When an Indian Resident becomes an NRI, the first thing he/she should do is to change the status of his/her resident account to NRI Bank Account. It is illegal for NRIs to keep their resident savings accounts in India. They need to convert their existing savings account to an NRO account. (Also Read: Who is an NRI?)
For managing different needs, NRIs require different bank accounts in India. To transfer and easily repatriate the money, an NRE account is required, and to receive the credit from Indian sources of Income an NRO account is useful.
In this post, let us understand the various types of NRI Bank Accounts along with their features and benefits, in detail.
NRI Bank Accounts- NRO Account:
Even as a non-resident, you might have different income streams in India. For instance, rental income from a property, Dividends from shares or mutual funds, Interest Income, etc. You may sell some property in the future or may receive some inheritance etc. For NRIs to receive credit in Indian currency, they must open a bank account in India.
NRO or Non-Resident Ordinary Account is the Indian Rupee account, which is required for depositing these incomes earned in India. Also, it can be used to make any local payments like- loan EMIs, insurance premiums, etc.
NRO Accounts can be opened as savings, current, recurring, and fixed deposit account.
Features & Benefits:
- Fund Repatriation and Transfer:
You can transfer the money lying in the NRO account up to USD 1 million per financial year to the foreign country, subject to certain conditions specified in Foreign Exchange Management (Remittance of Assets) Regulations, 2016. Transfer to an NRE account is also permitted within this limit. (Also Read: Why is it important to file form 15CA & 15CB while repatriating money outside India?)
The interest earned on the NRO account, whether it is savings or fixed deposit is subject to TDS at the rate of 31.2%. However, if your total income in India is below taxable limits, you may file ITR and claim the Refund of this TDS deducted. If you file taxes on the Global income in your resident country, then you may avail of the concessional benefits of DTAA if applicable between your country of residence and India. (Read more on DTAA in this article)
- Joint Accounts:
You can hold this account in the joint name with another NRI/PIO. Also, Joint Account holding is permitted with a resident Indian as well on a ‘Former or Survivor’ basis. You can also give Power of Attorney to operate the account to the Indian Resident close relative to carry out certain transactions through this account.
- Loan Disbursal:
Bank can also grant you loans in India against this account. There is, however, a restriction on the loan amount being relented, used for agricultural and plantation activities, or invested in real estate.
NRI Bank Accounts- NRE Account:
NRE (Non-Resident External) is the Bank account for NRIs which you may use to transfer the money in foreign currency and keep the funds easily repatriable. The currency will be converted to Indian Rupees within the account.
This account is meant for depositing income earned outside India (in foreign currency). Also, you can use this account to make investments in India as well as to pay expenses in foreign countries. Additionally, it is possible to open savings, current, recurring, and fixed deposit accounts.
Features & Benefits:
- The money lying in the NRE account is fully repatriable and can be transferred to another NRE/ FCNR or NRO account, without any limits.
- The Interest earned on this account is exempt from any taxes in India but may be taxable in your country of residence.
- Since the account is opened using foreign currency and is converted to the Indian Rupee, it is subject to exchange rate fluctuations.
- You can hold this account in the joint name with another NRI/PIO. Also, Joint Account holding is permitted with a resident Indian as well on a ‘Former or Survivor’ basis. You can also give Power of Attorney to operate the account to the Indian Resident close relative to carry out certain transactions through this account. (Also Read: NRI Joint Account with Resident Indian- Is this allowed?)
- Bank can also grant you loans in India as well as in the foreign country against this account. However, the loan amount cannot be used for refinancing, carrying on agricultural/plantation activities, or investing in real estate.
NRI Bank Accounts- FCNR Account:
FCNR (Foreign Currency Non-Resident) is a fixed deposit NRI Bank account maintained in freely convertible foreign currencies like- Pound Sterling, US Dollar, Japanese Yen, Euro, Canadian Dollar, and Australian Dollar. The term of these deposits ranges between 1 to 5 years.
This account is useful because you can keep the funds in the currency of your choice, that way the foreign exchange risk is eliminated and the interest rates on these deposits are somewhat higher than the normal savings account.
Features & Benefits:
- The amount is freely repatriable and transferred to any NRE/ NRO accounts on or before maturity. However, premature withdrawals can attract certain penalties.
- The interest earned on these deposits is completely tax-free in India but may be taxable in your country of residence.
- This account can also be opened in joint name with another NRI/PIO or Resident Indian close relative.
- It can be held until maturity, even if your residential status has been changed from NRI to Indian Resident, during the term of the deposit.
NRI Bank Accounts- RFC Account:
An RFC (Resident Foreign Currency) account is typically opened by returning NRIs for the purpose of parking the foreign currency that they bring back to their home country. If you are expecting Some retiral proceeds, or sale proceeds of the property, or some other proceeds from abroad, and have the intention to maintain it in foreign currency you may use an RFC account.
Indians returning to India after living abroad for at least one year and need to manage their earnings in foreign currency can also use this account.
It can be a savings, current or fixed deposit account that can be opened in freely convertible foreign currencies. The amount in this account can be used for any remittances or investments abroad and in India as well.
Features & Benefits:
- Interest earned on this deposit as long as you maintain the Resident but Not Ordinary Resident (RNOR) Status. In all other cases, it is taxable and subject to TDS. (Also Read: TDS on NRI Investments)
- You can transfer funds from the NRE or FCNR account to the RFC account once your residential status is changed.
- The funds lying in the RFC account can also be taken back to the foreign country if you wish to become NRI once again or need the funds in there for any other purpose like- kids foreign education, etc.
- RFC Account can also be opened in joint name with a Resident Indian close relative (as defined in the Companies Act, 2013) on ‘former or survivor’ basis.
What happens to these NRI Bank Accounts after the residential status changes?
When you return to India for good, and your residential status changes from NRI to Resident Indian, you need to convert your NRE and NRO account to a resident savings account. Although you have the option to transfer the funds in the NRE account to RFC account until you maintain the RNOR status. (Read a detailed post on RNOR status)
You can continue the Fixed deposits and FCNR account till maturity. Once matured, these can also be converted to RFC account or resident savings account, as the case may be.
You need to inform your bank as soon as you wish to come back to India and give a declaration to convert your NRE/NRO account to an RFC account or Resident savings account. (Also Read: Useful tax planning tips for Returning NRIs)
Knowledge of the types of NRI bank accounts is really important to make wise choices, so you should not be on the wrong side of the law when you are out of India and even when you are returning back.
Hope this post clears all your doubts related to NRI Bank accounts. Still, if you have any questions, feel free to ask in the comments section below.