By Sunil Kawariya, Right Horizons | Last updated: November 2026

NRE FD interest is tax-free in India only while you are a non-resident under FEMA. When you return to India for good, you become a resident, your NRE accounts must be redesignated, and the interest becomes taxable. An existing NRE FD can run to maturity at its contracted rate.

If you are planning to move back, your NRE fixed deposit is probably one of the first things on your mind. Most returning NRIs ask the same questions: Do I have to close it? Will I pay tax on the interest? What does RNOR status change? This guide answers each one in plain English, with the rules as they stand after the Income-tax Act, 2025 came into force on 1 April 2026.

An NRE fixed deposit, also called a non-resident external deposit or NRE term deposit, is a rupee deposit an NRI opens with money earned abroad. You can hold it alone or jointly. Both the principal and the interest can be sent back overseas freely.

Banks follow FEMA, not the income-tax residency test. Under FEMA you are generally a non-resident if you live abroad for work, business, study or any stay of uncertain length. Income-tax law uses a separate test, based mainly on how many days you spend in India (182 days in a year is the main threshold). The two tests can give different answers, which is why timing matters when you return.

An NRI is also different from a PIO (Person of Indian Origin). PIO describes your origin and nationality, not where you live.

NRE FD rates differ by bank and tenure and change often, so check your bank's current rate card before you book. Closing early usually lowers your rate, and many banks pay no interest if you break the deposit within the first year.

No. Interest on NRE fixed deposits and NRE savings accounts is exempt from Indian income tax as long as you are a person resident outside India under FEMA. Banks deduct no TDS, so you pay no tax on it in India.

Until 31 March 2026, the exemption sat in Section 10(4)(ii) of the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026 and keeps the same exemption in Schedule IV (item 1) for eligible non-residents. The condition has not changed: the account must be a Non-Resident (External) account, and you must be a non-resident under FEMA or hold RBI permission.

No. NRO fixed deposit interest is different: it is taxable, with TDS at 30% plus cess (31.2%) before any surcharge. Form 15G and 15H are not available to NRIs. A tax treaty (DTAA) can lower the rate, for example to 15% for the US and UK and 12.5% for the UAE, if you give your bank a Tax Residency Certificate, Form 10F and PAN.

India's exemption does not bind your country of residence. The UAE has no personal income tax, so NRE interest usually goes untaxed there. UK residents are generally taxed on it, and US taxpayers must report it and may need to file FBAR or Form 8938. Check your local rules or ask a cross-border adviser.

If your only Indian income is exempt NRE interest, you generally do not need to file an Indian return. File if you have other taxable income above the basic exemption, or want to claim a refund. If you also earn rent from a property in India, read how NRIs are taxed on rental income.

Your NRE accounts must be redesignated as resident accounts, or the funds moved to a Resident Foreign Currency (RFC) account, immediately on return. You do not have to break your existing NRE FD, because RBI rules let it earn the agreed rate until maturity. But the interest is no longer tax-free.

Your FEMA status changes when you return to take up work or stay for an uncertain period. Your tax status is decided year by year, by days spent in India. You can be a resident under FEMA and still be RNOR for tax. The NRE exemption follows your FEMA status, so it ends when you become a FEMA resident, even if you are still RNOR.

Usually not. Breaking a high-rate deposit early can cost more than the tax you save, because many banks cut the rate or add a penalty. Compare the after-tax return of continuing with the return from closing, using your own tax slab, before you decide.

RNOR (Resident but Not Ordinarily Resident) is a transition status that keeps most foreign income out of Indian tax. It does not shield NRE FD interest, because that interest is earned in India and the NRE exemption needs FEMA non-resident status. RFC interest is generally untaxed during RNOR.

You are RNOR if you were a non-resident in 9 of the 10 previous years, or you spent 729 days or fewer in India in the 7 previous years. Most long-term returnees get two to three years. The Income-tax Act, 2025 kept these residency tests, so the rule works the same way as before.

Once you stop being RNOR, your global income becomes taxable in India, including interest from RFC and foreign accounts.

A Resident Foreign Currency (RFC) account lets a returning NRI hold foreign currency in India as a resident. Your balance is not exposed to rupee swings (see why the rupee has been falling against the dollar). Interest is generally not taxed in your RNOR years, and becomes taxable once you are an ordinary resident. RFC rates differ from NRE rates, so compare before you move funds.

Your NRO savings account is redesignated as a resident account. NRO interest is taxable throughout: as an NRI with TDS, and as a resident at your slab rate.

Form 60 is a declaration for people without a PAN. Some banks accept it for NRE deposits, but policies differ, and some banks say it cannot replace a PAN for opening NRE, NRO or FCNR accounts. You need a PAN to file returns and claim TDS credit, so apply for one before you invest.

Right Horizons has years of experience in NRI tax planning and filing, including advance tax and capital gains. Our team helps returning NRIs plan the move, from NRE FD decisions to financial planning and advisory.

Your NRE FD stays tax-free only while you are a non-resident under FEMA. The moment you return and become a resident, interest is taxable, even in your RNOR years, while an RFC account can keep foreign-currency interest out of tax for those years. Tell your bank immediately, decide what to do with each deposit, and file your return every year. Planning NRE FD tax before you return is the simplest way to avoid surprises. Right Horizons' NRI team can help you plan it.