Banking for NRIs
Whenever an Indian citizen moves to a foreign country they have to convert their savings account to NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account because as per FEMA (Foreign Exchange Management Act) regulationsNon-Residents cannot have a saving account in their name in India. Violation of these FEMA regulations can result in penaltiesup to 3 times the amount in a savings account or Rs 2 lakhs if the sum is not measurable and an additional penalty of Rs 5000 per day until the penalty is not paid off. Thus any citizen moving abroad should convert his account not just to save themselves from hefty penalties but also to take advantage of Non-Resident accounts.
Majorly there are 3 types of Non-Resident accounts which are as follows:
- NRO (Non-Resident Ordinary) account: NRO accounts are maintained in INR which means that whenever the account holder will deposit funds in any foreign currency it will be converted into INR at that present foreign exchange rate. An NRO account can be used to house both types of income whether earned in India or abroad such as rent, dividend, pension etc. Tax is deductible at the source on interest earned from an NRO account. An NRO account can be jointly opened by any NRI with resident Indian or with other NRIs.
- NRE (Non-Resident External) account:NRE accounts are also maintained in INR which means that the foreign currency deposits will be converted into INR at that present foreign exchange rate. An NRE account is generally used to house your income which is earned abroad. The principal amount and the interest as well are fully transferable without any restriction. Interest earned from an NRE account is tax exempted in India. An NRE account can be jointly opened by any NRIs with another NRI or any resident Indian provided that he/she should be a close relative.
- FCNR (Foreign Currency Non-Resident) account:FCNR account is not a savings account it is a term deposit account. When a certain sum of money is deposited to a financial institution such as a bank with a lock-in period it is called as a term deposit. FCNR simply is a fixed deposit but in foreign currency as FCNR deposits are only maintained in foreign currency and because of this funds in FCNR accounts are safe from exchange rate fluctuations. Furthermore,no income tax is payable on interests earned from FCNR deposits as it is tax-free and FCNR depositsas well as interest earned from deposits is fully transferable without any restriction.
Non-resident accounts have numerous benefits such as:
- Repatriation:Non-resident accounts have repayment benefits in terms of smooth flow of funds from India to a foreign country and vice-a-versa. You can repatriate the principal amount as well as interest amount in a foreign country through both NRO and NRE saving accounts. Having said that there is a small difference between NRE and NRO in terms of repayment of funds which is funds in an NRO account can only be withdrawn after payment of applicable taxes while funds in an NRE account can be repatriated freely without any restriction.
- Tax benefits: As per the prevailing tax laws, interest earned on an NRE savings account and NRE fixed deposits are exempted from any type of tax deductions in India. However, NRO savings account and NRO fixed deposits are not tax exempted. TDS (Tax Deducted at Source) is deductable from the savings as well as interest earned from the savingsin anNRO savings account and NRO fixed depositsas per the Income Tax regulations.
- Foreign currency deposits: Apart from NRE and NRO accounts non residents also have an option to open FCNR (Foreign Currency Non-Resident) account. Non-residents can open FCNR deposit and earn interest in foreign currency moreover interest earned on FCNR deposits is tax-free in India as per current tax regulations. FCNR deposits are made in a particular foreign currency such as USD, Pound, Japanese Yen and Canadian Dollar etc. Interest from FCNR deposits is in the same foreign currency.
- Joint Account: Two or more NRIs can together open a joint NRE account. On the other hand an NRO account can be opened jointly by an NRI with another NRI or with any resident Indian who is a close relative as provided under Companies Act 1956.
- Minimal balance requirement: Minimum balance requirement has been dropped by banks significantly in order to make NRE and NRO accounts easily maintainable. Nowadays minimum balance requirement in government banks such as State Bank of India depends on the residence area in India which is Rs 1,000 for rural, Rs 2,000 for urban area and Rs 3,000 for metro cities. However, in private banks such as HDFC and Axis Bank the minimum required balance is Rs 10,000.
- Better returns: Many banks around the world have negative yield which means that the bank instead of giving returns in form of interest on your deposits they charge some amount from the account holder for handling their money. On the other hand Non-resident accounts provide better returns.
- Convenience: Opening a Non-resident account is a very easy and convenient process. To open a non-resident accounts there is no need to visiting a bank branch situated in India you just have to fill a form online, take its printout and self-attested copies of all the required documents and courier it to the bank situated in India. Most of the banks also allow conversion of your existing resident savings account to NRO account by simply sending required documents to the branch through mail. Additionally convenience features such as net banking and mobile banking are also available with Non-resident accounts.
In the era of globalisation banking has become an essential component which is crucial for economy and for NRIs maintaining and operating a non-resident bank account will help them in fulfilling their financial needs in the most convenient way. In a non-resident bank account you can deposit incomes earned from both Indian and overseas sources, transfer funds to your family members back in India and also investments in Indian investment instruments such as Indian stock market, Mutual funds, NPS (National Pension Scheme), PPF (Public Provident Fund) etc.
Despite of government easing banking rules and regulations NRIs often face difficulty in repatriation of money due unintelligible FEMA rules. There are so many restrictions on repatriation of funds and there are limits on deposits as well if you want to repatriate or deposit funds higher than the set limits you need get explicit approval from RBI. We assist NRIs in such situations by providing smooth and stress-free repatriation of funds. We have been assisting NRIs for more than 20 years. We have a team of expert lawyers who will ensure your repatriation is in accordance with FEMA rules. Other than that we also assist NRIs in converting their non-resident bank accounts to resident bank accounts, FCNR account to FCR account, reactivation of dormant accounts and other banking activities. Contact for assistance now.