4000431396_56942cc54fIf 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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Comments

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26 Comments

  1. Have you ever considered writing an ebook or guest authoring on other blogs? I have a blog centered on the same subjects you discuss and would love to have you share some stories/information. I know my readers would value your work. If you’re even remotely interested, feel free to shoot me an e-mail.

    Reply

    • Cool. Thanks for visiting by. Currently I’m kind of busy so I haven’t thought of creating an e-book/guest posting. I’ll definitely contact you if I’m interested.

      Reply

  2. If I have a NRE account in India.

    Can I convert some of my cash in my hand (in Rupees) and convert them into Dollars on the street ( black market ) , and then just walk into the bank in India and try to deposit these dollars in my NRE account ?

    Will they accept them because its foreign currency or will they not accept them since I am depositing them in India ( although its dollars ) and because they are not coming from abroad ?

    Reply

    • I am not sure but I think they should accept it as long as its less than $ 5000 as there is no way of differentiating if the dollars are from India or if you brought it from abroad.

      Once it exceeds $5000, then you should declare it to the customs upon arrival and the money becomes accountable. So the banks could ask “Have you declared this amount which is more than $5000 before entering India”.

      This is just my opinion as I am not sure if it is accurate. Please check with someone else and post it if you come to know.

      Reply

  3. Is it possible to make online transfer of funds from SBT Savings account (local) to SBI NRO account?

    Reply

    • Hello Sandhya,

      If you are an NRI, then you can either have an NRO, NRE, RFC or FCNR account. NRI’s should not continue to have resident savings account. If you have a resident savings account though, you could convert it to an NRO account.

      It is however possible to transfer funds from another individual (who is not an NRI and hence has a local savings account) to NRO account. You can get more details

      NRIs shouldn’t continue resident savings account

      Reply

  4. Great article, Sengukoi. Thanks, and keep writing.

    Reply

  5. Ah very we’ll explained for regular people. Can you please also tell what is the conversion rate from foreign currency to rupee in NRE account. And does that account have any other benefits over a regular savings account other than tax free interests.
    Thanks.

    Reply

    • The conversion rate depends on the current exchange rate (usually there is a small spread by the bank).
      For example, You can look here – http://www.statebank.com/RemittanceServiceIndMaster.asp

      The three main benefits are
      1) Fully repatriable – Can be converted to dollars easily, not possible for ordinary savings accounts.
      2) Tax free (No Gift tax and Wealth tax as well)
      3) Usually a little higher interest is earned than ordinary accounts. For example, SBI currently offers 8.75% for ordinary accounts and 9% for NRE account fixed deposits for more than one year.

      Reply

  6. SBI has confirmed me that the interest earned on RFC ACCOUNT in NOT TAXABLE for the first two years on returning to India. Pl reconfirm it.
    Thanks & regards
    Kunwar

    Reply

    • Yes, it is true. However, it is only applicable if you were an NRI for 9 years or more, then for two successive years you will be considered resident but not ordinary resident (RNOR).

      Overseas income is liable to tax in India only if you are an ordinary resident.

      You can know more here and here

      Reply

  7. Dear sir
    I hv put money in FCNR for 5 yrs. These days, the interest rate is more but these can’t be premature withdrawal. But i am coming back good to India after 2 yrs. The interest on remaining 3 yrs will be taxable or not?

    Since i hv completed 30 yrs abroad, I will be RNOR for first 2 yrs. Can I put money of FCNR on mature after 3 yrs into RFC for next 2 yrs.
    Thanks & regards

    Reply

    • Since you are coming to India after two years, you will be RNOR for 3 years from that time. So you don’t need to pay taxes for overseas income on FCNR accounts for 5 years from now.

      For more details, please visit here

      Also contact a Chartered Accountant or another professional for Income tax related queries.

      Cheers and welcome back to India.

      Reply

    • Yes, you can put the FCNR money into RFC account. You dont need to pay tax on the RFC account as long as you are RNOR.

      You can be RNOR for up to 3 years.

      Regards,
      Sengukoi

      Reply

  8. Abdussalam Tharayil

    I have online banking for NRE & NRO together, but I cannot make fund transfer through online from
    my NRO account, looks like account is not added, how I can solve this problem

    Reply

    • Hi Abdussalam Tharayil,
      If you are not able to make an online fund transfer through you NRO account, it is possible that the feature has not been activated for you. It is also not possible to do fund transfers from some countries (for security reasons) and it really depends on the bank you have the account with. Its best to contact the bank to resolve the issue.
      Cheers,
      Sengukoi.

      Reply

  9. Hi, I’m an NRI coming back to india

    1) Can i transfer my NRE money to RFC account?
    2) If yes and how long i can hold the currency in RFC account?

    Reply

    • Hi Amit Jain,

      1) Yes, you can transfer your money from NRE to RFC account

      2) I’m not sure for how long you can hold it. But from what I know, you can hold it for long enough. You can always ask in the bank and they would know better.

      Thanks for visiting the forum.
      Hope you enjoy your stay in India

      Reply

  10. Thanks a lot. Really helpful. God bless you.

    Reply

  11. Hi Sengukoi,

    The post is very nice and thanks for detailed note on the different NRI accounts. I have a few more queries and it will be very helpful if you could clarify them.
    1. I am moving abroad in Jan 2015 after resigning my current job in India and hunt for a new one. I am planning to open a new NRE account in SBT. Will it possible for me to transfer money from my NRE account to a local savings account in India(e.g.: my mother’s SBT savings account in India) ?
    2. Will it possible for someone here to deposit some amount to my NRE account if want to withdraw from abroad ? I mean online transfer or cheque deposit from local to NRE account.
    3. I have a local account which is used to pay my home loan. Will there be any impact to my loan if make the account to NRO account ?
    4. Can I convert my existing local account to NRO account without a NRE account in the same bank?

    Thanks,
    Regards,
    Shree

    Reply

    • Hey Shree,
      I hope you get the job you want. Regarding the answers to your questions, I’ll answer to the best of my knowledge but you should still consult an expert
      1) Yes, you can transfer money from NRE to local account but do note that you can’t keep a local account once you become an NRI. If it is your mother’s account then its fine but NRI’s can have only NRE, NRO or FCNR accounts.
      2) I think it is not possible but do cross check in a bank and let us know.
      3) Depends on the bank but generally you can continue to service your loan through the NRO account.
      4) Yes, you can convert your local to NRO account.
      Thanks for visiting and glad to be of help.

      Reply

  12. Thanks Sengukoi for your quick response and this really helps.

    Reply

    • Sure.

      For Point # 2, in case you need your mom/friend to send money for your use overseas, you could always open a local account in the country you are residing and tell your mom/friend to wire the money to that country directly.

      I think that should be possible and easier.

      Reply

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