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Introduction

A Non-Resident Indian (NRI) account can be opened by an NRI or PIO with any authorized bank in India. In India, there are three types of NRI accounts, namely, NRE account, NRO account, and FCNR account. This article covers NRI accounts, its types, benefits and disadvantages of NRI account in detail.

Who is an NRI Non-Resident Indian?

Non-Resident Indian is a person who is a citizen of India or a Person of Indian Origin and not a resident of India. Section 6 determines the status of an individual as an NRI or not. According to Section 6 of the Income Tax Act, an individual is said to be an NRO if they are not a resident of India. An individual is deemed to a resident of India if they satisfy any of the following conditions:

If they were in India for a period of 182 days or more during the previous financial year; or

If they were in India for a period of 60 days or more during the previous financial year and 365 days or more during the four years that are immediately preceding the previous year.

Therefore, if an individual does not satisfy the above conditions, then they are considered a Non-Resident Indian.

Furthermore, individuals who leave India for employment are immediately declared as NRI.

Meaning of an NRI Account

An NRI account is an account that a Non-Resident Indian (NRI) or Person of Indian Origin (PIO) can open with a financial institution like a bank. The purpose of this account is saving or investing the income that NRIs earn abroad or are earning in India. An NRI account can be a current account, savings account, or deposits account. These accounts are governed or regulated by RBI FEMA Regulation and Income Tax Act of India.

For taxation purposes, at any point in time, an individual can have only one resident status. The individual can either be an NRI or a resident. Hence at any point in time, one can hold either an NRI bank account or resident bank account. They cannot have both accounts at once. In case the resident status of an individual changes, they will have to change their bank account as well.

There are three types of NRI bank accounts, namely, NRE account, NRO account and FCNR account. NRE accounts are for saving or depositing earnings from abroad in India in Indian denomination. NRO account is for saving and managing Indian earnings in India in Indian denomination. At the same time, FCNR account is for depositing or saving foreign currency earnings in any of the nine currencies allowed by RBI.

NRI bank accounts can also be categorized based on trading and investing purposes. They are the Portfolio Investment Scheme (PIS) and Non-Portfolio Investment Scheme (Non-PIS) accounts. NRI investors who want to trade in the secondary market in India can do so under RBIs Portfolio Investment Scheme (PIS). For investors, who want to sell shares of an IPO or the shares they purchased when they were residents can do so through Non-PIS accounts. They can also invest in mutual funds through Non-PIS accounts.

Types of NRI Accounts in India

  • Non-Resident Ordinary (NRO) Savings Account/ Fixed Deposit Account
  • Non-Resident External (NRE) Savings Account/ Fixed Deposit Account
  • Foreign Currency Non -Resident (FCNR) Fixed Deposit Account

Who should open an NRI account?

Individuals who have been residing outside India for at least 120 days in a year and spend less than 365 days in India in the four previous years can open the NRI savings account.

Individuals who leave India for employment are immediately declared as NRI and can open an NRI savings account.

Following is the eligibility criteria to open an NRI account:

  • NRI (Non Resident Indian)
  • An Indian citizen residing outside India for any of the following purposes:
  • Studies, employment, business or vocation
  • Officials deputed abroad by the Government of India or public sector undertakings.
  • Individuals posted in the United Nations organization
  • Indian nationals who may be Mariners or working in foreign registered airlines or oil rigs
  • Person of Indian origin (PIO) or Overseas Citizen of India (OCI)

An individual with a Foreign passport (other than Bangladeshi and Pakistani) who:

  • Has held an Indian passport at any point in time
  • Parent or grandparent was a Citizen of India by virtue of the Constitution of India or Indian Citizen Act, 1955.
  • Is a spouse of an Indian Citizen or PIO.

