Who Is a Non Resident Indian (NRI)?

Under the Foreign Exchange Management Act 1999,

Non Resident Indians are:

  1. Indian citizens who stay abroad for employment or carrying on business or vocation outside India or for any other purpose in circumstances indicating on uncertain period of stay abroad;  OR
  2. Government Servants who are posted abroad on duty with the Indian Mission and similar other agencies set up abroad by the Government of India where the officials  draw their salaries out of Government resource; OR
  3. Government  Servants deputed abroad on assignments with foreign government  or regional / International agencies like the World Health Organization (WHO) Economic and Social Commission for Asia and the Pacific (ESCAP); OR
  4. Official of the State Government and public Sector Undertakings deputed abroad on temporary assignments or posted to their branches or office abroad.

What kind of Bank accounts can be operated by NRI’s?

  1. Non Resident (Ordinary) Account (NRO Account )

Who can open an NRO Account and how?

An existing bank account of an Indian National going abroad and becoming a non resident Indian is automatically designated as Non Resident (Ordinary) Account (Nro). An NRI can also open such ordinary accounts even by making remittance from abroad or by transfer from an existing nonresident account in India in his own name. Such accounts can be opened while an NRI is on a visit to India or simply by making remittances from abroad. NRO account can be opened while an NRI is on a visit to India or simply by making remittances from abroad. NRO accounts can be in the sole name with any close relative in India. In other types of joint accounts, prior permission of Reserve Bank of India (RBI) is required.

What types of NRO accounts can be opened?

NRO accounts can be opened in the categories of:

What types of  Accounts can be used?

All types of transactions of deposits and withdrawals to and from NRO accounts are normally permitted.

However the RBI has prescribed certain transactions which are required to be reported to the RBI in prescribed forms.

Can these funds be repatriated? The funds can be freely withdrawn for the local disbursement without RBI approval. Only interest is now repatriated. Funds are not repatriated expect for the following in the accounts:

  1. Current income
  2. Up to US 1Million Dollars per financial year (April – March) for any bonafied porpoise out of the balances in the account /sale proceed of assignees in India acquired by the way of inheritance / legacy inclusive of assets accrued out of settlements subject to certain conditions.

Is Interest earned exempt from tax? Interest on NRO accounts is not exempt from income tax, and balances to the credit of NRO accounts are not exempt from the wealth tax.

B. Nonresident external accounts (NRE)

Who can open NRE Accounts and how? NRI’s as well as overseas corporate bodies and permitted to open NRE accounts. NRE accounts can be opened by depositing foreign currency along with an account opening application form. The account opening form may be signed by the NRI’s abroad and the signature of the NRI may be verified by a bank abroad or by the Indian embassy or by a notary public official board. NRE account can be opened during a visit to India by tendering foreign currency traveler’s cheque or foreign currency notes.

What type of NRE accounts can be open? All types of accounts that are current, savings, recurring, and term deposit can be opened under the NRE account scheme. NRE accounts can be opened in single or joint names. However in case of accounts opened in joint names, all the joint holders should be residents of an external group or countries.

Can funds be repatriated? As per liberalized Exchanged Rate Management System (LERMS) all the remittance of foreign exchange to NRE accounts are converted into Indian rupees at the market rate of exchange and credits are given in terms of Indian rupees. Similarly, at the time of repatriation, the amount to be repatriated is converted into the designated foreign currency at the prevailing market rate of exchange. NRE accounts offer all the facilities of the NRO account plus complete repatriation without informing the Reserve Bank of India.

Is interest earned exempt from tax? Interest on NRE accounts is exempt from income tax and balances to the credit of NRE accounts are exempt from wealth tax.

C. Foreign currency Non Resident Account (FCNR)

Who can open and how?

All Non Resident Indians, residents in external group of countries and overseas corporate bodies are eligible to open FCNR accounts, FCNR accounts are permitted in the following currencies:

  1. Pound Sterling (GBP)
  2. US Dollar (USD)
  3. Euro
  4. Japanese Yen (JPY)
  5. Canadian Dollar
  6. Australian Dollar

The rate of interest on the above account varies for each type of designated currency.

What types of FCNR accounts can be opened?

FCNR accounts are permitted in the form of fixed deposits for a period not less than 1 year and not more than 5 years. Current and savings accounts are not available under this scheme

Is interest earned exempt from tax?

Interest earned on FCNR accounts is exempt from income tax and the balance in the account is exempted from wealth tax.

What are the options available to depositor at maturity?

There are three options available to a depositor at maturity of FCNR account:

  1. To ask for the repayment in designated foreign currency.
  2. To ask for the repayment in Indian rupees or in any foreign currency other than designated foreign currency.
  3. To ask for the conversion of FCNR account into fixed deposit.

How does the FCNR account differ from NRE account?

The FCNR account, primarily differs from NRE account  on the point of fact that the balance in FCNR account is denominated in designated foreign currency in which the account is opened and thus unlike NRE accounts, there is no loss either on account  of fluctuation in exchange rates. The deposits in FCNR accounts can be withdrawn prior to the maturity date.