Unlike normal Indian citizens NRI’s does not have standard savings accounts in Indian banks. For NRI’s there are three popular types of bank account that an NRI could operate i.e. non-resident ordinary account (NRO), non-resident external account (NRE) and foreign currency non-resident (B) account. Whether you are a NRI who is moving back to India or looking to invest in India the first thing that you need to do is to have a bank account to manage your money in India. Unlike normal Indian citizens NRI’s does not have standard savings accounts in Indian banks. The determination of NRI status is not as per the Income Tax Act but Foreign Exchange Management Act(FEMA). NRI’s or PIO’s are allowed to open bank accounts in India out of funds remitted from abroad or out of funds legally due to them in India with an authorised dealer. Such bank accounts can be opened with banks specially authorised by the Reserve Bank of India in this behalf. Depending on NRI’s necessity, they can choose any of account provided. Also it is illegal for an NRI to hold a residential account and it could impose huge penalties.
There are three popular types of accounts an NRI could operate:
Non-Resident Ordinary (NRO) – The NRO account is a current or Savings account held in India for the NRIs to manage their income mainly generated in India from an Indian source or foreign exchange. The citizens who moved abroad after having worked in India their resident savings account ought to be changed to an NRO account. This NRO account can also have recurring or fixed deposits.
Why NRI should have an NRO account?
The NRO account is a current or Savings account held in India for the NRIs their income earned in India. NRO account holds currency in Rupees only. NRI’s can also use NRO account to direct invest in Shares and mutual funds. In this account there are no limitations on the type of credits. As per RBI it is the only account type permitted for an NRI to collect rents or receive dividends in India. The money in NRO account is not freely repatriable so it is good for local spends. NRI can even choose for an NRO fixed deposit especially when you are not planning to use your accumulated funds anytime soon. This may help to earn better interest on savings. It is important to keep in mind that any interest that earns in an NRO account will have 30 percent plus surcharge (if any) and cess as TDS levied on it.
Non-Resident External (NRE) – The main difference from the NRO account that in this account the Indian Rupees cannot be deposited only foreign currency can be deposited in to the account which can be converted into Indian Rupee at the time of deposit.. The fixed deposit and recurring must have a minimum maturity period of one year. There is no upper limit of transaction amount in NRE account. The interest earned on the money at the end of quarter is not taxable. However, the NRI can also send his remittances from abroad into this account. Transferring fund from the abroad to this account is free and funds can be transferred from an NRE account to an NRO / NRE / Resident account.
Why should NRI have an NRE account?
As stated earlier NRO accounts are not freely repatriable. The ability to freely repatriate funds outside India in any currency and interest earned on NRE accounts is tax free make the accounts very popular between NRI. One important point that needs to be noted is that any income earned in Indian rupees cannot be deposited to an NRE account. However an NRI can freely send funds from own NRE account to any other NRE account in India or transfer to a foreign account.
Foreign Currency Non-Resident (Banks) – The FCNR account is similar to opening a regular fixed deposit account. An FCNR account can be closed prematurely however in order to earn any interest the deposit amount must stay untouched with the bank for at least one year.
Why should NRI open an FCNR account?
The one of the biggest benefit of operating an FCNR account is that these accounts can be maintained in a currency other than Indian rupees. This also reduces the risk of currency fluctuation. NRIs and PIOs can open FCNR accounts jointly with Indian resident. An unrestricted fund can be transferred to any NRE account for making payments in India. For FCNR account the minimum tenure to gain interest is one year and the maximum period is five years. Another benefit of this account is that you can hold FCNR accounts to maturity even if residency status changed during the tenure of the deposit.