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NRI Money Basics: NRE vs NRO Accounts, Tax and Common Mistakes

By Satyavadan Prakhya · November 1, 2026 · 7 min read

When you move abroad for work, your status with Indian banks and the tax department changes – but nobody sends you a letter explaining what to do. Many new NRIs (non-resident Indians) keep using their old savings accounts for years without realising that's not allowed. This guide explains the basics in plain English.

Note: this article shares general money education, not financial, tax or legal advice. Rules differ by country and change often – check official sources or speak to a qualified adviser or chartered accountant before making decisions.

Am I an NRI?

There are two separate tests:

• For banking (under FEMA): broadly, you become a non-resident when you go abroad for employment, business or another purpose that shows you intend to stay abroad for an uncertain period.
• For income tax: your status depends mainly on how many days you spend in India in a financial year (with extra conditions). You can be an NRI for banking but still a resident for tax in your first year, or the other way round.

If you're unsure, ask a chartered accountant – it matters for which accounts you can hold and what tax you pay.

Step one: tell your bank

Once you're an NRI, your regular resident savings accounts should be converted (re-designated) to NRO accounts. Banks have a simple form for this. Keeping a resident account after becoming an NRI is a common mistake.

The three NRI accounts

A simple setup many NRIs use: an NRE account for savings sent from abroad, and an NRO account for any income that arises in India, such as rent.

Tax where you live matters too

"Tax-free in India" doesn't always mean tax-free everywhere. Some countries, such as the US, tax their residents on worldwide income – including NRE interest – and also require you to report foreign accounts. Gulf countries such as Saudi Arabia and the UAE currently have no personal income tax on salaries. Always check the rules of the country you live in.

Investments: what changes

• PPF: NRIs can't open a new PPF account. An existing one can usually continue until maturity.
• Mutual funds: NRIs can generally invest, but some fund houses don't accept investors resident in the US or Canada because of reporting rules.
• Shares: you'll need NRI-specific trading and demat accounts.
• Update KYC with your new address and status everywhere – banks, funds, insurers.

Common mistakes new NRIs make

1. Not converting resident savings accounts to NRO.
2. Depositing Indian income (like rent) into an NRE account.
3. Ignoring tax rules in the new country of residence.
4. Forgetting nominations on accounts, deposits and insurance.
5. Letting the PAN–Aadhaar link, phone number for OTPs or KYC lapse – then being locked out from abroad.
6. Keeping all savings in one country. A balance in both your country of residence and India gives flexibility.

The bottom line

Tell your bank you're an NRI, use NRE for money earned abroad and NRO for income earned in India, keep KYC and nominations up to date, and remember that your new country's tax rules apply too. When in doubt, a one-hour chat with a chartered accountant is money well spent.

Keep reading

• Sending Money Home to India: How to Pay Less in Fees
• Emergency Fund and Insurance: A Safety Net for Indian Families Abroad
• How to Make a Student Budget When Studying Abroad (Step by Step)