What each account lets the heirs take abroad
The account type decides the repatriation, and this is the practical heart of it. NRE and FCNR balances are fully repatriable, both principal and interest, so an NRI heir or nominee receives them in repatriable form and can hold or send them abroad without a ceiling. These were always foreign-sourced repatriable funds, and death does not change that.
An NRO balance is different. It is not freely repatriable; an NRI heir moves it abroad through the USD 1 million per financial year route under the Remittance of Assets Regulations, supported by the inheritance papers, a will, succession certificate or legal-heir certificate, and Form 15CA and 15CB, now numbered 145 and 146. So two heirs inheriting the same estate can face different mechanics depending on whether the money sat in an NRE or an NRO account. A resident heir does not repatriate at all, the money simply stays with them in India.
The account status has to change
An NRI account cannot simply continue in the deceased's name and status. On death, the account is frozen to further operation and then settled, and the status changes according to who inherits.
Where the heir is a resident, an NRE or FCNR term deposit claimed by them is re-designated as an ordinary domestic rupee deposit, and it earns interest at the domestic rate for the rest of its term, not the NRI rate. Where the heir is an NRI, the funds move into that heir's own NRI accounts, NRE or NRO as appropriate to how they are repatriable. Leaving an account running in the deceased NRI's name, or a returning heir keeping an NRE account after becoming resident, is a common exchange-control breach, so the re-designation is not just paperwork, it keeps the funds compliant.
The tax on the interest
The inheritance itself is not taxed, India has no inheritance or estate tax. The interest is where tax and status meet.
Interest on an NRE account is exempt under Section 10(4), but only while the account holder is a non-resident under the exchange-control law. The exemption tracks the holder's status, so once the deposit is re-designated to a resident heir, the exemption ends and later interest is taxable in that heir's hands. NRO interest is taxable throughout, and for a non-resident heir it carries TDS under Section 195 at around 30% plus surcharge and cess, which a treaty rate can reduce with a tax residency certificate and Form 10F, now Form 41, or a lower-TDS certificate, Form 13, now Form 128. A practising CA claims the right repatriation route for each account, re-designates the status, and keeps the interest taxed correctly for each heir.