NRE vs NRO: what NRIs pay tax on in India, and what is exempt

What each account is for

Under FEMA your Indian rent and other Indian income must go into the NRO account, not NRE. That one rule decides most of the tax outcome below.

NRO interest: taxed, and usually over-taxed

NRO interest is taxed in India at normal slab rates. The bank deducts TDS at 30%, plus 4% cess, on every rupee of interest, with no ₹50,000 threshold like residents get. For most NRIs that is far more than the tax actually due, and the difference comes back only if you file an Indian return.

There are two ways to pay less. First, give your bank a Tax Residency Certificate from your home country, Form 10F and a declaration, and the bank deducts at the treaty rate instead: 15% for Singapore, 12.5% for the UAE, as two common examples. This has to be done each financial year. Second, file a return and claim the refund of whatever was deducted above your actual tax.

NRE interest: exempt, but on one condition

NRE interest is exempt under Section 10(4)(ii), which says the exemption applies while you are a person resident outside India under FEMA. The exemption continues under the Income-tax Act 2025 from 1 April 2026. FEMA looks at why you are abroad, for a job or business or an uncertain period, not at how many days you spent in India. So the exemption can end before your income-tax status changes.

Example: you return to India for good on 1 October 2026. NRE interest up to September is exempt. Interest after that is taxable, even if you still count as a non-resident for income tax that year. The account should be converted to a resident account, or the balance moved to an RFC account, soon after you land.

Moving money out

NRE and FCNR balances can be sent abroad any time. From NRO, you can remit up to USD 1 million per financial year, after Indian taxes are paid, with Form 15CA and a CA's certificate in Form 15CB. Proceeds from selling property in India go through NRO, so a property sale usually needs this route.

Four mistakes we see every year

• Keeping the NRE account running for years after returning to India, and never reporting the interest.
• Depositing Indian rent into NRE, which FEMA does not allow.
• Never filing an Indian return, and so never recovering the 30% TDS on NRO interest.
• Giving the bank the treaty documents once and assuming they carry over to the next year.

Common questions

What we do

We tell you which of your Indian income is taxable, prepare the treaty paperwork for your bank, file your return to recover excess TDS, and issue Form 15CB when you want to remit from NRO. If you are returning to India, we plan the account changes before you land, not after.

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