Different types of accounts, NRIs can open in India

NRI frequently face practical issues regarding their bank accounts in India.

NRIs / OCBs are allowed to maintain accounts with authorized banks in India, wherein they can remit the funds from overseas.

NRIs can open following types of accounts:

Commercial Property for sale

. NRE account (Non-Resident (External) Rupee Accounts):

This account can be in the form of current / savings / fixed deposits and can be opened only by remittance from abroad or deposit of foreign currency, or by transfer of funds from existing NRE/FCNR accounts. The account is maintained in Indian Rupees. Funds standing in this account are fully repatriable. NRIs, PIOs, OCBs are entitled to open NRE Accounts. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts.

The deposits can be used for all authentic 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 FCNR accounts of the same account holder. Similarly, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders.

Immediately upon return of the account holder to India and on his becoming a resident in India, NRE Account will be re-designated as Resident Rupee Account or converted to RFC account as per the option of the account holder. However, if the account holder is only on a short visit to India, the account will continue to be treated as NRE account.

The initial deposit in NRE account can be made in any of the following manners.

  • By proceeds of foreign exchange remittances from abroad through banking channels in an approved manner.
  • By proceeds of foreign currency notes and traveller cheques brought into India by the non-resident while on a temporary visit to India.
  • By transfer from an existing NRE Account of the same person.

Attributes of Non-Resident External (NRE) Savings Account:

  • NRE Account is opened in order to keep foreign currency. They cannot deposit Indian currency in this account.
  • These accounts do not qualify for any kind of wealth tax. Interest earned from these accounts is also exempt from taxes. These exemptions are applicable only to individuals who maintains these NRE accounts in the country and are not applicable for Overseas Company Bodies (OCB).
  • NRE accounts are maintained in Indian Currency.
  • NRI can open these accounts as savings and fixed deposit accounts.
  • Transfer of money to India becomes easy and convenient.
  • NRI can add a nominee in their NRE Account.
  • This account can be opened in joint names with a Non-Resident Indian but opening NRE account in joint names with and Indian Resident is prohibited.
  • The amount that is kept in these accounts can be easily transferred to any other account say NRO or a Resident account or to any other NRE account as well.
  • All those who are residing in Pakistan or Bangladesh cannot operate NRE accounts in the country without seeking the permission of RBI.
  • Once NRIs decide to return back to India, this account gets converted into Resident Account.

FCNR (foreign currency deposit account - not in rupees):

NRIs / PIOs / OCBs are allowed to open such accounts in US Dollars, Sterling Pounds, Australian Dollars, Canadian Dollars, Japanese Yen and Euro. This account is in the form of fixed deposit and is designated in specified currencies, which is pound sterling, US dollar, DM, and Japanese yen thereby insulating the deposits from depreciation in the value of Indian Rupee. The interest rates on these deposits are normally substantially lower than the Rupee accounts.

The account may be opened only in the form of term deposit for any of the following maturity periods; (a) one year and above but less than two years, (ii) two years and above but less than three years, (iii) three years and above but less than four years, (iv) four years and above but less than five years, and (v) five years.

Important point is that Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws. Money lying in FCNR (B) accounts can also be utilised for local disbursements including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.

Features of FCNR Fixed Deposit Accounts:

These accounts operate only in foreign currency. NRIs can deposit currency other than Indian rupee in this account.

The account operates only in foreign currency thus the sources of fund are bound to be from abroad.

The interest that gets accrued in these accounts is paid in the same foreign currency as it is being maintained in.

The interest earned through these accounts does not fall under the income tax head in India which means that there is no income tax charged in India on the earnings through this account.

NRIs can open an FCNR account in joint names with an NRI. However, opening this account in joint names with Indian Residents is prohibited.

If NRIs tend to make any deposits in these accounts then the period of deposit will be from one year and to a maximum of five years.

NRIs can also avail the facility of getting an overdraft on your Savings or Current account against the FCNR Fixed Deposit.

NRIs can add a nominee in their FCNR Account.

The currencies in which FCNR account can be maintained and operated are as under:

  • EURO
  • Canadian Dollars
  • US Dollars
  • Australian Dollars
  • Pounds Sterling
  • Japanese Yen

NRNR (non-resident rupee deposits):

NRIs / PIOs / OCBs, other non-resident Individuals/entities are allowed to open SUCH accounts by transfer of freely convertible foreign currency funds from abroad, or from NRE / FCNR accounts. Non-residents can open joint accounts with other Non-Residents (except Pakistan and Bangladeshi nationals) or resident close relatives in India.

