money came from India — rent, dividends, pension, property sale — it goes into NRO. Some NRIs maintain both: NRE for foreign savings and NRO for Indian income. Always confirm the appropriate account designation with your bank and tax adviser before placing a large deposit.