Taxable. Interest on an NRO account is Indian-source income in your hands and tax is deducted at source when it is credited — at the rate applicable to a non-resident, which is materially higher than the rate a resident would face on the same interest. Where a treaty gives a lower rate, claiming it requires the residency certificate and the treaty form; it is not applied automatically.

What about FCNR deposits?

Interest on an FCNR deposit is exempt — Section 10(15)(iv)(fa) under the 1961 Act, carried into Schedule IV of the 2025 Act. FCNR is the account that behaves best on a return to India, because the exemption is generally available while you are a non-resident or an RNOR rather than ending on arrival.

Which account should my Indian rent go into?

NRO. Rent, dividends on Indian shares, pension from an Indian employer and anything else arising in India belongs in an NRO account — that is what it is for. NRE is for funds remitted from abroad. Mixing the two creates a problem later, because repatriating from an NRO account is a different exercise from repatriating from an NRE one, and the tax history of the money is what you will be asked to prove.

What happens to the NRE account when I move back to India?

The exemption stops. An NRE account is a facility for a person resident outside India, and on a permanent return that status changes — with it, the interest becomes taxable. The account itself is redesignated rather than simply continuing. This is the change that catches returning NRIs most often, because nothing visible happens at the bank on the day it takes effect.

Is there an account for foreign currency after I return?

Yes — a Resident Foreign Currency account, which lets a returning resident continue to hold foreign currency rather than being forced to convert. It is the natural destination for an FCNR balance on return. Whether the interest on it is exempt depends on your residential status for income-tax purposes in the year concerned, and that is worth establishing before the transfer rather than after.

Do I have to declare exempt interest in my return?

If you are filing a return, yes — exempt income is still disclosed as exempt income. It costs nothing to report and it removes an obvious question later, particularly where the same year involves a change of residential status.

NRE, NRO and FCNR: What Each Account Is Actually Taxed On

Q: Is NRE interest really tax-free?

While you are a non-resident, yes — interest on an NRE account, savings and deposits alike, is exempt. Under the 1961 Act that exemption is Section 10(4)(ii); it carries into the Income-tax Act 2025 through Section 11 read with Schedule IV. It is worth being precise about what the exemption attaches to, though: it is your status that makes it exempt, not the account. Change the status and the exemption goes with it.

Short answer: NRE and FCNR interest is exempt while you are non-resident. NRO interest is taxable and deducted at source. The exemption attaches to your status, not to the account — which is why a return to India changes the answer without anything visible happening at the bank.

The three accounts, and what each is for

	What it holds	Interest
NRE	Funds remitted from abroad, in rupees	Exempt while non-resident
NRO	Income arising in India — rent, dividends, pension	Taxable, TDS at source
FCNR	Deposits held in foreign currency	Exempt while non-resident or RNOR

The distinction that matters operationally is not the tax rate. It is what belongs in which account. Indian-source income belongs in NRO. Money you send from abroad belongs in NRE. Mixing them is easy and the consequences surface much later, when you try to take money out and are asked to demonstrate what it was and whether it was taxed.

NRE: exempt, but on a condition

Interest on an NRE account is exempt — Section 10(4)(ii) under the 1961 Act, carried into the Income-tax Act 2025 through Section 11 read with Schedule IV.

Read the condition rather than the headline. The exemption is available because of who you are, not because of what the account is called. The account is a facility for a person resident outside India; when that ceases to be true, the exemption ceases with it.

Nothing announces this. The bank does not send a letter on the day your status changes, and the interest keeps being credited exactly as before.

NRO: taxable, and deducted at source

Interest on an NRO account is Indian-source income and tax is deducted when it is credited, at the rate applicable to a non-resident. That rate is materially higher than what a resident would face on the same interest.

Two things follow that people miss:

A treaty rate is not automatic. Where a treaty with your country of residence provides a lower rate on interest, claiming it requires a residency certificate and the treaty form, given to the payer before deduction. Otherwise the higher rate applies and the difference has to be reclaimed through a return.
Deduction is not the end of it. TDS is a payment on account. If your total Indian income sits below the threshold, or the treaty rate was lower, the excess comes back only if you file.

FCNR: the one that travels best

Interest on an FCNR deposit is exempt — Section 10(15)(iv)(fa) under the 1961 Act, carried into Schedule IV of the 2025 Act.

FCNR behaves better than NRE on a return, because the exemption is generally available while you are a non-resident or an RNOR rather than ending on arrival. For someone returning with foreign currency deposits, that difference is worth understanding before the deposits mature rather than after.

What changes when you move back

This is the part worth planning, and it has nothing to do with the bank noticing.

The NRE exemption stops. The account is redesignated; the interest becomes taxable.
FCNR may continue exempt through the RNOR period.
An RFC account — Resident Foreign Currency — lets a returning resident continue holding foreign currency rather than being forced to convert on arrival. It is the natural destination for an FCNR balance. Whether the interest on it is exempt turns on your residential status for income-tax purposes in the year concerned, which is a question to settle before the transfer.

The wider point is that a return to India is a tax event spread across several accounts at once, and the window in which it can be planned closes on the date you arrive. That window — RNOR — is covered separately in the RNOR window.

Before you do anything

Check what is going into which account. Indian income into NRO, remitted funds into NRE.
Check whether a treaty rate should be reducing the TDS on your NRO interest, and whether the payer has what it needs to apply it.
If a return to India is in prospect, establish your likely residential status for the year of return before you fix the arrival date.
If you are repatriating, the tax history of the funds is what you will be asked for — see when a repatriation actually needs a CA certificate.

This is a working reference, not the statute. Exemptions and rates for non-residents are confirmed against the current provision before being relied on.

NRE, NRO and FCNR: what each is taxed on, and what changes when you return