NRE, NRO and FCNR Accounts: US Tax Rules

NRE, NRO and FCNR are the account types Indian banks offer to people who live outside India. Many Indian-Americans keep one or more of them for family, property or retirement plans. The question that comes up every spring is whether the label changes anything on the U.S. return. In general, it does not. The IRS taxes U.S. citizens and U.S. tax residents on income from everywhere, and it looks at your U.S. status, not at the type of account. How India taxes the same interest depends on Indian law and is a question for your Indian CA.

What the three account types are

Banks usually describe an NRE account as a rupee account funded with money earned abroad, an NRO account as a rupee account for income earned in India such as rent or a pension, and an FCNR account as a term deposit held in a foreign currency. Which accounts you may open, how they can be funded, and what happens when your residency changes are Indian-law and bank-policy questions. Raise them with your Indian CA and the bank. The rest of this page covers the U.S. side.

What you report in the U.S.

1. Interest income. Report the interest from each account on your Form 1040 with your other interest. Indian banks generally do not issue a U.S. Form 1099-INT, so you work from statements or interest certificates.
2. The accounts themselves. If your foreign accounts together exceeded $10,000 at any time in the year (2025 and 2026 reports), file the FBAR. If you cross the Form 8938 threshold for your filing status, that form is also due. The IRS comparison chart lists foreign-issued life insurance with cash value and foreign mutual funds on both reports.
3. Foreign tax credit. If Indian tax was deducted from the interest, you may be able to claim a credit on Form 1116 (see below).
4. Related investments. Indian mutual funds bought through the account have their own rules; see PFIC and Form 8621.

Converting rupees and other currencies to dollars

Every amount on a U.S. return is in dollars. The IRS says that, in general, you use the exchange rate in effect (the spot rate) when you receive, pay or accrue the item. The IRS has no official rate and generally accepts any posted rate used consistently, and it publishes yearly average rates that include India. For account values on the FBAR and Form 8938, the instructions call for the exchange rate at the end of the year.

The IRS also notes that foreign currency gain or loss may need to be recognized on some currency transactions. How that applies to personal bank balances is technical. Keep dated records of deposits, withdrawals and conversions.

Tax withheld in India and the foreign tax credit

If the bank deducts Indian tax at source, that amount may qualify for a credit on Form 1116, usually in the "passive" category for interest. Two points matter:

• The credit covers income tax you actually owe to India. The IRS says you cannot claim tax that you are reasonably certain would be refunded if you filed a claim. If the amount withheld is more than the tax finally due, the excess is not creditable.
• The shortcut that avoids Form 1116 requires the income and foreign tax to appear on a qualified payee statement such as a Form 1099, so Indian account income often does not qualify. Expect to file Form 1116.

India's tax year runs April to March, while yours is the calendar year, so the Indian tax and the U.S. credit often fall in different years. Your Indian CA and your U.S. preparer should line up the dates. See foreign tax credit on India income.

Common mistakes

• Treating NRE interest as not reportable because of how India treats it.
• Leaving out an old account that still has a small balance.
• Using different exchange rates for the FBAR, Form 8938 and the tax return without a note explaining why.
• Claiming a credit for Indian tax that is refundable through an Indian return.
• Adding a child or relative as a joint holder without checking the FBAR consequences.

How we can help

We convert your Indian interest to dollars, prepare the FBAR and Form 8938 where required, and claim the foreign tax credit on supportable amounts. We can also share a list of figures with your Indian CA so both returns match. See international tax services.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.