In this article
An NRI can maintain different types of fixed deposits in India, but the tax and repatriation rules are not the same for all of them.
NRE fixed deposits are denominated in Indian rupees and qualify for an Indian income-tax exemption on interest when the statutory conditions are satisfied. NRO fixed deposits are also rupee-denominated, but their interest is generally taxable in India and subject to withholding. FCNR(B) fixed deposits are maintained in permitted foreign currencies and qualify for a separate conditional Indian interest exemption.
The differences extend beyond interest rates. Eligibility, the source of funds, deposit currency, repatriation and residential status all matter.
A fixed deposit correctly opened while you lived abroad may also require different treatment when you return to India.
What types of fixed deposits can NRIs maintain in India?
The three principal categories are NRE, NRO and FCNR(B).
An NRE fixed deposit is maintained under the Non-Resident (External) Rupee Account Scheme. An NRO fixed deposit is maintained under the Non-Resident Ordinary Rupee Account Scheme. An FCNR(B) deposit is maintained under the Foreign Currency Non-Resident (Banks) Scheme.
Eligible non-resident Indians and persons of Indian origin, including qualifying OCI cardholders, can maintain NRE and FCNR(B) accounts under the applicable RBI regulations. NRO accounts have a wider eligibility framework for persons resident outside India.
| Feature | NRE fixed deposit | NRO fixed deposit | FCNR(B) fixed deposit |
|---|---|---|---|
| Currency | Indian rupees | Indian rupees | Permitted foreign currency |
| Main funding route | Eligible overseas remittances, transfers and other permitted credits | Indian income and other permissible funds | Eligible foreign-currency funds and permitted transfers |
| Minimum tenure for commercial banks | 1 year | Generally 7 days | 1 year |
| Maximum regulated tenure | No corresponding general five-year ceiling | Subject to bank product terms | 5 years |
| Indian interest-tax treatment | Conditional exemption | Generally taxable | Conditional exemption |
| Withholding | Generally not applicable to qualifying exempt interest | Generally applicable to non-resident holders | Generally not applicable to qualifying exempt interest |
| Repatriation | Permitted under NRE rules | Subject to applicable conditions | Permitted under FCNR(B) rules |
| On permanent return to India | Redesignation or eligible RFC transfer | Resident redesignation | Possible continuation to maturity under RBI conditions |
The seven-day minimum for NRO fixed deposits reflects the applicable commercial-bank regulatory framework. Other bank categories and individual products are governed by their respective directions and terms.
An NRE deposit’s one-year minimum does not prevent a bank from offering longer tenures. FCNR(B) deposits operate within specified maturity categories from one to five years.
Where can the money for each fixed deposit come from?
The source of funds is one of the most important facts in an NRI deposit file.
An NRI may hold ₹20 lakh in an Indian bank. The amount alone does not establish whether it belongs in an NRE, NRO or FCNR(B) deposit.
The money’s source, the depositor’s eligibility and the permissible banking route must be identified.
NRE fixed deposits: overseas money and other permitted credits
NRE accounts commonly receive remittances from overseas through banking channels, permitted transfers from NRE or FCNR(B) accounts and qualifying investment maturity proceeds.
But overseas money is not the only permissible source.
Under the RBI’s Master Direction on Deposits and Accounts, Indian current income such as rent, dividends, pension and interest can also be credited to an NRE account where the authorised dealer is satisfied about the income’s nature and that the applicable Indian income tax has been deducted, paid or provided for.
For example, consider an NRI living in Dubai who receives rent from an Indian property.
The rent may qualify for credit into NRE under the RBI conditions. That does not make the rent exempt from Indian income tax.
The rent’s taxation must be determined separately from the bank’s permission to accept the credit.
The tax character of income and the permissibility of its bank-account credit are different questions.
NRO fixed deposits: Indian receipts and permissible funds
NRO accounts commonly receive Indian rental income, dividends, interest, proceeds from permissible transactions and other legitimate Indian dues.
They may also receive qualifying overseas inward remittances and transfers permitted under the NRO regulations.
An NRO fixed deposit is therefore relevant where an individual holds Indian-source funds.
However, money credited to an NRO account does not automatically become taxable income.
Principal receipts, income receipts, property-sale proceeds and inherited funds can have different Indian tax consequences.
What matters is the character of the money, not merely the name of the account receiving it.
FCNR(B) fixed deposits: foreign-currency funds
FCNR(B) deposits allow eligible non-residents to maintain deposits in permitted foreign currencies.
The permitted funding routes include qualifying foreign-currency remittances and transfers allowed under the applicable RBI deposit regulations.
Unlike an NRE or NRO fixed deposit, FCNR(B) does not require the deposited amount to be maintained in Indian rupees.
This changes the currency exposure, although it does not eliminate all exchange-rate risk.
How is interest on NRE, NRO and FCNR(B) deposits taxed in India?
