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When Does an NRIs NRE Account Lose Tax-Free Status in India?

autohr img By Pankaj Shaw | Last Updated : 13 Nov, 2025

NRE Account Tax Free status
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An NRI's NRE account loses its tax-free status in India as soon as their residential status changes from Non-Resident Indian to Resident in India as per the provisions of the FEMA (Foreign Exchange Management Act). A person is considered an Indian resident under FEMA when they return to India to stay permanently, such as for employment, to start a business, or a profession, etc. In this blog, we will learn about an NRE account, RNOR status, and when an NRE account loses its tax-free status.

Key Takeaways
  • An NRE account is specifically designed for NRIs to hold their foreign earnings in India.
  • You will be considered an Indian resident under FEMA once you return to India for employment, business, profession, or to stay for an indefinite period.
  • Your NRE account loses its tax-free status in India as soon as the account holder's residential status changes from NRI to resident Indian.
  • Once you return to India, inform your bank about the residential status change, and consider opening an RFC account to hold funds in foreign currency.
  • The RNOR status is for NRIs who return to India after spending years overseas, offering them partial tax exemptions on their global income.

What is an NRE Account?

An NRE (Non-Resident External) account is for NRIs to keep their foreign earnings in India. It is a rupee-denominated account where you can deposit money in foreign currency. However, withdrawals can be made only in Indian rupees.

An NRE account can be opened in the form of savings, current, recurring, or fixed deposits. Repatriation of both principal and interest amount from an NRE account to a foreign account can be done without any restrictions.

When Does My NRE Account Lose the Tax-Free Status?

Under the FEMA (Foreign Exchange Management Act), the interest earned on an NRE account is tax-exempt for a Non-resident. You can keep holding an NRE account until you qualify as a non-resident under FEMA, and not beyond that.

You will be deemed an Indian resident under FEMA after you move back to India for employment, business, profession, or to stay there for an indefinite period. When you move back to India permanently, you will be considered a resident starting from the day you arrive there. This is regardless of how long you stay there.

You must notify your bank about the residential status change, and the bank will then redesignate your existing NRE account as a regular resident account. This change will help you in reporting tax accurately because interest earned on the account will be subject to taxation in India once you move back.

What Should I Do After Returning to India?

Follow these steps after arriving in India to ensure compliance and a smooth transition to India:

Notify Your Bank

Inform your bank promptly about the change in your residential status. The bank will help you to:

  • Convert your NRE/NRO account into a resident rupee account, or
  • Convert your NRE deposits into a resident foreign currency (RFC) account to manage your foreign currency.

Consider RFC Accounts

An RFC (Resident Foreign Currency) account permits the NRIs returning to India to hold funds in foreign currencies, such as USD, GBP, or EUR.

  • If you qualify as an RNOR, the interest earned on an RFC account will remain tax-free.
  • An RFC account is ideal for those who are seeking to work abroad or manage their foreign investments.

Plan for Taxation

The interest earned on an NRE deposit will be taxed at the applicable slab rates upon becoming an ROR (Resident and Ordinarily Resident). You can still avail the tax benefits available under the RNOR status for 2-3 years after moving back to India.

For Example

Suppose, after spending 10 years abroad, you came back to India in October 2025:

  • Now, for the FY 2025-2026, your duration of stay in India would be less than 182 days, which means you are still a non-resident. So, your NRE account will remain tax-free.
  • From FY 2026-2027, if you stay in India for more than 182 days, you will be considered a resident. However, since you were an NR for 9 out of 10 previous years, you will qualify as an RNOR for up to 2-3 years based on your stay. So, if you qualify as an RNOR, then the interest earned on your NRE account will remain tax-exempt for the given year.
  • Your NRE account becomes fully taxable once your RNOR status concludes, and you are deemed as ROR. Then, you must convert your NRE account into a resident or RFC account as per the FEMA guidelines.

What is RNOR (Resident but Not Ordinarily Resident) Status?

The RNOR status is a special residency status category under the Indian tax law, specifically for individuals coming back to India after spending years abroad. This status provides them with limited exemptions from tax on their global income during the transition phase. Also, ensures that your foreign income is not taxed immediately in India. You will be considered an RNOR if:

  • You were a non-resident in at least 9 out of the 10 preceding financial years, or
  • You were present in India for 729 days or fewer during the 7 financial years preceding the current year.

What are Some Tips for NRIs Returning to India?

Here are some tips to help NRIs who are returning to India after spending years abroad:

  • Currency Conversion: Keep track of forex rates to receive favorable fund transfers.
  • Leverage Investment Options: Use avenues to enjoy cost-efficient global investments, such as GIFT City.
  • Update Financial Documents: Make sure that everything is updated to show your residency change, such as KYC and FATCA/CRS declaration.
  • Financial Transition Planning: Inform your banks, brokers, and insurers regarding the change in your residency status in advance.
  • Seek Expert Advice: Consider consulting a financial advisor to ensure more compliance with Indian as well as international laws.

The Bottom Line

The NRE account loses its tax-free status in India from the moment you become an Indian resident under FEMA. NRE account remains tax-free in India only until you qualify as an NRI. You need to either convert your NRE account to a resident account or repatriate the funds to a Resident Foreign Currency (RFC) account.

If you still have any more questions or are confused about understanding the status, consider the experts at Savetaxs. We have an entire team of experts who will guide you in understanding the complexities of transitioning to India.

They will help you determine your tax obligations and help you with NRI financial planning when you move back to India. Contact us right away, as we are working 24*7 across all time zones.

Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

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Pankaj Shaw (Tax Expert)

Mr Shaw brings 8 years of experience in auditing and taxation. He has a deep understanding of disciplinary regulations and delivers comprehensive auditing services to businesses and individuals. From financial auditing to tax planning, risk assessment, and financial reporting. Mr Shaw's expertise is impeccable.

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Frequently Asked Questions

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Interest on an NRE account remains tax-free in India till the time you maintain your Non-Resident Indian (NRI) status.

Your NRE account loses tax-free status upon becoming an Indian resident under the Income Tax Act and FEMA (generally staying in India for 182 days or more in a financial year).

No, you need to convert your NRE account to a resident savings or current account within 90 days of a change in your residency status.

The principal you deposit when you had the NRI status will remain exempt from taxation. However, the interest earned after becoming a resident will be subject to taxation.

If you don't convert your NRE account upon becoming a resident, the interest accrued will become subject to taxation. Also, the account operation may violate the rules of FEMA, which may lead to penalties.

No, once your residency status changes, the rules for repatriation will also change, and funds must be held in resident accounts with normal repatriation limits

Yes, banks do track changes in status, and the tax authorities expect NRIs to update account classification to prevent any potential legal and tax issues.