Introduction: Non-resident Indians are a section of people whose roots belong to India and who have migrated from India. The Indian Government is aware of the importance of Indian Diaspora in the form of NRIs/POIs which is spread all across the world and which despite being away from India is making significant contribution to the Indian economy on a global platform and to the economic, financial and social benefits to them to attract their investments.

Definition of Non-Resident Indian

Under FEMA, there are different definitions of NRI in different regulations depending on the requirement of the subject for which the regulation is formulated. As per Foreign Exchange Management (Deposit) Regulations: –  Non-resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of India origin.”

Keeping in mind the importance of Indian Diaspora abroad and the money they get in the country, NRIs/POIs have been given many facilities in India like opening of bank accounts,investments in real estate etc. They are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of the funds legitimately due to them in India, with Authorised Dealer. Such accounts can be opened with banks specially authorised by the Reserve Bank in this behalf.

NRI and their Bank Accounts

Governing Legislation:  There are three types of non-resident accounts that can be opened by NRIs in India as per Foreign Exchange Management (Deposit) Regulations, 2016:

1. Non-resident (External) Rupee Accounts (NRE Accounts) opened under the Non-Resident (External) Account Scheme, specified in Schedule 1 of the Regulation.

2. Non-resident (Ordinary) Rupee Accounts (NRO Accounts) opened under the Non-Resident (Ordinary) Account Scheme, specified in Schedule 3 of the Regulation.

3. Foreign Currency Non-residents (Banks) Accounts (FCNR(B) Accounts) opened under the Foreign Currency (Non-resident) Account Banks Scheme (FCNR-B account) specified in Schedule 2 of the Regulation.

Non Resident (External) Rupee Accounts (NRE Accounts)

NRIs and POIs can open NRE accounts with foreign remittance. These are rupee denominated accounts. Accounts can be in the form of davings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in 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/POIs is also permitted. The balance in the account is freely repatriable. Interest lying to the credit of NRE accounts is exempted from tax in the hands of the NRI.

  • Permissible Credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demnad drafts/bankers’ cheques, issued against encashment of foreign currency where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I/Category-II, transfer from other NRE/FCNR accounts, sale proceeds of FDI Investments, interest accruing on the funds in such accounts, interest on Government securities/dividends on mutual funds purchased etc.
  • Eligible Debits are local disbursements, transfer to other NRE/FCNR accounts, investment in shares, securities, etc.

Change of Residential status of the account holder: NRE accounts should be re-designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts (if eligible) at the option of the account holder immediately. Where the NRI is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India.

Non Resident (Ordinary) 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 other than Nepal or Bhutan, his bank account in India gets designated as an NRO account.

♠ Permissible Credits

(i) Proceeds of remittances received in any permitted currency from outside India through banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.

(ii) Legitimate dues in India of the account holder.

(iii) Transfers from other NRO accounts.

(iv) Any amount received by the account holder in accordance with the rules or regulations made under the Act

♠ Permissible Debits

(i) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank.

(ii) Remittance outside India of current income in India of the account holder net of applicable taxes.

(iii) Transfers to other NRO accounts.

(iv) Settlement of charges on International Credit Cards issued by authorised dealer banks in India to NRIs or PIOs, subject to the limits for repatriation of balances held in NRO accounts specified in regulation 4(2) of Foreign Exchange Management (Remittance of Assets) Regulations, 2016.

Change of Residential status of Account holder:

  • From Resident to Non-resident:

When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non-Resident (Ordinary) account.

  • From Non-resident to Resident:

NRO accounts may be designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.

Foreign Currency Non-Resident (Banks) Accounts (FCNR (B) Accounts)

NRIs/POIs can open the FCNR(B) account. It can be opened only in the form of term  deposits from 1 to 5 years. All debits and credits permissible in NRE accounts are permissible in FCNR (B) accounts also. The account can be in any freely convertible currency.

♠ Permissible Debits/ Credits: All debits/ credits permissible in respect of NRE accounts as specified in Schedule 1 shall be permissible in respect of these accounts also.

♠ Rate for Conversion of Rupees into Designated Currencies and vice versa:

  1. Remittances received in Indian rupees for opening these accounts shall be converted by the authorised dealer into the designated foreign currency at the clean T.T. selling rate for that currency ruling on the date of conversion.
  2. For the purpose of payment in rupees, funds held in these accounts shall be converted into rupees at the authorised dealer’s clean T.T. buying rate for the concerned currency ruling on the date of withdrawal.

♠  Manner of Payment of Interest:

  • Interest on balances held in these accounts may be paid half-yearly or on an annual basis as desired by the depositor.
  • Interest may be credited to a new FCNR (B) account or an existing/ new NRE/ NRO account in the name of the account holder, at his option.

Change of residential status of the account holder:

When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR (B) deposits, for all other purposes such deposits shall be treated as resident deposits from the date of return of the accountholder to India. Authorised dealers should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the accountholder and interest on the new deposit (rupee account or RFC account) shall be payable at the relevant rates applicable for such deposits.


Author Bio

Qualification: CA in Practice
Company: N Gamadia & Co.
Location: Ahmedabad, Gujarat, IN
Member Since: 16 Apr 2018 | Total Posts: 2
Worked as a Senior Manager - Direct Tax with N. Gamadia & Co. till March 2019, and inducted as a partner from 1.4.2019. Have vast experience in the filed of Direct Tax including International Taxation, FEMA and RBI. The Firm N. Gamadia & Co. provides services in all fields such as Audit &am View Full Profile

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January 2021