Documents required to open an NRI Account

Following are the documents required for opening an NRI account in India:

  • Valid Passport
  • Pan Card or Form 60 in the absence of PAN Card
  • Proof of NRI status – valid work visa, valid work permit, and valid Overseas Resident Card
  • Passport size photographs
  • Initial payment cheque or draft
  • Address proof

A copy of all the above documents has to be attested by any of the following:

  • Authorized personnel of overseas branches of commercial banks registered in India.
  • Authorized personnel of banks with whom Indian banks have a relationship
  • Overseas Notary Public
  • Court Magistrate
  • Judge
  • Indian Embassy where the NRI resides

Meaning of a Non-Resident Ordinary (NRO) Savings Account/ Fixed Deposit Account

A Non-Resident Ordinary (NRO) account is one of the types of NRI account, which is useful for managing the income that an NRI is still earning in India. The income can be in the form of interest, dividend, rent, etc. An NRO account facilitates the money transfer abroad. In this account, one can deposit money in Indian or foreign currency. However, the withdrawals happen only in Indian currency. Also, NRO accounts can be used for investing in Indian. For example, in mutual funds, shares etc.

An NRO account can be opened jointly with an NRI or a resident Indian. This rupee account can be in the form of savings account, current account, fixed deposit account, and recurring deposit account. The NRIs can repatriate the funds in this account but with certain limits. The interest can be fully repatriated. However, the principal amount has a limit of USD 1mn per financial year. Also, this rupee account is not subject to exchange rate fluctuations, and hence one need not worry about it during repatriation.

The interest that one earns from an NRO account is taxable as per the individuals’ income tax slab rate. The interest is also subject to TDS. However, NRIs can reduce their tax liability by availing tax benefit under the Double Taxation Avoidance Agreement (DTAA) that India has with certain countries.

Meaning of a Non-Resident External (NRE) Savings Account/ Fixed Deposit Account

A Non-Resident External (NRE) Account is a bank account for NRIs to deposit their earnings from abroad in Indian rupee. This rupee-denominated account can be a savings account, current account, fixed deposit account and recurring deposit account. An NRE account can be opened individually or jointly. However, a joint account can be opened only with another NRI.

NRE deposits can only be from the income arising from a foreign country. The income earned in India cannot be deposited in this account. The withdrawals happen in the resident country currency of the NRI. Hence this account is subject to exchange rate fluctuations. One can transfer funds from an NRE account to another NRE account and also NRO account.

NRE accounts are highly liquid, and the principal and interest amount are fully repatriable. Also, the principal and interest are exempt from tax. Hence the income from an NRE account is completely tax-free. Non Residential External accounts also facilitate investments. NRIs who want to invest in India can do so using their NRE account. One can access their deposits in Non-Residential External accounts from anywhere in the world using internet banking. Banks also offer international debit cards for the purpose of transacting.

Meaning of a Foreign Currency Non-Resident (FCNR)/ Fixed Deposit Account

A Foreign Currency Non-Resident (FCNR) account is a term account that allows NRIs to deposit money in any of the nine currencies allowed by RBI. The nine currencies that this account accepts deposits are USD, GBP, AUD, SGD, CAD, CHF, HKD, EUR, JPY. An FCNR(B) account is a term deposit account and not a savings account. It allows an NRI to deposit their money in the desired currency. Also, the deposits made should be the income from the NRIs country of residence. One can also transfer funds from an NRE account to an FCNR (B) account while opening.

The interest rate on FCNR (B) accounts varies with the currency and tenure. This account allows NRIs to earn a fixed rate of interest until maturity. The interest rates are fixed and do not change during the entire tenure of the deposit. In case, the residence status of an account holder changes during the tenure of the deposit, then they can hold the account till maturity. However, the interest rate, in this case, is as per the bank norms.

NRIs can open an FCNR (B) account individually or jointly with another NRI or a close family Indian resident. The tenure of FCNR (B) accounts ranges from 1 year to 5 years. The deposit and interest amount in this account are fully repatriable. Also, there is no tax on the interest earned on the deposits made in this account. Hence, this account is completely tax-free. Since the deposits and withdrawals made in this account are in foreign currency, the funds in this account are free from any exchange rate fluctuations.

