Confused about which bank account to use as an NRI…? You will get an 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 banking/savings accounts
An NRI can open, hold and maintain, different types of bank accounts with a bank authorized to deal in foreign exchange. Given below are three types of NRI bank accounts most widely used and offered by the leading banks in India:
Non-Resident External (NRE) Savings/Fixed Deposit Account
Non-Residency Ordinary (NRO) Savings/Fixed Deposit Account
Foreign Currency Non-Resident (FCNR) Fixed deposit Account
Now let’s look into the special features and benefits of every account in details
Non-Resident External (NRE) Savings/Fixed Deposit Account
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
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.
Account is maintained in Indian Rupees.
Funds held in this account are non-repatriate Money. Hence, money from an NRO account to NRE account cannot be transferred; neither can be deposited abroad to the account holder.
Any transfer of fund with regard to this account needs Reserve Bank’s prior permission.
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.
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.
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.
Understanding these fine differences between NRE, NRO and FCNR accounts helps an NRI to choose the right kind of bank account suitable for him.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at ramalingam@holisticinvestment.in
Author Bio
Dear Sir,
My client an NRI till March 2016 for several years more than 20 years. He has made FCNR, NRE Rupee FD for more than 5 years when he was as NRI. He want a clarification whether the interest on the NRE deposits maturing during the year begining 1.4.2018 to 31.03.2019 is taxable as per Income Tax law in India
Correction of my comment dated 09/07/2017
Pls read article instead of arrival.
Very informative arrival ,
The article gave a clearcut description about NRE, NRO & FCNR accounts