Indian income-tax treatment must be tested under the law applicable to the relevant period.
For periods through 31 March 2026, the governing legislation is the Income-tax Act, 1961. From 1 April 2026, the Income-tax Act, 2025 applies, subject to its commencement, savings and transitional provisions.
NRE fixed-deposit interest
Under the Income-tax Act, 1961, section 10(4)(ii) provided the conditional exemption for interest on qualifying NRE accounts.
For tax year 2026-27 onwards, the corresponding provision is section 11 read with Schedule IV, Table Sl. No. 1 of the Income-tax Act, 2025.
The exemption applies to specified interest on money standing to an individual’s credit in a qualifying NRE account where the person satisfies the prescribed eligibility conditions.
These conditions include being a person resident outside India under FEMA or an individual permitted by the RBI to maintain the account.
This distinction matters because Indian income-tax residence and FEMA residence are determined under separate legislation.
An individual does not establish the NRE interest exemption simply by describing themselves as an NRI in an income-tax return.
Where the statutory requirements are met, the qualifying interest is excluded from total income for Indian income-tax purposes.
This conclusion is limited to Indian income tax. It does not decide whether the interest is taxable or reportable in the person’s country of tax residence.
NRO fixed-deposit interest
Ordinary NRO fixed-deposit interest is generally taxable in India.
Where the depositor is a non-resident individual, the bank ordinarily deducts tax under the applicable non-resident withholding provisions.
For tax year 2026-27, section 393(2), Table Sl. No. 17 of the Income-tax Act, 2025 applies to the relevant chargeable interest and other payments to non-residents.
For ordinary NRO fixed-deposit interest falling within the residual non-resident income category, the domestic base withholding rate is generally 30%, plus applicable surcharge and health and education cess, subject to the applicable law, income classification, treaty entitlement and valid certificate-based relief.
This is different from the domestic bank-interest withholding provision commonly applicable to resident depositors.
But 30% base withholding does not automatically represent the depositor’s final Indian income-tax liability.
Final liability is determined under the applicable computation provisions. The individual’s taxable income, applicable rates, permitted relief and treaty position may affect the result.
Tax deducted by the bank and final tax payable are not necessarily the same amount.
Can a DTAA reduce tax on NRO interest?
A Double Taxation Avoidance Agreement may affect India’s taxing rights or the rate applicable to interest where the recipient satisfies the treaty’s conditions.
However, the treaty benefit is not automatic.
The applicable treaty, residence, beneficial ownership where relevant, documentation and domestic procedural requirements must be examined.
For tax year 2026-27, a non-resident claiming DTAA benefits must comply with section 159(8) of the Income-tax Act, 2025 and the prescribed Form 41 requirements under Rule 75 of the Income-tax Rules, 2026.
Form 41 is mandatory for a non-resident seeking DTAA benefits and must be furnished once per tax year when those benefits are claimed.
A valid Tax Residency Certificate covering the relevant period must be uploaded with Form 41, together with the prescribed treaty information.
The Income Tax Department’s official Form 41 guidance also explains its relevance when treaty relief is claimed at the withholding stage or in an Indian income-tax return.
Where the legal conditions are met, a taxpayer may separately apply for a lower or nil withholding certificate under section 395(1), using Form 128 under Rule 213. The application does not by itself authorise the bank to reduce deduction. The relevant certificate must be issued.
A bank cannot simply dispense with statutory withholding because a depositor states that a treaty applies.
FCNR(B) fixed-deposit interest
Qualifying FCNR(B) interest has a separate exemption.
Section 10(15)(iv)(fa) of the Income-tax Act, 1961 provides the specified exemption for interest paid by a scheduled bank on RBI-approved foreign-currency deposits to a non-resident or a person who is not ordinarily resident under the applicable income-tax residence test.
For tax year 2026-27 onwards, section 11 read with Schedule IV, Table Sl. No. 14 of the Income-tax Act, 2025 expressly incorporates this earlier statutory provision, subject to its conditions.
The FCNR(B) exemption must therefore be tested by reference to the qualifying deposit and the depositor’s relevant NR or RNOR position.
This becomes especially important when an individual returns to India.
The RBI may permit an existing FCNR(B) deposit to continue until maturity. That banking permission does not independently establish an exemption from Indian income tax on every subsequent period of interest.
A deposit’s permitted continuation and the income-tax exemption on its interest must be examined separately.
Can you repatriate fixed-deposit principal and interest abroad?
Repatriation concerns the permitted movement of funds outside India.
It is principally a FEMA and banking question. The taxation of the underlying income and the documentation required for the remittance are separate matters.
NRE deposits
Qualifying NRE balances, including permissible principal and interest, are generally repatriable under the applicable account regulations.
The account must have been maintained in accordance with the NRE scheme, including its permitted credits and transactions.