This account is in the form of Indian Rupee fixed deposit. Funds for the purpose of deposit can be remitted from abroad / transferred from existing NRE / FCNR accounts. Premature withdrawal from NRE / FCNR freely allowed for investment in NRNR deposit. Deposits can be held jointly with a resident. Deposits can be for a period from 6 months to 3 years, and can be renewed further. Accounts may also be opened by transfer of funds from the existing NRE/FCNR accounts of the non-resident accounts holders. Interest earned is repatriable, but the principal is non- repatriable.

Accounts under the Non-Resident (Non-Repatriable) Rupee Deposit Scheme may be opened in Indian rupees out of the funds in freely convertible foreign exchange transferred for the purpose to India in an approved manner from the country of residence of the prospective non-resident account holder or from any other country.

RFC (resident foreign currency deposit account):

This is a Scheme drawn up by the Reserve Bank permitting Returning Indians to open foreign currency accounts with banks in India for holding funds brought by them to India. This facility replaces the earlier (RIFEE) facility.

NRIs can open this account who has returned to India after his foreign stay of minimum one year and subsequently ceases to be NRI. Deposits in this account are made by foreign remittances as well as transfer from NRE / FCNR account. This account is maintained in any convertible currency.

Types of account that can be opened under the scheme:

All types of accounts namely, current, savings (without cheque book facility), and term deposits can be opened under the scheme.

The returning NRI can credit the balances in NRE, FCNR accounts to RFC accounts.

Resident individuals (who are eligible to open RFC accounts) may now include non-resident Indian close relatives as joint account holder in their RFC account on 'Former or Survivor' basis. Such non-resident Indian relative cannot operate the account during the life time of the resident account holder.

RFC accounts can be opened in USD, GBP EURO and JPY currencies.

Permissible credits to RFC account:

Pension or other monetary benefits from previous employment outside India.

Proceeds of foreign assets including foreign security or immovable property situated outside India if such security or property was acquired or owned by the NRI when he was resident outside India.

Received or acquired as gift or inheritance from a person resident outside India and proceeds have been repatriated to India.

Balances in any NRE/FCNR account. No penalty would be levied for premature withdrawal of NRE/FCNR deposits in such cases.

Rupee balances in eligible NRE accounts by converting into foreign currency.

Important feature of this scheme is that Funds in RFC accounts can be remitted abroad for any bonafide purpose of the account holder or his dependents including exchange required for travel and other personal purposes and investments. Funds in RFC account can be withdrawn freely for local payment in rupees.

Ordinary Non-Resident Rupee Accounts (NRO Accounts):

These are Rupee denominated 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, 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 reportable.

NRO account can be funded through any of the following sources:

  • By proceeds of foreign exchange remittance from abroad through banking channels in an approved manner.
  • By proceeds of foreign currency notes and traveller cheques brought into India by the non-resident while on a temporary visit to India.
  • By transfer from an existing non-resident account in the name of the same person.
  • By funds from a local source representing bonafide transactions in rupees.

Conditions regarding repatriation of balances in NRO accounts:

Repatriation is allowed up to US dollars 1 million per calendar year for any purpose from the balances in NRO accounts subject to payment of applicable taxes.

Limit of US dollars 1 million includes sale proceeds of immovable properties held by NRIs / PIOs for a period of 10 years

In case a property is sold after being held for less than 10 years, remittance can be made if the sale proceeds have been held by the NRI/PIO for the balance period.

Features of NRO Accounts:

Major requirement of this account is that the source of funds that are deposited in this account need to be from within the country. The source of fund should not be from overseas.

If NRIs wish to send money outside India, they cannot do it without prior adhering to the norms laid by Reserve Bank of India.

This account involves Indian currency thus this account is maintained in Indian Rupee.

NRIs can open these accounts as savings and fixed deposit accounts.

NRIs can open NRO account in joint names with a Resident or an NRI.

Once you decide to return back to India, this account gets converted into Resident Account

Interest that is earned through NRO account falls under the taxation slab. 30 percent along with 3 percent education cess is deducted as TDS. This charge is applicable to fixed deposits as well as savings account.

NRIs can add a nominee in their NRO Account.

Non-Resident (Special) Rupee Accounts with banks in India:

Currently, NRIs/PIOs have given facility to maintain bank accounts and undertaking financial transactions in India subject to certain exchange control regulations.

In order to simplify the procedures and to provide greater freedom to NRIs/PIOs for putting through financial transactions in India, NRIs and PIOs are now allowed to open bank accounts in India, which will be at par with rupee accounts, maintained by residents. They can now open Non-Resident (Special) Rupee Accounts with banks in India which will have the same facilities and restrictions as are applicable to rupee accounts maintained in India by residents relating to repatriation of funds held in these accounts and/or income/interest earned on them.

The procedure for opening such accounts is the same as that of domestic accounts of resident individuals. The existing facilities for NRIs / PIOs to maintain and operate NRO, NRE and FCNR accounts also continues. The repatriation facilities available under these accounts will continue as before.