NRIs, unlike Indian natives, are unable to open conventional savings accounts in Indian banks. Non-resident conventional account, non-resident external account, and foreign currency non-resident (B) account are the three most common types of bank accounts used by NRIs.
Whether you are a non-resident Indian (NRI) returning to India or seeking to invest in India, or a resident who has recently been given NRI status, the most important thing you can do is open a bank account to handle your money.
NRIs, unlike Indian natives, are unable to open conventional savings accounts in Indian banks. Although the determination of NRI status does not follow the well-known Income Tax Act, FEMA does (Foreign Exchange Management Act). FEMA bases its determination of residential status on intent. In this vein, moving your residence (and your child’s school) across the shores obviously demonstrates intent, and so your residential status changes.
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There are three common types of bank accounts that an NRI can use:
- NRI Ordinary (NRO) — This is the NRI’s savings bank account, which can be funded in rupees or foreign currency. After working in India, persons migrating to another country should transfer their resident savings account to an NRO account. Recurring or fixed deposits are also possible with this account.
- Non-Resident External (NRE) – This account differs from the NRO account in that it requires a separate foreign currency deposit. A one-year base development time is required for recurring and fixed deposits. A power of attorney cannot be used to open an NRE account; instead, the NRI account holder must do so on their own.
- FCNR (Banks) – A FCNR (B) account is similar to a standard fixed deposit account. A FCNR (B) account may be closed early; but, in order to collect income, the deposit must stay unchanged with the bank for at least one year.
Recent modifications to India’s non-resident bank account rules prohibit resident Indians from holding accounts unless they are in ‘former or survivor’ status, which implies that only the NRI is entitled to handle the account during their lifetime.
Why would it be advantageous for me to have an NRO account?
NRO accounts are either savings or current accounts that NRIs can use to manage their income in India. This account is set up to hold currency in Rupees. You can also invest directly in common funds and stocks using your NRO account.
Because funds in NRO accounts are not freely transferable, it is advisable to use this account for local spending. You can also choose an NRO fixed deposit if you don’t plan on using your earned cash anytime soon. This could help you achieve a higher rate of return on your savings.
Keep in mind that any interest you earn in an NRO account will be subject to a 30% surcharge (if applicable) and cess, as well as TDS. If your country of residence is a member of the DTAA, you can benefit from a lower TDS rate; however, you must fulfill a few requirements and submit documentation as stipulated by the RBI to do so.
The Multiple Tax Avoidance Agreement (DTAA) is a tax treaty that helps people avoid paying double taxes on the same income.
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Why would it be advantageous for me to hold an NRE account?
NRO accounts, as previously stated, are not readily repatriable. For certain NRIs, however, repatriation of funds is a must. The ability to easily repatriate funds in any currency outside of India, as well as the fact that interest received on NRE accounts is tax-free (unlike NRO accounts), have made these accounts immensely popular among NRIs.
However, there are certain limitations. Because the foreign currency is converted to Indian rupees, it is susceptible to exchange rate fluctuations. It’s worth noting that any revenue produced in Indian rupees cannot be placed into an NRE account. You can, however, easily transfer funds from your NRE account to another NRE account in India or to a foreign account.
What makes you think it’s a good idea for me to register an FCNR account?
The most significant benefit of having an FCNR account is that it can be held in a currency other than Indian rupees. This lessens the risk of a currency change. Term or fixed deposits are the most common kind. NRIs and PIOs can create FCNR accounts together with resident Indians, in which case the resident close relative acts as a power of attorney holder.
You can send unrestricted funds to any NRE account in India to make payments. For FCNR accounts, the minimum time to earn interest is one year, while the maximum time is five years. Non-residents also have the advantage of being able to keep FCNR accounts open for development even if their residency status changes to resident during the term of the deposit.
