Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Why NRE interest is tax-free
Interest on an NRE account is exempt under Section 10(4)(ii) of the Income-tax Act, and the bank deducts no TDS on it. The one condition is that you must qualify as a person resident outside India under FEMA, 1999. While you can leave it out of your taxable income, it is good practice to still disclose it as exempt income when you file a return.
NRE vs NRO vs FCNR
- NRE — interest exempt; freely repatriable.
- FCNR — foreign-currency deposit; interest also exempt while you are non-resident.
- NRO — interest is fully taxable, with TDS around 30% plus surcharge and cess (a DTAA can reduce this with a TRC and Form 10F).
See the full NRE vs NRO vs FCNR comparison.
What changes when you move back to India
The exemption is tied to your FEMA status, not your income-tax status — and the two can change at different times. Once you return for good, you are expected to redesignate your NRE account (typically to a resident or RFC account), after which the interest becomes taxable. This can happen even while you are still RNOR for income tax, so review your accounts in the year you return. Confirm the treatment for your facts — return timing matters. Our NRI repatriation & FEMA service can help.