Bank acceptance of a credit does not, by itself, cure an otherwise impermissible transaction.
FCNR(B) deposits
Qualifying FCNR(B) balances are generally repatriable under the applicable rules.
Because the deposit is held in a permitted foreign currency, a depositor may avoid conversion into Indian rupees during the period of deposit.
Nevertheless, the outward transfer remains subject to the applicable banking and regulatory requirements.
NRO deposits
NRO balances have a different remittance framework.
Eligible current income, such as qualifying rent, dividends, pension or interest, may be remitted abroad under the applicable current-income rules and tax-compliance requirements.
Separately, eligible NRIs and PIOs may remit specified NRO balances and qualifying asset proceeds under the RBI’s general USD 1 million per Indian financial year facility, subject to prescribed conditions.
That facility does not mean every amount standing in NRO is automatically available for outward remittance.
The nature and origin of the funds remain important. A bank may need to establish whether the amount represents current income, accumulated savings, a property sale, inheritance or another receipt.
Typical supporting records include account statements, evidence of the underlying transaction, applicable tax-compliance records and remittance instructions.
The income-tax remittance declaration and certification requirements, including Forms 145 and 146 where applicable from 1 April 2026, are separate from FEMA permissibility. Their application depends on the nature and tax treatment of the payment; they do not automatically apply to every outward transfer merely because funds leave India.
The bank must comply with the current RBI and income-tax requirements, but the bank’s acceptance of a remittance does not decide the individual’s final tax liability.
What happens to NRI fixed deposits when you return to India?
An existing fixed deposit can require different treatment after the holder returns to India, even if its original maturity date remains unchanged.
Two separate residence tests are relevant.
Under FEMA, the circumstances and purpose of the person’s movement to India can affect residence and banking eligibility.
Under Indian income-tax law, NR, RNOR and ROR status must be determined for the relevant tax year under the statutory residence provisions.
The two legal systems do not necessarily change their treatment of the individual on the same date.
Existing NRE fixed deposits
When an account holder returns to India for employment or in circumstances that change their FEMA residential status, the bank must consider the applicable redesignation requirements.
The RBI’s Deposits and Accounts Master Direction provides for NRE accounts to be redesignated as resident accounts or eligible balances to be transferred to RFC accounts, as applicable.
The individual should inform the bank about the change in residence and establish the correct treatment of the account and any outstanding deposit.
For income-tax purposes, interest must be considered under the applicable exemption provision, including the holder’s FEMA status or relevant RBI permission and the period to which the interest relates.
An FD receipt that still carries the label “NRE” is not, by itself, evidence that the interest exemption continues.
Existing NRO fixed deposits
An NRO account may be redesignated as a resident account when the holder returns to India in circumstances indicating an intention to stay for an uncertain period.
The account redesignation does not retrospectively change the character of income earned in an earlier period.
For subsequent interest, the person’s applicable income-tax status, the account treatment and the bank’s withholding obligations must be determined under the relevant rules.
Existing FCNR(B) deposits
FCNR(B) deposits have a specific continuation provision.
Under the RBI’s Commercial Banks Interest Rate on Deposits Directions, 2025, a bank may, subject to the prescribed conditions and its discretion, permit an eligible depositor returning to India for permanent settlement to continue an existing FCNR(B) deposit until maturity at the contracted interest rate.
For the relevant regulatory purposes, the deposit is treated as a resident deposit from the date of return.
On maturity, conversion into a resident rupee deposit or an eligible RFC account may be available under the applicable rules.
But the Indian income-tax treatment remains a separate question.
The statutory interest exemption must be considered with reference to the qualifying deposit, the depositor’s NR or RNOR status and the relevant income period.
Once an individual becomes ROR, the RNOR basis for the specified FCNR(B) interest exemption is no longer available.
The treatment of subsequent interest must then be determined under the applicable provisions. Any interest relating to an earlier qualifying period requires its own period-specific examination.
This is why the date of return, the relevant tax year and the deposit’s maturity date should not be treated as interchangeable.
Where does an RFC deposit fit?
A Resident Foreign Currency account is relevant to eligible residents, including individuals returning to India.
Under RBI rules, specified foreign-currency balances and eligible proceeds from NRE or FCNR(B) arrangements may be transferred into RFC.
RFC is not another scheme exclusively for non-residents. It addresses a different stage of the person’s banking circumstances.
Its income-tax treatment must be established under the applicable foreign-currency deposit provisions and the depositor’s relevant status. It must not be assumed that every RFC deposit automatically enjoys the same treatment as an NRE or FCNR(B) deposit.
Does the currency of the fixed deposit change the financial risk?
Yes. Deposit currency is a separate consideration from Indian tax treatment.
NRE and NRO fixed deposits are maintained in Indian rupees.
An NRI intending to spend the eventual maturity proceeds in another currency must consider how the exchange rate may affect their foreign-currency value.
