Bank Accounts NRIs are permitted to open and operate in India and its key features and differences
Often Non-Resident Indians (NRIs) are faced with this confusion in understanding different types of Bank Accounts that are permitted to be opened and operated by NRIs in India.
Basically, all NRIS can open, hold and operate three types of Bank Accounts in India and they are
- Non-Resident Ordinary (NRO) Account
- Non-Resident External (NRE) Account
- Foreign Currency Non-Resident (FCNR) Account
1.Non-Resident Ordinary (NRO) Account:
NRO Account is similar to Savings Account of Residents in India. When a person leaves India in connection with his employment, profession or for indefinite period of time, his existing savings account is designated as NRO Account by the concerned Bank. Even a new NRO Account can be opened by NRIs as and when required.
NRO Accounts is:
- Used to manage income earned in India (e.g., rent, dividends, pensions, interest etc.)
- Funds can be deposited in INR or foreign currency after converting to INR.
- Repatriation of principal is restricted (up to USD 1 million per financial year after taxes); and interest is repatriable.
- Interest earned is subject to Indian taxes and TDS is applicable.
- Suitable for NRIs who have income sources in India like Interest, Dividend, Rent etc.
2. Non-Resident External (NRE) Account:
Unlike NRE Account there are no restriction on the amount of funds that can be remitted from NRE Account to Overseas. However, there are restrictions on amount that can be credited to NRE Accounts. Mainly Foreign Income / Remittance or Transfer from other NRE/FCNR Account are only permitted to be credited in this Account.
NRE Account is:
- Used to deposit foreign earnings, which are converted to INR.
- Fully repatriable (both principal and interest).
- Interest earned is exempt from Indian income tax.
- Suitable for NRIs who want to save or invest their overseas income in India and need easy repatriation
3. Foreign Currency Non-Resident (FCNR) Account
FCNR Account is not a kind of a Bank Account but its similar to Fixed Deposit Account (FDR) of Residents. However; here the Deposit is held in Foreign Currency and therefore there is no exchange risk, so far as the money held in this account is concerned. Interest on FCNR Deposit is exempt from Income Tax. FCNR is Ideal for NRIs wishing to maintain deposits in Foreign Currency to avoid Exchange Rate risk and earn Tax-free Interest.
The following table summarizes the key features of these three accounts of NRI and highlights major points of distinction between them.
| NRIs (Non Resident Indians) – Bank Accounts permissible in India and key differences | |||
| Features | NRE (Non Resident External) Account | NRO (Non Resident Ordinary) Account | FCNR (Foreign Currency Non-Resident) Account |
| Currency | Held in Indian Rupees (INR) | Held in Indian Rupees (INR) | Held in Foreign Currency (USD, GBP, EUR, JPY, etc.) |
| Type of Account | Bank Account | Bank Account | Deposit Account |
| Source of Funds | Foreign Income / Remittance or Transfer from other NRE/FCNR Account | Foreign Remittance and Income earned in India like Interest, Dividend, Rent, Sale of Asset, Gifts from Residents etc. | Only Foreign Income / Remittance |
| Debits Permissible | Local payments, remittance abroad, transfers to other NRE/FCNR accounts, investments in India | Local payments, Investments, remittance abroad of Current Income, Transfers to other NRO accounts | Deposit Account. No Debits permissible |
| Taxation | Interest on NRE Account is Tax Free | Interest on NRO Account is Taxable | Interest is Tax Free |
| Joint Holding | Only Other NRIs or Close Relatives | Jointly with other NRIs or Indian Residents | With other NRIs only |
| Repatriation | Fully Repatriable (Principal + Interest) | Repatriation is restricted up to 1 million US$/year (Apr- March) | Fully Repatriable (Principal + Interest) |
| Exchange Risk | Subject to Exchange Risk | Subject to Exchange Risk | No Exchange Risk as Deposit is held in Foreign Currency |
| Suitable For | Best for NRIs wanting to park foreign earnings in India with full repatriation and earn Tax-free Interest. | Suitable for NRIs who have income sources within India and need to manage local payments and Investments. | Ideal for NRIs wishing to maintain deposits in Foreign Currency to avoid Exchange Rate risk and earn Tax-free Interest |
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