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If you are an NRI and are curious to know about the various types of accounts you can open in India you have come to the right place. To start off lets first define who an NRI is.

Definitions
NRI – NRI stands for Non-resident Indian. The term NRI is defined under FEMA (Foreign Exchange Management Act 1999) as a person who is a resident outside India who is either a citizen of India or a person of Indian origin (PIO).

PIO, Person of Indian origin, is defined as a foreign citizen not being a citizen of Pakistan, Bangladesh and other countries (as may be specified by the Central Government from time to time) if,
1) He/she at any time held a Indian passport; or
2) He/she or either of his/her parents or grand parents or great grand parents was born in and permanently resident in India as defined in the Government of India Act, 1935

Now that we know who an NRI is we can proceed to know what sort of accounts he/she can open in India. There are broadly four types of accounts an NRI can open in India, they being NRE, NRO, FCNR & RFC. Lets have a look at each of these four in detail.

NRO Account
1) NRO stands for Non-resident Ordinary.
2) It is a Rupee account i.e. denominated in Rupees.
3) It can be in the form of a current account, savings account, term deposit account or a recurring deposit account.
4) Purpose – These accounts are generally used by NRIs who earn income in India (Say from rentals from their real estate properties, pension and the like).
5) While the principal amount is completely tax free, the interest you earn on that principal is taxed at 30.9%.
6) NRO accounts are not fully repatriable. Upto $1 Million is available for repatriation after taxes in a financial year. Repatriability here refers to converting the Rupees in your NRO account into say, dollars and sending them abroad.
7) Transfer of funds from NRO to NRE account is not allowed.

Update (June 14th 2012) – Transfer of funds from NRO to NRE account is now allowed upto a maximum of $1 Million in a financial year

“The Reserve Bank allowed non-resident Indians (NRIs) to transfer funds from non-resident ordinary (NRO) account to Non-Resident External (NRE) account subject to a ceiling of $1 million in a financial year.”[1]
8) Accounts can be held either in single or as a joint account. The joint account holder need not be an NRI and can be a resident as well. Similarly, the beneficiary can be an NRI or a resident. However, it must be noted that if you return back to India and are no more an NRI then this account needs to be converted to a normal account.
For some perspective,
As of 24th April 2012 – The one year term deposit interest rates for NRO accounts in SBI are at 9.00% per annum and the savings account interest rates for NRO accounts at 4.00% per annum.

NRE Account
1) NRE stands for Non-resident External.
2) It is a Rupee account, denominated in Rupees.
3) It can be in the form of a current account, savings account, term deposit account or a recurring deposit account.
4) Purpose – These accounts are generally used by NRIs who earn income abroad and would like to remit it back to India. It is important to note that funds from local sources are not allowed to be transferred to NRE accounts unless they are repatriable in nature in the first place (i.e. eligible to be remitted abroad).
5) Both the principal amount and the interest earned on it is completely tax free.
6) NRE accounts are fully repatriable. Repatriability here, as said above, refers to converting the Rupees in your NRE account into dollars, etc and sending them back abroad.
7) Transfer of funds from NRE to NRO account is allowed.
8) Accounts can be held either in single or as a joint account. The joint account holder needs to be an NRI and cant be a resident. However, the beneficiary can be an NRI or a resident.
For some perspective,
As of 24th April 2012 – The one year term deposit interest rates for NRE accounts in SBI are at 9.00% per annum and the savings account interest rates for NRE accounts at 4.00% per annum which as you can see are similar to the NRO interest rates. Hence, from a tax saving perspective and to park funds in general, it would be wise to consider NRE accounts over NRO accounts.

FCNR Account
1) FCNR stands for Foreign Currency Non-resident account.
2) It is denominated in one of the following 6 currencies – US Dollar, Euro, Pound Sterling, Japanese Yen, Australian Dollar and Canadian Dollar.
3) It is in the form of a fixed term deposit account (term deposits ranging from 1 to 5 years).
4) Purpose – These accounts are generally used by NRIs to park overseas income as foreign currency in India without having to convert them into rupees.
5) They can be funded from another FCNR or NRE account, overseas transfer, cash or travelers cheques. It is important to note that funds from local sources are not allowed to be transferred to FCNR accounts.
6) Both the principal amount and the interest earned on it is completely tax free. Since the principal is in a foreign currency, the interest earned is also in a foreign currency. However, some banks (such as SBI, ICICI, etc) offer rupee loans that can be taken against the security of the deposit.
7) FCNR accounts are fully repatriable. Transfer of funds from FCNR to NRE account & Vice-versa is allowed.
8) Accounts can be held either in single or as a joint account. The joint account holder needs to be an NRI and cant be a resident. However, the beneficiary can be an NRI or a resident.
For some perspective,
As of 5th May 2012 – The one year term deposit in SBI in
U.S. $ is 3.05%
EURO is 3.30%
GBP is 3.86%
CAN$ is 4.05%
AUD is 4.05%
JYEN is 2.55%

RFC Account
1) RFC stands for Resident foreign currency account.
2) It is denominated in one of the following 3 currencies – US Dollar, Pound Sterling, Euro.
3) It is in the form of a savings account or a fixed term deposit account (term deposits ranging from 1 to 3 years).
4) Purpose – These accounts are generally used by NRIs who are returning back to settle permanently in India inorder to park overseas income as foreign currency in India without having to convert them into rupees. RFC accounts can however be converted into FCNR/NRE account incase the person holding the RFC account becomes an NRI again.
5) They can be funded from another FCNR or NRE account, overseas transfer, cash or travelers cheques. It is important to note that funds from local sources are not allowed to be transferred to FCNR accounts.
6) The interest earned on the principal is taxed at 10.2%. Since the principal is in a foreign currency, the interest earned is also in a foreign currency.
7) FCNR accounts are fully repatriable. Transfer of funds from RFC to FCNR/NRE account is allowed.
8) Accounts can be held either in single or as a joint account. The joint account holder needs to be a person who is eligible to open a RFC. However, the beneficiary can be an NRI or a resident.
For some perspective,
As of 5th May 2012 – The one year term deposit in SBI is
U.S. $ is 3.05%
EURO is 3.30%
GBP is 3.86%
You will find that the interest rates offered for RFC accounts is similar to that offered to FCNR accounts.

Now that we have understood the four main types of accounts an NRI can hold in India, we can be much more informed in making financial decisions in the future.

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I go by my online nick Sengukoi. I have various interests of which finance, economics and the markets are some of the ones at the top of the list. Connect with Sengukoi on Google+

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