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Synopsis:
As a Non-Resident Indian (NRI)/ Person of Indian Origin (PIO), you will need to get your existing
resident account converted to an NRI account as per the Foreign Exchange Management Act
(FEMA) guidelines.
Different type of accounts (NRO/NRE/FCNR) available to NRIs and their benefits and limitations.
Frequently asked questions about the NRI accounts.
You may frequently need an Indian bank account to deal with your day-to-day finances and banking needs as a nonresident Indian. However, you cannot deposit your earnings or transact using a regular savings account in India. For
this, RBI has mandated the use of regulated NRI accounts.
NRI accounts are broadly categorized as NRE, NRO, and FCNR accounts. These accounts are used for banking
transactions in India related to:
Investments
Inward and outward remittances
Utility payments and other financial transactions
Understanding NRE, NRO and FCNR accounts
You must understand the difference between NRE, NRO and FCNR accounts. Each of these accounts has its own benefits and limitations. Let’s understand them in more detail.
An NRE account is a type of bank account in which you can:
transfer your foreign earnings to India.
save money in Indian Rupees.
offers better returns compared to regular savings accounts.
earn tax-free interest in India.
transfer funds without restrictions from India.
However, you cannot deposit in Indian currency in NRE account. For that, you will need an NRO account.
Illustration
Kiara is a non- resident IT professional staying in USA and earns her salary in US Dollars. She has opened an NRE account in India. She leverages her NRE account to transfer a portion of her monthly salary to continue funding and investing in India. Her NRE account not only enables her to earn an interest rate of 3.0% per annum on daily average balance (if less than ₹ 50 lakh), using this account, she is also able to invest in Indian mutual funds and equities.
On a quarterly basis, she assesses and repatriates the money from this NRE account to her resident US account. For instance, if she maintains a daily balance of approx. ₹45,00,000 ($55,000), she will earn an interest of approx. ₹33, 000 ($400) on a quarterly basis, which along with its principal amount is exempt from tax in India. Her NRE account offers her a free mandate card and chequebook for her elderly parents in India, giving them access to her account anytime, anywhere.
An NRO account is a type of bank account like an NRE account. With your NRO account, you can:
transfer your foreign earnings to India
manage the income earned in India
withdraw money in Indian rupees
repatriate up to USD 1 million every financial year
avail Double Taxation Avoidance Agreements (DTAA) benefits
For DTAA benefits, you will need a self-declaration form to be submitted along with your PAN card copy, Form 10F and tax residency certificate for the current year. To know more about DTAA benefits for NRIs, please click here
A key benefit of NRO account is that your funds are safeguarded against the currency fluctuations. However, the interest from investments earned in your NRO account is subject to taxation in India.
Illustration
Kartik is a non-resident finance professional staying in the UK. He has opened an NRO account in India to manage his income and expenses in India. He leverages his NRO account to deposit income from Indian sources, such as rental income, mutual fund dividends payment, FD interest earnings, etc. and pay any expenses incurred during his stay in India. He occasionally transfers some of his foreign income to his NRO account as well to invest in Indian markets.
He holds this account jointly with his mother who is an Indian resident. For instance, Kartik holds approx. ₹ 1 lakh in his NRO account, post receiving income and incurring expenses in India monthly. He occasionally repatriates some funds to his resident account which is subject to the limit of £831,500 every financial year ($1 million). He also avails DTAA benefits to get to a higher yield post-tax on his NRO savings account.
An FCNR account is a type of bank account that allows you to:
Deposit and save your money in 10 foreign currencies (pls refer to FAQs below for more details)
Withdraw funds in Indian currency
Fully repatriate your deposits and interest
Deposit funds for a tenure ranging from one to five years
Earn tax-free interest in India
Like NRO account, FCNR deposits allow you to deposit your funds in foreign currency and hence are independent of foreign exchange fluctuations.
Illustration
Siddharth is a non- resident banking professional who stays in Singapore. He has opened a fixed currency Non-Resident (FCNR) account in India which serves as a term deposit for a tenure of one year to five years. This allows him to earn interest in the same currency i.e., Singapore Dollar (S$) which safeguards him from foreign currency exchange risk and ensures returns.
The FCNR interest rates are higher than the domestic rates, thereby offering flexibility in deposits, withdrawals, and the option to transfer funds instantly. For instance, Siddharth invests approx. S$100,000 in his FCNR account for a tenure of two years. He would earn an interest of 3.5% p.a. which along with the principal amount shall be fully exempt from tax in India. The FCNR account also helps him avoid charges for dual conversion of money when he is unsure of whether he wishes to use/ invest his earnings in India or overseas. He may also choose to avail of a loan/ overdraft against his FCNR deposit.
Disclaimer:
The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision.
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