NRE and NRO Accounts: FBAR, Form 8938, and U.S. Tax

Educational content only — not legal, tax, immigration, or financial advice. Rules and interpretations change, and some of the positions below are areas where qualified practitioners disagree. Always verify with the relevant government agency and a qualified U.S. expat tax preparer before filing. Full disclaimer · Spot an error?

NRE vs NRO vs FCNR — what each account is

India classifies bank accounts by the holder’s residential status under FEMA (the Foreign Exchange Management Act), which is a different test from Indian income-tax residency and a completely different test from U.S. tax status. A U.S. citizen of Indian origin living in New Jersey, an OCI cardholder, and an American posted to Hyderabad on assignment can all end up holding these accounts for different reasons.

Two things matter for U.S. purposes. First, the Indian tax label is irrelevant to the IRS — “exempt in India” does not mean exempt in the U.S. Second, every one of these is a financial account for FBAR, including the ones that behave like term deposits.

Who actually holds these accounts

Three groups, with different problems:

• Americans of Indian origin living in the U.S. — usually hold NRE/NRO accounts opened for family remittances, inherited property rent, or an old salary account that was converted when they left India. Many have not reported them for years because the balances “are not that large” or “the bank already took the tax.” This is the group most exposed to penalties.
• Americans living in India on assignment — hold resident accounts; if they are of Indian origin they may also hold NRE/NRO accounts that should have been redesignated as resident accounts when they moved. Under FEMA you are required to inform the bank and convert NRE accounts to resident accounts once you become resident in India; the bank will usually move the balance to a resident FD or savings account.
• Americans who left India — resident accounts should have been redesignated to NRO on departure. Dormant accounts with a few thousand dollars sitting in them still count toward the FBAR aggregate.

FBAR: every account counts

FinCEN Form 114 is required if the combined maximum value of all your foreign financial accounts exceeded $10,000 at any point in the calendar year. For Indian accounts specifically:

• NRE, NRO, FCNR(B), and resident accounts all count, including every fixed deposit (each FD is a separate account with its own number — report each one).
• Joint accounts count in full. An NRO account held jointly with a parent or sibling in India is reportable by you at its full maximum balance, not your share.
• Accounts in your name opened by family count. An account a parent opened in your name and operates for you is still your financial interest.
• Signature authority counts. If you are an authorised signatory on a parent’s account or a family business account, it is reportable even though it is not your money.
• PPF, EPF, and demat/brokerage accounts are reportable too — see the EPF and PPF guide and the mutual funds guide.
• Accounts closed during the year are reportable for that year if they contributed to the aggregate crossing $10,000.
• Maximum value, not year-end. An FD that matured at ₹9 lakh in March and was redeposited elsewhere counts at its peak in both accounts for FBAR purposes. The FBAR instructions accept this double-counting; it is a reporting threshold, not a tax.

The FBAR is filed online through the FinCEN BSA E-Filing system, not with your tax return. It is due April 15 with an automatic extension to October 15. Use the FBAR Threshold Checker if you are unsure whether you cross the line.

Form 8938 thresholds

Form 8938 (FATCA) is filed with your Form 1040 and uses higher thresholds that depend on filing status and where you live:

NRE/NRO/FCNR balances, fixed deposits, PPF, EPF, mutual funds, LIC policies with cash value, and shares held in a demat account all count toward these totals. Indian banks already report U.S.-person accounts to the IRS under the India-U.S. FATCA intergovernmental agreement (that is why your bank asked for a W-9 and your SSN), so the IRS can match what you file against what the bank reported. Check your position with the Form 8938 Threshold Checker.

U.S. tax on the interest — NRE vs NRO

This is where the two accounts diverge sharply on the U.S. side.

NRE and FCNR interest: taxable in the U.S., no credit

India exempts NRE and FCNR(B) interest. The U.S. taxes citizens and residents on worldwide income, so that interest goes on Schedule B as ordinary interest income at your marginal rate. Because India collected no tax on it, there is nothing to credit on Form 1116. A ₹50 lakh NRE FD at 7% produces about ₹3.5 lakh (roughly $4,000) of interest that is fully taxable in the U.S. every year. The “tax-free NRE” pitch Indian banks use is true only for people who are not U.S. persons.

