There are three types of Non-Resident accounts :

RUPEE ACCOUNTS

1. Non-Resident (External) Rupee Accounts (NRE Accounts)
NRIs and PIOs are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts for limited purposes.

The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI.

Funds held in NRE accounts may be freely transferred to Foreign Currency Non Resident (FCNR) accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holder.

2. Ordinary Non-Resident Account (NRO Accounts)
These are Rupee dominated non-repatriable accounts and can be in the form of savings, current, recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National /PIO resident in India leaves for taking up employment etc. outside the country, other than Nepal or Bhutan, his bank account in India gets designated as NRO account.

The deposits can be used to make all legitimate payments in rupees. Interest income from NRO accounts is taxable. Interest income, net of taxes is repatriable. Authorised dealers may allow remittances upto US $ 1 million, per calendar year, out of balances held in NRO account for any bonafide purpose.

FOREIGN CURRENCY ACCOUNTS

3. Foreign Currency Non Resident (Bank) Accounts (FCNR (B) Accounts)
NRIs/PIOs are permitted to open such accounts in US dollars, Sterling Pounds, Japanese Yen, Euro, Canadian Dollars and Australian Dollars. The accounts may be opened in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less then two years (b) two years and above but less then three years and (c) three years only. Now RBI has allowed banks to accept FCNR (B) deposits upto maximum maturity period of five years.

Interest income is tax free in the hands of the NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws.

FCNR (B) accounts can also be utilised for local disbursement including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.