NRI Taxation and Compliance (Part 4): NRE, NRO, FCNR Accounts and Investing in India
NRE vs NRO vs FCNR(B) accounts, repatriation limits, PIS for shares, mutual fund rules and tax on NRI investments in India, with mistakes to avoid.
An NRI in Toronto opens an NRO account for rent, an NRE account for savings and then asks his Hyderabad bank to buy Indian shares. The bank says “PIS account needed”. Which account, for which money, with which tax?
- Part 1: Residential status
- Part 2: Income taxation
- Part 3: Property
- Part 4: Banking and investments (you are here)
- Part 5: Returning to India
- Part 6: Investing in Indian businesses
- Part 7: Gifts, inheritance and succession
- Part 8: TDS, Section 195 and Forms 15CA/15CB
- Part 9: Return filing, refunds and notices
1. The three NRI bank accounts
| NRE | NRO | FCNR(B) | |
|---|---|---|---|
| Currency | Indian rupees | Indian rupees | Foreign currency |
| Funded by | Foreign earnings and transfers from abroad | Indian income such as rent, dividends and pension | Foreign currency remittances |
| Repatriation | Fully repatriable | Up to USD 1 million per financial year after tax, with documents | Fully repatriable |
| Interest tax | Exempt while non-resident | Taxable; TDS applies | Exempt while non-resident |
| Joint holders | With another NRI, or a resident relative on a former-or-survivor basis (confirm) | With NRI or resident | With NRIs |
| Currency risk | On you (rupee value) | On you | On the bank deposit, not on you |
2. Investing in Indian markets
| Route | How it works | Repatriable? |
|---|---|---|
| Portfolio Investment Scheme (PIS) on repatriation basis | Designated bank, NRE-linked PIS account, deals through a broker with the bank reporting each trade | Yes, subject to tax and documents |
| Non-repatriation basis | Through an NRO-linked account | No (within the NRO USD 1 million limit it can still move) |
| Mutual funds | NRI KYC and FATCA self-certification; some fund houses restrict US and Canada residents (confirm with the fund house) | Depends on NRE or NRO source |
| Fixed deposits, bonds, NPS | Allowed in specified forms | Depends on source of funds |
| Unlisted startup shares | Under the FDI route, with FC-TRS reporting where resident-nonresident transfers occur | See FEMA Part 2 |
The June 2026 amendments to the NDI Rules widened portfolio investment routes for overseas individuals (see FEMA Part 2). NRIs should check current investment limits and the bank’s procedure before transacting.
ComplianceKart reviews your account structure, PIS set-up, tax and FEMA reporting before you invest. See our FEMA and NRI compliance service.
3. Tax on investments (indicative)
| Asset | Typical NRI tax treatment (confirm for the year) |
|---|---|
| Listed equity or equity mutual funds held more than 12 months | Long-term gains at 12.5% above the annual exemption; TDS applies for NRIs |
| Listed equity held 12 months or less | Short-term gains at 20% |
| Debt mutual funds | Taxed at slab rates |
| Dividends | Taxable; TDS applies; treaty may reduce |
| NRO interest | Taxable; TDS around 30% unless reduced by treaty |
| NRE and FCNR(B) interest | Exempt while non-resident |
4. Compliance points
- PAN and KYC: required for every account and investment.
- FATCA and CRS: banks and fund houses report NRI account information to tax authorities.
- Nomination: update nominees, as succession for NRI accounts can be slow.
- Gifts and inheritance: allowed within FEMA and tax rules; plan documentation.
- Remittances out: use Form 15CA/15CB for outward remittance from NRO accounts.
5. Mistakes NRIs make
- Investing from an NRO account and expecting full repatriation.
- Not intimating the bank of a change of residential status (see Part 5).
- Skipping PIS procedure and buying shares through an ordinary demat.
- Ignoring fund-house restrictions for US and Canada residents.
- Leaving NRO interest without claiming treaty benefits.
- Not updating nominees.
Why work with ComplianceKart
ComplianceKart is a boutique practice bringing Chartered Accountants, Company Secretaries and advocates under one roof. Think of a multi-speciality hospital: the physician, the radiologist and the pharmacist read from one patient file, so you never carry reports between buildings. Banking, investments and tax for NRIs belong to different regulators. One team reading all three keeps the structure simple and compliant.
Frequently Asked Questions
Which account should NRIs use for foreign earnings?
NRE for foreign earnings that may be repatriated, or FCNR(B) for foreign-currency deposits.
Is NRO interest taxable?
Yes, and TDS is deducted by the bank.
Can an NRI invest in Indian shares?
Yes, through the Portfolio Investment Scheme on repatriation or non-repatriation basis.
Can an NRI invest in mutual funds?
Yes, subject to KYC, FATCA and fund-house policy.
What if I move back to India?
Accounts must be redesignated. See Part 5.
Sources
- FEMA Non-debt Instruments Rules, 2019 (Schedules III and IV) and Third Amendment Rules, 2026
- RBI Master Direction on Interest Rate on Deposits and NRI deposits
- Income-tax Act, 2025 / 1961: capital gains and TDS provisions
Ready to act? Start with our FEMA and NRI compliance service, check pricing, or contact us.
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Educational article, last updated 11 November 2026. General information, not advice on a specific case. Laws and due dates change; confirm on the date you act. Items marked (confirm) came from secondary sources and need checking against the official text.
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