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Banking options for NRIs

Larissa Fernand

There are plenty of accounts available to a non-resident to pick from. Each, however, caters to a different need. So, here's to getting your basics right.
Meanwhile, if it bothers you that you also have an account, which you opened as a resident, this should clear your doubts. According to Section 5(2) of the Income Tax Act, 1961, an NRI is chargeable to tax on income from all sources received in India. So interest earned on the savings account and bank deposits opened before one attained the status of an NRI are definitely subject to tax since they constitute income earned in India.

NRE: NON RESIDENT EXTERNAL RUPEE ACCOUNT
Accounts: A savings account offers 4.5 per cent per annum.
Deposits: 6 months-7 years with the bank having total freedom in determining the interest rate.
Repatriable: Yes. Both, the principal and interest earned.
Tax: Nil on principal or interest earned.
Joint holding: Only with an NRI. But a mandate can be given to a resident to operate the account. Though the resident cannot open one himself and neither can he issue repatriation instructions.
Holding: Once the foreign exchange is credited to the account, it is converted to rupees immediately and held in rupees.
Exchange risk: Borne by the depositor and not the bank. The money is converted into rupees the moment it is credited, whether or not the rupee is strong or weak. You cannot hold your foreign exchange till the rupee weakens so that you get more rupees on conversion.
Purpose of this account: The biggest benefit is the repatriation factor. If you are not sure whether or not you will be in India in the future, or if you are planning a long holiday abroad, this one is a good bet. You can withdraw the money and repatriate it, whatever be the reason. This one is good if you are sending money back to your family in India since you can give a mandate to a resident to operate the account.

FCNR: FOREIGN CURRENCY NON-RESIDENT
Accounts: No savings or current account.
Deposits: 1 year-3 years. Interest rates depend on the currency and banks have total flexibility in determining them.
Repatriable: Yes. Both, the principal and interest earned.
Tax: Nil on principal or interest earned.
Joint holding: Only with an NRI.
Holding: The money is held in foreign currency and converted into rupees only when the depositor requires. It can be held only in five currencies: US dollar, Japanese yen, German mark, pound sterling, or EUR.
Exchange risk: Borne by the bank, not the depositor. When the money is deposited in the account, it is not automatically converted into rupees. The conversion takes place as and when the depositor says so. He can, thus, wait for the rupee to fall so that he gets more rupees on conversion.
Purpose of this account: The biggest benefit is the repatriation factor. If you are not sure whether or not you will be in India in the future, or if you are planning a long holiday abroad, this one is a good bet. You can withdraw the money and repatriate it, whatever be the reason.

NRNR: NON-RESIDENT NON-REPATRIABLE
Accounts: No savings or current account.
Deposits: 6 months - 3 years.
Repatriable: Not the principal, only the interest.
Tax: Nil on principal or interest earned.
Joint holding: With a resident who is a close relative.
Holding: Once the foreign exchange is credited to the account, it is converted to rupees and held in rupees.
Exchange risk: Borne by the depositor, not the bank. The money is converted the moment it is credited, whether or not the rupee is strong or weak. You cannot hold your foreign exchange till the rupee weakens to benefit from it.
Purpose of this account: Targeted at someone who has absolutely no intention of ever moving back abroad and who probably needs the money to be kept for his family here.

NRO: NON-RESIDENT ORDINARY ACCOUNT
Accounts: Current account or savings account, which offer 4.5 per cent per annum.
Deposits: Identical to local term deposits.
Repatriable: Only the interest with Reserve Bank of India permission. The principal cannot be repatriated.
Tax: Yes. On principal and interest earned.
Joint holding With a resident.
Holding: Rupees. This account holds local funds, i.e. income that an NRI will be earning in India.
Exchange risk: None, since it is rupees being credited here.
Purpose of this account: The NRO is solely targeted at those NRIs who are earning income in India, such as dividends or income from rent or proceeds from a sale of property.

NRSR: NON-RESIDENT SPECIAL RUPEE ACCOUNT
Accounts: Current account and savings account at 4.5 per cent per annum.
Deposits: Identical to local term deposits.
Repatriable: No. Neither the principal, nor the interest.
Tax: Yes.
Joint holding: With a resident.
Holding: Rupees
Exchange risk: Nil.
Purpose of this account: The NRSR is identical to the NRO deposit except that no interest or principal can be repatriated as in the case of NRO where interest can be repatriated. The NRSR is to be set up with the main purpose of investing in the Indian stock market. An NRI having such an account to his name will only have to fill up a simple form to be submitted to the Reserve Bank of India.

RFC: RESIDENT FOREIGN CURRENCY ACCOUNT
Accounts: Current account and savings account at 4.5 per cent per annum.
Deposits: Just like FCNR deposits.
Repatriable: Yes.
Tax: Nil up to certain periods.
Joint holding: With an NRI.
Holding: In foreign exchange: US dollar, Japanese yen, German mark, pound sterling, or EUR.
Exchange risk: Nil.
Purpose of this account: The RFC is for a returning NRI. The NRI can keep his money in the NRE and FCNR deposits till maturity and after that the money has to be transferred to the RFC account

All the interest earned on the NRE account, while you maintain the status of an NRI, is exempt from tax under section 10(4)(ii) of the Income Tax Act. Interest earned in the FCNR and NRNR account is exempt under 10(15)(fa) of the Act.

On your permanent return to India, you have to redesignate your NRE and FCNR account as an RFC within the time limits specified under FERA.

Interest earned on the NRNR, NRE and FCNR deposit with banks is exempt from tax up to the maturity of the deposit when the status is RNOR (resident but not ordinarily resident). It becomes taxable as a normal resident, with an option for a flat rate of 20 per cent, up to maturity when the status is resident.

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