NRO interest: taxed in both countries, credit capped at the treaty rate

India taxes NRO interest and the bank withholds TDS at 30% plus cess (about 31.2%) by default. You report the gross interest on your U.S. return and claim a foreign tax credit on Form 1116 (passive category). But the credit is limited to the tax India is entitled to charge under the treaty — 15% on interest — not what the bank actually withheld. The excess over 15% is not a creditable foreign tax; your remedy is to claim the treaty rate from India, either up front or through an Indian refund claim.

The U.S.-India treaty: 15% cap and Form 10F

Article 11 of the India-U.S. Double Taxation Avoidance Agreement limits India’s tax on interest paid to a U.S. resident to 15% (10% for interest paid to banks). To get the bank to withhold at 15% instead of 30%, you generally need to give it:

• a Tax Residency Certificate (TRC) from the IRS — Form 6166, requested on Form 8802 (there is a user fee and it takes several weeks);
• Form 10F, filed electronically on the Indian income-tax portal, which now requires an Indian PAN; and
• a self-declaration of beneficial ownership and no permanent establishment in India.

If you do not do this, India withholds 30%, you can credit only 15% in the U.S., and the other 15% is lost unless you file an Indian return to reclaim it. For a large NRO balance this is real money every year. Note the treaty does nothing for NRE interest — there is no Indian tax to reduce — and nothing to reduce the U.S. tax on either account.

Fixed deposits and accrued interest

Indian FDs are often cumulative: interest compounds and is paid out at maturity three or five years later. India taxes that interest on an accrual basis each year (which is why TDS appears annually on Form 26AS / AIS even though you received nothing). For U.S. purposes the common practitioner position is the same — report the interest credited to the deposit each year, since it is credited to your account and available to you on early withdrawal, even if you would forfeit some of it. Reporting it only at maturity creates a mismatch with the Indian TDS years and a lump of income in a single U.S. year.

Keep the bank’s annual interest certificate for every FD. It gives you the credited interest and the TDS, in rupees, by financial year (April–March). You then have to re-cut it to the U.S. calendar year.

Which exchange rate to use

• FBAR and Form 8938 balances: convert the maximum (FBAR) or year-end/maximum (8938) rupee balance using the Treasury Fiscal Service year-end exchange rate for December 31 of the reporting year. That is the rate FinCEN specifies; do not use the bank’s rate.
• Interest income on the 1040: use the rate on the date the interest was credited, or the IRS yearly average exchange rate for the year if income was received roughly evenly through the year.
• Foreign tax paid on Form 1116: convert the TDS at the rate on the date it was withheld (or the average rate, if you use the accrual method consistently).

The mistakes that trigger penalties

1. “NRE is tax-free, so I didn’t report it.” The most common one. The interest is U.S.-taxable and the account is FBAR-reportable regardless.
2. “The bank already deducted tax.” TDS is an Indian prepayment. It neither replaces U.S. reporting nor gives you a credit for more than 15%.
3. Reporting one aggregate line instead of each FD. Each deposit has its own account number and gets its own line on the FBAR.
4. Forgetting joint accounts with parents and accounts where you are a signatory on a family member’s behalf.
5. Leaving an NRE account open after moving to India. FEMA requires redesignation; keeping NRE status while resident is a FEMA compliance issue on the Indian side.
6. Mixing up the Indian financial year (April–March) with the U.S. calendar year. Form 26AS totals do not drop straight into a 1040.
7. Assuming Form 8938 is the same as FBAR. They are separate filings with separate penalties. Many people need both.

Non-willful FBAR penalties can reach $10,000-plus per violation (indexed for inflation), and the Supreme Court’s 2023 Bittner decision confirmed that “per violation” means per unfiled report, not per account — helpful, but still painful over several years. Willful penalties are far higher.

Behind on reporting? Streamlined Filing

If you have unreported NRE/NRO accounts for several years and the failure was non-willful — you did not know, or misunderstood what “tax-free in India” meant — the Streamlined Filing Compliance Procedures let you file three years of amended or original returns and six years of FBARs with penalties waived (foreign offshore) or a 5% miscellaneous penalty (domestic offshore, for people living in the U.S.). Do not simply start filing FBARs going forward and hope; a “quiet disclosure” forfeits the penalty protection. See the Streamlined checklist and the cost estimator to size the job before you talk to a preparer.

Frequently asked questions

Sources and references

Last reviewed October 2026 by Ken Hoven. Educational content only. See editorial standards and full disclaimer.