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Are you confused about choosing the right bank account to use as an NRI…? You will get the answer in this article.
An Indian living abroad doing a service, running a business or pursuing any vocation is a Non-Resident Indian. It is estimated there are over 25 million NRIs spread across the globe. With this huge Diaspora, banking needs for transfer of funds, savings, investments and repatriation of NRIs have also expanded.
Banking Laws allows an NRI to maintain bank accounts in India, invest in securities/shares and deposits, with Indian firms/companies, and invest in immovable properties in India. In this article we’ll discuss about NRI banking/savings accounts.
Types of NRI Bank (savings) Accounts
An NRI can open, hold and maintain, different types of bank accounts with a bank authorized to deal in foreign exchange.The four types of NRI bank accounts most widely used and offered by the leading banks in India are:
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1. Non-Resident External (NRE) Account
2. Non-Residency Ordinary (NRO) Account
3. Foreign Currency Non-Resident (FCNR) Account
4. Resident Foreign Currency (RFC) Account
Now let’s look into the special features and benefits of every account in details
1. Non-Resident External (NRE) Savings/Fixed Deposit Account
The NRE account is mainly used to make deposits from abroad.
An NRE bank account can be opened and maintained as current, savings, recurring or fixed deposit account.
This account is maintained in Indian Rupees. Deposits of all foreign exchange are first converted to Indian rupees at the buying rate by the banks.
Withdrawal in foreign currency is allowed given the Indian Rupees in the account are converted to the same at the selling. The account holder has to bear the conversion loss.
Money from this account is freely repatriable, that is, funds held in this account can be freely sent to India as well as another country. Moreover, the fund is transferable from an NRE account to an NRO account without any restriction.
Similarly, the NRE account can receive money remitted from abroad, or transferred from another NRE account in India.
Funds held in this account and interest earned are fully exempt from wealth tax and income tax, as well as gifts to close relatives in India are free of gift-tax.
An NRE account be opened and held jointly by more than one NRI. A resident holding a power of attorney (PoA) is not authorized to open an NRE account on behalf of an NRI, but he/she can make local payments in Rupees on behalf of the NRI account holder.
Loans/overdrafts are available to an NRE account holder against security of fixed deposit in his/her account.
The NRE account can be converted into a regular resident account whenever the NRI account holder returns to India and becomes resident.
Nomination is allowed for NRE accounts.
Non-Residency Ordinary (NRO) Savings/Fixed Deposit Account
The NRO account is mainly used to make a deposit from Indian or abroad.
An NRO account can be opened and maintained in the form of current, savings, recurring or fixed deposit account.
An existing bank account held by an Indian National is also designated as NRO account upon the holder being declared NRI.
The NRO account is maintained in Indian Rupees.
Funds held in NRO account is repatriable but only on certain conditions as follows. The maximum limit of funds transferable from an NRO to NRE account is USD 1 million in a financial year. The transfer of funds from NRO to NRE account is subjected to taxability as per your tax slab.
You need to follow procedures which are clearly explained in the article here, to transfer the funds from NRO to NRE account.
Interest earned on the funds in this account is taxable.
An NRO account can be held jointly with resident and /or with non-resident Indian. However, a resident PoA holder is not authorized to open an NRO account on behalf of an NRI. But he/she can make local payments on behalf of the same.
Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.
The NRO account can be converted into a regular resident account as and when the NRI account holder returns to India and becomes its citizen.
Nomination facility is available in this account.
3. Foreign Currency Non-Resident (FCNR) Fixed deposit Account
An FCNR account can be opened only in the form of term deposits with the maturity ranging from 1 to 3 years.
The account is maintained in any free convertible currency mainly U.S. Dollar, Pound Sterling, Japanese Yen and Deutsche Mark.
Indian currency cannot be deposited in this account.
Balances, principal and interest earned, held in this account can be transferred outside India in the same currency in which the account is maintained or in any other convertible currency.
The account holder may, of his own accord, receive repayment in Indian Rupees at buying Rate on the date of repayment.
The entire deposit, principal plus interest, is exempt from tax.
This account can be opened jointly with a resident close relative on former or survivor basis. The resident close relative as PoA holder can operate the account in accordance with extant instructions during the life time of the NRI account holder.
Loans may be granted either to the depositor or the third party against security of funds held in FCNR account.
When the NRI account holder returns to India and becomes its citizen, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by the holder.
Nomination facility is available in this account as well.
4. Resident Foreign Currency (RFC) Account
RFC account is mainly useful for returning NRIs to deposit their foreign currency in India. The RFC account can be maintained only in a Foreign Currency.
This account can be held as a savings account as well as a term deposit account. The funds in RFC account can be withdrawn when necessary but interest will be paid only if the amount is held for more than one year.
Indian rupee cannot be deposited in the RFC account.
The interest earned from the funds is taxable in India. But if you are a returning NRI and have the RNOR status, you can get exempt from tax for the 2 year period with RNOR status.
You can transfer funds from your NRE or FCNR account if you decide to become a Resident.
The deposited funds can be transferred to NRE or FCNR account if you decide to become an NRI again.
The interest earned by the funds in RFC account is fully repatriable.
You cannot avail any loan against the deposits in the RFC account.
Understanding these fine differences between NRE, NRO and FCNR accounts helps an NRI to choose the right kind of bank account suitable for him.
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