Quick answer: When you move to the USA for study or work, Indian banking rules generally treat you as a non-resident, so your regular savings account should be converted to an NRO account. Use an NRE account for money earned abroad: its interest is tax-free in India and fully repatriable. NRO is for Indian income like rent, and its interest is taxable in India.
Many Indian students fly to the USA with their old SBI, HDFC or local bank account still running exactly as before. Few realize that once you go abroad for studies or a job, Indian foreign exchange rules generally treat you as a Non-Resident Indian (NRI) for banking purposes. Continuing a resident savings account without informing the bank is a compliance problem. The fix is simple: understand NRE and NRO accounts and use each for the right money.
Am I an NRI if I am only a student?
Under the Foreign Exchange Management Act (FEMA), a person who leaves India for employment, business or education with the intention of staying outside India for an uncertain period is generally considered a person resident outside India. Students studying abroad are typically treated as non-residents for banking purposes. Note that income tax residency in India is a separate test based on the number of days you spend in India in a financial year.
NRE account at a glance
Non-Resident External (NRE) accounts hold money earned outside India, converted into rupees.
- Deposits: only foreign earnings or transfers from abroad, or from another NRE/FCNR account.
- Interest: tax-free in India.
- Repatriation: principal and interest are fully repatriable to the USA.
- Joint holding: with another NRI, or with a resident close relative on a “former or survivor” basis, depending on bank rules.
NRO account at a glance
Non-Resident Ordinary (NRO) accounts hold income earned in India, such as rent, dividends, pension or the balance of your old savings account.
- Deposits: Indian income and foreign money are both allowed.
- Interest: taxable in India, with TDS deducted by the bank, usually at a high rate for non-residents. The India-US tax treaty may reduce the rate if you submit the required documents.
- Repatriation: limited, generally up to USD 1 million per financial year, with Forms 15CA and 15CB where applicable.
- Joint holding: allowed with residents.
Side-by-side comparison
| Feature | NRE | NRO |
|---|---|---|
| Source of funds | Earnings outside India | Income in India (rent, dividends, old savings) |
| Interest tax in India | Exempt | Taxable, with TDS |
| Repatriation | Fully repatriable | Up to USD 1 million per year |
| Currency | INR | INR |
| Exchange-rate risk | Yes | Yes |
| Best for | Saving your US salary in India | Managing Indian income and old balances |
What about FCNR deposits?
Foreign Currency Non-Resident (FCNR-B) deposits are fixed deposits held in foreign currency such as US dollars. They protect you from rupee depreciation, and the interest is tax-free in India while you are an NRI. They suit people who want to park dollars in India for a fixed period.
What should an Indian student in the USA do?
- Inform your Indian bank that you have moved abroad for studies and convert your savings account to NRO. Many banks allow this online with your passport, visa and I-20.
- Keep the NRO account for any Indian income and for paying Indian bills like insurance premiums.
- Open an NRE account when you start earning in the USA and want to save in India.
- Update your KYC with your US address and overseas phone number. Keep an Indian number active for OTPs if possible.
- Inform mutual fund houses and your demat broker about your NRI status. Some fund houses restrict investments from US-based NRIs because of US regulations, so check before investing.
Repaying your education loan
You can repay an Indian education loan from either account. Many people send money from the USA to their NRE account and set up the EMI from there. See how to repay an Indian education loan from the USA and the cheapest ways to send money.
The US side: taxes and FBAR
This is where many H-1B workers get caught.
- F-1 and J-1 students are usually nonresident aliens for US tax purposes for their first five calendar years. Nonresident aliens are generally not taxed in the USA on Indian bank interest and do not file FBAR.
- H-1B workers usually become US tax residents after meeting the substantial presence test. Once that happens, the USA taxes your worldwide income, including NRE interest that is tax-free in India.
- US persons with foreign accounts that together exceed $10,000 at any time during the year must file an FBAR (FinCEN Form 114). Higher balances may also require Form 8938 under FATCA.
Penalties for not filing FBAR can be severe, so once you are a US tax resident, list all Indian accounts every year. Our US tax guide explains residency status for students.
Common mistakes
- Continuing a resident savings account for years after moving abroad.
- Depositing Indian rent into an NRE account, which is not allowed.
- Thinking NRE interest is tax-free in the USA too.
- Forgetting FBAR after switching to H-1B.
- Investing in Indian mutual funds without understanding US PFIC tax rules, which can be complex for US tax residents.
Frequently asked questions
Can my parents deposit money into my NRE account?
No. NRE accounts accept only foreign-earned money. Your parents can deposit into an NRO account.
Can I transfer money from NRO to NRE?
Yes, within the repatriation limit and after taxes are paid, usually with Forms 15CA/15CB.
What happens when I return to India permanently?
Your NRE and NRO accounts should be converted to resident accounts. You may keep foreign currency in a Resident Foreign Currency (RFC) account.
Bottom line
NRE is for money earned abroad, NRO is for money earned in India. Convert your old account on time, use NRE to save your US salary, and once you become a US tax resident, report your Indian accounts properly. Clean paperwork today saves headaches when you apply for a Green Card, a mortgage or move back home.
Disclaimer: This article is for general education only and is not legal, immigration, tax or financial advice. US rules change often. Always confirm with your school’s DSO, the IRS, USCIS or a licensed professional before making decisions.