NRE vs NRO Account: FEMA Repatriation Limits Explained

Most of the FEMA problems we see in NRI accounts trace back to one thing: money going into the wrong account. NRE and NRO look similar on a bank's app, but they follow completely different rules on tax, repatriation, and what can legally go into each. Here is how to keep them straight, and how the USD 1 million repatriation cap actually works.

The Three Account Types

NRE Accounts: What Goes In, What Comes Out

An NRE account exists to hold money you earn outside India that you choose to bring into an Indian rupee account, foreign salary, consulting income, business profits earned abroad, or funds transferred from your existing foreign bank account. Both the principal and the interest are fully and freely repatriable back abroad at any time, with no annual limit and minimal documentation for the outward transfer itself. Interest earned is exempt from Indian income tax under Section 10(4)(ii), as long as you continue to hold non-resident status under FEMA. NRE accounts can be held jointly with a resident close relative under the "former resident" joint holding provisions, though operational rights differ from a standard joint account.

The rule that trips people up: only foreign-sourced funds should enter an NRE account. If Indian rental income, dividends from Indian shares, or maturity proceeds from an Indian fixed deposit get credited into an NRE account, that is a FEMA violation, regardless of intent. Banks can, and do, flag such deposits on review and may require the account to be corrected.

NRO Accounts: Where India-Sourced Income Belongs

An NRO account is for income that arises in India while you are a non-resident, rent from Indian property, dividends on Indian shares, interest on Indian fixed deposits, pension credited in India, or proceeds from selling Indian assets. Unlike NRE, interest on an NRO account is taxable in India, and banks deduct TDS at source, generally at a high rate (30% plus applicable surcharge and cess) unless a lower rate applies under the relevant DTAA, which requires furnishing a Tax Residency Certificate and Form 10F to the bank.

Repatriation out of an NRO account is capped at USD 1 million per financial year, and this cap is cumulative, it counts all remittances out of all your NRO balances during the year, not a fresh USD 1 million allowance per transfer or per bank. Before the Authorised Dealer bank will process the transfer, you need:

• Form 145 (which replaced Form 15CA), filed by you on the income tax e-filing portal, declaring the nature and amount of the remittance.
• Form 146 (which replaced Form 15CB), a certificate from a Chartered Accountant confirming the source of funds and that applicable Indian tax has been paid or deducted, required for most remittances above the prescribed threshold.

If you're repatriating proceeds from a property sale specifically, the process and forms are the same, see our detailed guide on repatriating NRI property sale proceeds for the full walkthrough including the USD 1 million scheme mechanics.

FCNR: The Foreign-Currency Option

An FCNR account is a term deposit held in a foreign currency (commonly USD, GBP, EUR, or AED) rather than Indian rupees. Because the deposit stays in foreign currency, there is no exchange rate risk on the principal between deposit and maturity, useful for NRIs who want to earn Indian bank interest rates without taking on rupee depreciation risk. Like NRE, both principal and interest are fully repatriable and interest is tax-exempt while the holder remains non-resident.

Current Income vs Capital Repatriation

A distinction worth understanding: FEMA distinguishes between repatriating current income (rent, dividends, pension, interest as it is earned) and repatriating capital (accumulated NRO balances, sale proceeds of assets). Current income is, in principle, freely remittable as it arises, but in practice banks still route it through the same NRO account, CA certification, and Form 145/146 process, and it counts toward the same cumulative USD 1 million annual cap alongside capital remittances. Don't assume rental income has a separate, uncapped remittance channel, it doesn't, in practice.

Common FEMA Mistakes

• Depositing India-sourced income into an NRE account, the single most common error, usually from treating NRE and NRO as interchangeable "the NRI account" rather than purpose-specific accounts.
• Not tracking the cumulative USD 1 million cap across multiple remittances or multiple banks in the same financial year, leading to a rejected transfer late in the year.
• Skipping Form 145/146 and expecting the bank to process an NRO remittance on request alone, banks will not move funds abroad without this documentation.
• Not redesignating NRE/FCNR accounts after returning to India and becoming a resident under FEMA, continuing to hold them as non-resident accounts and continuing to claim tax-exempt interest after residency has changed.
• Assuming a joint NRE account with a resident relative carries the same free repatriation rights for the resident joint holder as it does for the NRI, it doesn't; operating rights and repatriation eligibility attach to the account holder's own status.
• Not claiming DTAA relief on NRO interest TDS, leaving 30%+ TDS deducted when a lower treaty rate was available with the right paperwork.

Practical Takeaway

The account structure question is simple once the rule is clear: foreign income into NRE or FCNR, India-sourced income into NRO. The complexity is entirely in the repatriation paperwork, and that paperwork is not optional. If you're planning a large NRO repatriation this year, whether from accumulated rental income, a maturing deposit, or an asset sale, start the Form 145/146 process well before you need the funds abroad, banks typically need 5 to 10 working days once documentation is complete.