NRE vs NRO fixed deposits: what's the difference?
When you become an NRI, your Indian savings must move into one of two account types. An NRE (Non-Resident External) account holds money earned outsideIndia — foreign salary or business income remitted home — converted into rupees. An NRO (Non-Resident Ordinary) account holds income earned in India — rent from a property, a pension, dividends, or proceeds from assets you owned before moving abroad. Both can hold fixed deposits, usually at identical interest rates — but the tax treatment of the interest is completely different, which is exactly what this calculator quantifies.
NRE FD — tax-free and fully repatriable
Interest earned on an NRE fixed deposit is fully exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act, for as long as you qualify as an NRI under FEMA. The bank deducts no TDS and you don't report the interest in any Indian tax filing. The full balance — principal and interest — is also freely repatriable, meaning you can move it back abroad at any time without limits or paperwork beyond the bank's standard remittance form.
NRO FD — for Indian-source income, taxed at 30% + cess
Interest on an NRO fixed deposit is taxable in India, and the bank deducts TDS at 30% plus 4% Health & Education Cess — 31.2% effective — under Section 195 before crediting it. Unlike resident FDs (where TDS kicks in only above ₹40,000 of annual interest — see the FD calculator), there is no threshold for NRIs: TDS applies from the very first rupee of interest. Depending on your total Indian income you may be able to claim some of it back by filing an Indian tax return — the NRI income tax calculator estimates that liability.
How a DTAA lowers the NRO TDS rate
India has Double Taxation Avoidance Agreements with most countries NRIs live in, and many of these treaties cap the tax India can charge on interest at 15% (e.g. USA, UK), 12.5% (e.g. UAE) or 10% (e.g. Germany) — with cess, that's 15.6%, 13% or 10.4% instead of 31.2%. To get the concessional rate you must give your bank a Tax Residency Certificate (TRC) from your country of residence plus a Form 10F filing (done on the Indian e-filing portal), along with a self-declaration and PAN — before the interest is credited. Banks apply the lower rate only prospectively and the documents must be refreshed every financial year. Any excess already deducted can only be recovered by filing an Indian return.
Repatriation rules
NRE balances are fully and freely repatriable — no cap, no certification. NRO repatriation is more restricted: post-TDS interest moves freely, but principal and other NRO balances can be remitted abroad only up to USD 1 million per financial year across all your NRO accounts, and each remittance needs Form 15CA (filed online) plus a CA-certified Form 15CB confirming the applicable taxes have been paid.
What happens when you return to India
Once you return with the intention to stay, FEMA no longer lets you hold NRE/NRO accounts — you must redesignate them. NRE FDs can generally run until maturity (the interest becomes taxable once you're a resident), and on maturity the proceeds can move into an RFC (Resident Foreign Currency) account or a regular resident FD. Your tax exposure in the first few years back depends on whether you qualify as RNOR or ROR — check with the RNOR calculator, and confirm your status year by year with the NRI residential status calculator.
Worked example
Say you deposit ₹10,00,000 for 5 years at 7% per annum, compounded quarterly. Both accounts compound identically — ₹10,00,000 × (1 + 0.07/4)²⁰ — to a gross maturity of ₹14,14,778, earning ₹4,14,778 in interest. As an NRE FD that's entirely yours, tax-free. As an NRO FD at the default rate, the bank deducts 31.2% of the interest — ₹1,29,411 — leaving a post-tax maturity of ₹12,85,367: you keep ₹1,29,411 more with the NRE FD. Even with a 15% DTAA rate applied (15.6% with cess), the NRO FD loses ₹64,705 to TDS and matures at ₹13,50,073 — so the NRE FD still keeps ₹64,705 more in your hands.
NRE FD vs FCNR deposit
Both NRE and FCNR (Foreign Currency Non-Resident) deposit interest is tax-free in India. The difference is currency: an NRE FD converts your foreign money into rupees (so you gain or lose with the exchange rate when you eventually convert back), while an FCNR deposit stays in the foreign currency — USD, GBP, EUR and others — eliminating conversion risk entirely, usually at a lower interest rate than rupee deposits.