NRE and NRO Accounts

An NRE (Non-Resident External) account holds foreign earnings remitted to India in rupees. Interest is exempt from Indian income tax and the balance can be repatriated freely. An NRO (Non-Resident Ordinary) account holds income that arises in India: rent, dividends, pension, or the proceeds of a property sale. Indian banks deduct tax at source on NRO interest at a high rate, and repatriation from an NRO account is capped at USD 1 million per financial year under exchange-control rules, with Form 15CA/15CB documentation. FCNR deposits are the foreign-currency cousin of NRE, also exempt in India. Someone who becomes a nonresident of India is expected to redesignate resident accounts as NRO; that is an India-side step for the client's Chartered Accountant.

For a U.S. tax resident the Indian exemption is irrelevant: NRE and FCNR interest is fully taxable in the U.S. with no foreign tax credit, because no Indian tax was paid. NRO interest is also taxable, and the TDS is creditable on Form 1116 in the passive basket, limited to the U.S. tax on that interest. Fixed deposits inside any of these accounts accrue taxable interest each year even when it compounds to maturity.

All three account types count toward the FBAR $10,000 aggregate threshold and the Form 8938 thresholds, using each account's peak balance for the FBAR and year-end and peak balances for Form 8938. Leaving NRE interest off a U.S. return because it is tax-free in India is the most common cross-border omission Rubric Financial sees, and it is exactly the fact pattern the Streamlined Filing Compliance Procedures were built for.