Premature withdrawals

Banks allow premature withdrawals from FCNR (B) accounts, at a penalty of 1% on the contracted interest rate. One can also take rupee-denominated or foreign currency loans against fixed deposits or FCNR deposits. There are certain limits on the amount of loan, and the terms of the loan vary from bank to bank.

Difference between NRO, NRE, and FCNR account

Basis of DifferenceNRENROFCNR
PurposeNRE account is for depositing income earned outside India in India.NRO Account is for depositing income that one earns in India. FCNR account is for depositing earnings in foreign currency in an Indian account. 
Deposit CurrencyForeign CurrencyIndian RupeeUSD, GBP, AUD, SGD, CAD, CHF, HKD, EUR, JPY
Withdrawal CurrencyIndian RupeeIndian RupeeForeign Currency
Taxation in IndiaNot taxable in India30% tax rate applicableNot taxable in India
Exchange Rate RiskNRE account has foreign exchange risk due to currency fluctuationsNo foreign exchange riskNo foreign exchange risk
RepairabilityThe deposits and the interest earned on them are fully repatriable.Deposits made in this account are repatriable to the NRI’s country of residence with certain limits.The deposits and the interest earned on them are fully repatriable.
Joint Account with NRIPermittedAllowedPermitted
Joint Account with Indian ResidentNot PermittedPermittedNot Permitted
Types of AccountsCurrent Account, Savings Account, Recurring and Fixed DepositsCurrent Account, Savings Account, Recurring and Fixed DepositsTerm deposits only
Loan against depositThe loan is given in Indian Rupees.Available, in Indian rupeesAvailable, in foreign currency, however with certain restrictions

Benefits of opening an NRI Account in India

Following are the advantages of NRI accounts:

Investments in India

NRI accounts facilitate investments in India. NRIs who want to diversify their investment portfolio can do so by investing in India. And NRI accounts help them by purchase and sale of stocks, mutual funds and other assets.

Taxation

Opening an NRE or an FCNR account allows investors to earn additional income in the form of interest, which is completely tax-free. Hence income from NRE account, NRE fixed deposits and FCNR deposits is exempt from tax. Interest from NRO accounts is taxable. But NRIs can avail of tax benefit under the Double Taxation Avoidance Agreement (DTAA) in certain countries.

Repatriation

Income from Indian investments made through NRE and FCNR accounts is also fully repatriable. Both the principal and interest amount are repatriable without limits in case of NRE and FCNR accounts. In the case of NRO accounts, the amount is repatriable with certain limits.

Low minimum balance

Most banks have reduced the minimum balance requirement for these accounts to as low as INR 10,000. Hence NRIs need not worry about maintaining a high minimum balance in these accounts.

Deposits in more than one currency

NRIs can retain their deposits in the currency of their resident country which is allowed by RBI through FCNR deposits. Hence the risk of the exchange rate is minimized with this type of NRI account.

Convenience

Banks allow NRIs to open an NRI bank account without having to visit the branch physically. NRIs can open an account with any authorized bank online. Moreover, they can operate the account from anywhere in the world with the help of internet banking facilities. They can even transact using international debit cards offered by these banks. FCNR deposits can be withdrawn only upon maturity. However, one can opt for premature withdrawal. Moreover, banks also give loans against fixed deposits or FCNR deposits.

Disadvantages of opening an NRI Account in India

Following are the disadvantages of NRI account in India:

Low liquidity

Individuals who want to safeguard their deposits against exchange rate fluctuations can do so with an FCNR account. However, the tenure of a fixed deposit account ranges from one to five years.

Foreign exchange rate risk

Deposits made in foreign currency are subject to conversion into Indian rupees. Therefore, these deposits may fluctuate in value with the change in exchange rates. Hence, there are chances of incurring losses during repatriation.

Which banks offer NRI accounts?

Most major banks in India offer NRI accounts. Following are some of the popular ones:

  • Axis Bank
  • Kotak Mahindra Bank
  • ICICI Bank
  • HDFC Bank
  • SBI Bank
  • Deutsche Bank
  • RBL Bank
  • YES Bank
  • Citi Bank
  • Bank of Baroda
  • Standard Chartered