For example, a person living in the United Kingdom may eventually need pounds while maintaining a rupee-denominated deposit in India.
The rupee interest rate does not, by itself, establish the return measured in pounds.
FCNR(B) deposits are held in permitted foreign currencies. This changes the exposure, but does not remove every risk associated with the selected currency, future spending needs, deposit terms or the bank.
Interest rates also need to be considered alongside tenor, premature-withdrawal conditions and other contractual terms.
The highest advertised interest rate is not necessarily the most appropriate criterion for a cross-border deposit decision.
An illustration: Indian rent, an NRE account and a return to India
Consider a hypothetical Indian citizen employed in Dubai.
The individual maintains an NRE account and receives ₹8 lakh of gross rental income from Indian property during tax year 2026-27.
The individual subsequently returns to India for permanent employment while an existing fixed deposit remains outstanding.
Three distinct questions arise.
First, can the Indian rent enter NRE?
Qualifying Indian current income may be credited to NRE when the authorised dealer is satisfied about the income and the applicable Indian income-tax compliance.
That does not change the underlying taxation of the rent.
Second, what happens when the individual returns?
The circumstances of the return must be examined under FEMA.
Where the person’s residential status changes, the bank must address the relevant account redesignation or permissible transfer.
Third, how is the deposit interest treated?
That question depends on the category of deposit, the statutory exemption conditions, the period involved and the individual’s relevant status.
The individual’s income-tax classification for 2026-27 cannot be determined from the return date alone. Prior travel history and the applicable residential-status tests also matter.
The hypothetical demonstrates why a single fixed-deposit receipt or bank statement cannot answer all three questions.
First identify whether the issue concerns the banking route, the applicable tax rule or the movement of funds. One answer should not be substituted for another.
Which records matter when opening, renewing or reviewing an NRI fixed deposit?
The following evidence categories help establish the general position.
- Identity and residence: passport, OCI documentation where applicable, overseas address, travel history and relevant residence declarations.
- Deposit records: deposit advice, account classification, currency, opening date, original tenure, renewal details, interest terms and maturity date.
- Source of funds: inward remittance advice, originating account statements, transfer records and evidence supporting Indian current income.
- Indian tax records: interest certificates, TDS details, applicable returns, tax-payment evidence and treaty documentation where relevant.
- Return-to-India records: date and purpose of return, communication to the bank, change-of-residence declarations and redesignation or conversion records.
- Remittance records: underlying transaction evidence, authorised-dealer instructions and any applicable tax declaration or certification.
An individual case requires examination of the actual facts and documents. A document’s existence does not, by itself, establish that the statutory conditions have been fulfilled.
What should you understand before opening or renewing an NRI fixed deposit?
An NRE, NRO or FCNR(B) fixed deposit should not be evaluated solely by its interest rate.
The deposit category determines the permissible funding route, currency and general repatriation framework.
Indian income-tax law separately determines the exemption or chargeability of the interest. In the case of taxable NRO interest, withholding and final liability may differ.
A return to India introduces another distinction because FEMA residence and Indian income-tax residence operate under separate tests.
Finally, an exemption from Indian income tax does not establish an exemption in the depositor’s country of tax residence.
That country may impose its own tax or reporting obligations, which must be examined under its law by an appropriately qualified professional there.
The fixed deposit is the financial instrument. The holder’s residence, source of funds, account route and applicable legal period determine its cross-border treatment.
Primary legal and regulatory sources
- Reserve Bank of India, Master Direction: Deposits and Accounts, updated 2 September 2026. See Part I, paragraph 3.2 and Part II, paragraphs 4 to 6.
- Reserve Bank of India, Commercial Banks Interest Rate on Deposits Directions, 2025, as amended in 2026. See the rules on NRE/NRO/FCNR(B) tenures and FCNR(B) deposits on return to India.
- Income-tax Act, 2025, as amended by the Finance Act, 2026, section 11, Schedule IV, sections 6, 159, 393 and 395.
- Income-tax Act, 1961, section 10, particularly sections 10(4)(ii) and 10(15)(iv)(fa), for prior periods and the incorporated FCNR(B) exemption.
- Income Tax Department, TDS rates for tax year 2026-27.
- Income Tax Department, Form 41 FAQs, section 159(8) and Rule 75.
- Income Tax Department, income-tax law transition and Rules, 2026.
Professional note: This article explains the general India-side banking, FEMA and income-tax position, using sources reviewed as of 23 October 2026. It is educational material and does not determine any particular person’s residential status, tax liability, treaty entitlement, deposit eligibility, repatriation entitlement or appropriate investment or banking choice. Bank procedures and legal provisions may change. Foreign-country tax and reporting consequences require examination under the law of the relevant jurisdiction by an appropriately qualified professional.
Share this guide
Sources and review
Published