Non-Resident Indian (NRI) – Different type of Bank Accounts

NRO / NRE / FCNR

Just became a Non-Resident Indian (NRI)? One of the first practical issues you face is regarding your bank accounts in India. What kind of bank account can be maintained and operated – NRO / NRE / FCNR account? Note that NRI for the purpose of bank accounts is as defined under FEMA.

NRIs / PIOs / OCBs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with an authorised dealer. Such accounts can be opened with banks specially authorised by the Reserve Bank in this behalf. NRIs can open and operate the following five types of Bank accounts.

1. 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 traveler 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

Please refer to the Master Circular on NRO account from RBI website through link below:
http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/02MC010712FL.pdf

2. Non-Resident (External) Rupee Accounts (NRE Accounts)

NRIs, PIOs, OCBs are eligible to open NRE Accounts. These are rupee denominated accounts and can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free 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/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts.

The deposits can be used for all legitimate 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. Likewise, 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 traveler 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

3. Foreign Currency (Non –Resident) Accounts (Banks) (FCNR (B) Accounts)

NRIs / PIOs / OCBs are permitted to open such accounts in US Dollars, Sterling Pounds, Australian Dollars, Canadian Dollars, Japanese Yen and Euro. 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.

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.

4. Non-Resident (Non-Repatriable) Rupee Deposit Accounts (NRNR Accounts)

NRIs / PIOs / OCBs, other non-resident Individuals/entities are permitted to open these 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. 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.

The principal is non-repatriable; interest can be repatriated. There is no income tax on the interest. 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. Transfer of funds from the existing NRE / FCNR Accounts of the non-resident account holder may also open accounts.

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

NRIs/PIOs presently have the facility of maintaining 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 permitted 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.

Given below is comparison between NRO, NRE and FCNR (B) accounts:

Accounts and features
NRO
NRE
FCNR(B)
Purpose of Account
To park Indian earnings like rent, Indian salary, dividend etc
To park overseas savings remitted to India after converting to INR
To park overseas savings without converting into INR
Who can open an account
Any person resident outside India (other than a person resident in Nepal and Bhutan). Individuals / entities of Bangladesh/ Pakistan nationality / ownership as well as erstwhile OCBs require prior approval of RBI)
NRIs(individuals / entities of Bangladesh/ Pakistan nationality/ ownership require prior approval of RBI)
NRIs (individuals /entities of Bangladesh/ Pakistan nationality/ ownership require prior approval of RBI)
Nomination
Permitted
Permitted
Permitted
Currency in which account is denominated
Indian Rupees
Indian Rupees
Pound Sterling, US Dollar, Japanese Yen, Euro, Canadian Dollar and Australian Dollar
Account Types
Savings Bank Account
Fixed Deposit
Current Account
Savings Bank Account
Fixed Deposit
Current Account
Fixed Deposit
Joint Holding
Both with resident / non-resident
Only with NRIs
Only with NRIs
Tax deducted at source
Subject to tax deducted at source
Exempt from tax deducted at source
Exempt from tax deducted at source
Repatriation of Principal
The principal amount is not repatriable and can be used only for local payments. Funds up to USD 1 million (or equivalent) per financial year can be repatriated out of the balance held in NRO accounts for theeducation of your children, for medical expenses for your family and you, etc
Freely Repatriable
Freely Repatriable
Repatriation of Interest
Freely Repatriable
Freely Repatriable
Freely Repatriable
Period for fixed deposits
As applicable to resident accounts.
At the discretion of the bank
For terms not less than 1 year and not more than 5 years.
Rate of Interest
Banks are free to determine their interest rates on savings deposits under NRO Accounts. However, interest rates offered by banks on NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
Banks are free to determine the interest rates of saving’s and term deposits of maturity of one year and above.
Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
Subject to cap :
LIBOR / SWAP rates + 200 basis points  for tenor of 1 year to less than 3 years & LIBOR / SWAP rates + 300 basis points  for tenor of 3 years to 5 years (w.e.f. May 4, 2012) for the respective currency / corresponding maturities.
Operations by Power of Attorney in favour of a resident by the non-resident account holder
Operations on the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments or remittance to the accountholder himself through normal banking channels.
Operations on the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments or remittance to the account holder himself through normal banking channels.
Operations on the account in terms of Power of Attorney is restricted to withdrawals for permissible local payments or remittance to the accountholder himself through normal banking channels.
Loans
a. In India
i) to the Account holder
ii) to Third Parties
i) Permitted
ii) Permitted
i) Permitted up to Rs.100 lakhs
ii) Permitted up to Rs.100 lakhs
i) Permitted up to Rs.100 lakhs
ii) Permitted up to Rs.100 lakhs
b.Abroad
i) to the Accountholder
ii) to Third Parties
i) Not Permitted
ii) Not Permitted
i) Permitted
(Provided no funds are remitted back to India and are used abroad only)
ii) Permitted
(Provided no funds are remitted back to India and are used abroad only)
i) Permitted
(Provided no funds are remitted back to India and are used abroad only)
ii) Permitted
(Provided no funds are remitted back to India and are used abroad only)
c.Foreign Currency Loans in India
i) to the Account holder
ii) to Third Parties
i) NotPermitted
ii) Not Permitted
i) Not Permitted
ii) Not Permitted
i) Permitted up to Rs.100 lakhs
ii) Not Permitted
Purpose of Loan
a.In India
i) to the Account holder
Personal requirement and / or business purpose *
i) Personal purposes or for carrying on business activities. *
ii) Direct investment in India on non-repatriation basis by way of contribution to the capital ofIndian firms / companies
iii) Acquisition of flat / house in India for his own residential use. (Please refer to para 6(a) of Sch.1 toFEMA 5)
i)Personal purposes or for carrying on business activities. *
ii)Direct investment in India on non-repatriation basis by way of contribution to the capital ofIndian firms / companies
iii)Acquisition of flat / house in India for his own residential use. (Please refer to para 9 of Sch. 2 to FEMA5)
ii) to Third Party
Personal requirement and / or business purpose *
Fund based and / or non-fund based facilities for personal purposes or for carrying on business activities *. (Please refer to para 6(b) of Sch. 1to FEMA 5)
Fund based and / or non-fund based facilities for personal purposes or for carrying on business activities *. (Please refer to para 9 of Sch. 2 toFEMA 5).
b. Abroad
To the account holder and Third Party
Not permitted.
Fund based and / or non-fund based facilities for bonafide purposes.
Fund based and / or non-fund based facilities for bonafide purposes.

* The loans cannot be utilised for the purpose of re-lending or for carrying on agriculture or plantation activities or for investment in real estate business.

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