Regulations relating to maintenance of bank accounts by Non Resident Indians (‘NRIs’) are governed by the Foreign Exchange Management Act, 1999 (‘FEMA’).
An NRI is an individual resident outside India (as per FEMA) who is a Citizen of India. A Person of Indian Origin (‘PIO’) is an individual who is a citizen of any other country but whose spouse is or parents / grand parents / great grand parents is/were citizen(s) of India. PIO also includes a person who was a citizen of India by virtue of India or the Citizenship Act, 1955 or who belonged to a territory which became part of India after the 15th August 1947. PIO also includes an Overseas Citizen of India (‘OCI’) cardholder.
Types of accounts that an NRI / PIO can maintain:
There are three types of accounts:
- Non Resident (Ordinary) Rupee Account (‘NRO Account’):
- Non-Resident (External) Account (‘NRE Account’):
- Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account
Non Resident (Ordinary) Rupee Account (‘NRO Account’):
NRO account is a rupee designated account. Indians going abroad for good are required to designate their existing bank accounts into NRO accounts.
Funds lying in NRO account cannot be freely repatriated outside India except under the USD 1 million Scheme.
Non-Resident (External) Account (‘NRE Account’):
Only NRIs and PIOs are eligible to open an NRE account in India. NRE account also is a designated rupee account. It can be opened by NRIs staying abroad. The main advantage of NRE account is that funds in this account can be repatriated to the foreign country freely without any limit. Interest arising on funds lying in this account is exempt from income tax in India.
Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account
FCNR account can only be a foreign currency denominated fixed deposit with maturity of more than one year. It can be continued till maturity even if the holder has turned into a resident in India under FEMA. The balance in this account can be shifted to Resident Foreign Currency Account on maturity if the holder has become resident in India under FEMA. This account is very useful where the NRI (FEMA) does not want to take currency risk.
For better clarity of readers, a comparative chart of these three accounts is given below:
(source : FAQs issued by RBI)
|Particulars||Non-Resident (External) Rupee Account Scheme|
|Foreign Currency (Non-Resident) Account (Banks) Scheme [FCNR (B) Account]||Non-Resident Ordinary Rupee Account Scheme [NRO Account]|
|Who can open an account||NRIs and *PIOs|
Individual/entities of Pakistan and Bangladesh prior approval of the RBI required
|Joint account||Can be held jointly in the names of two or more NRIs/ PIOs.|
NRIs/ PIOs can hold jointly with a resident relative on ‘former or survivor’ basis.
The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder.
|May be held jointly in the names of two or more NRIs/ PIOs.|
May be held jointly with residents on ‘former or survivor’ basis.
|Currency||Indian Rupees||Any permitted currency i.e. a foreign currency which is freely convertible||Indian Rupees|
|Type of Account||Savings, Current, Recurring, Fixed Deposit||Term Deposit only||Savings, Current, Recurring, Fixed Deposit|
|Period for fixed deposits||From 1 to 3 years. However, banks are allowed to accept NRE deposits above three years from their Asset-Liability point of view||1 year to 5 years||As applicable to resident accounts.|
|Permissible Credits||Credits permitted to this account are:||Credits permitted to this account are:|
Funds can be transferred to NRE account within this USD 1 Million facility.
|Repatriability||Repatriable||Not repatriable except for all current income.|
Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 (one) million as explained earlier.
|Taxability||Interest on balance in this account is exempt from tax||Interest on balance in this account is taxable|
|Operations by Power of Attorney in favour of a resident||Power of attorney holder can only withdraw for||Power of attorney holder can only withdraw for:|
While making remittances, the limits and conditions of repatriability will apply.
|Change in residential status from Non-resident to resident||Inform the bank about change in residential status and designate the account as resident account|
Or the funds held in these accounts may be transferred to the RFC accounts, at the option of the account holder.
|On change in residential status, FCNR (B) deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by the account holder.|
Thereafter, it can be converted into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the account holder.
|To be designated as resident accounts on becoming resident in India.|
Likewise, when a resident Indian becomes a person resident outside India, his existing resident account should be designated as NRO account
Special Non-Resident Rupee Account – SNRR account:
Apart from this, any person resident outside India, having a business interest in India, may open a SNRR account with an authorised dealer for the purpose of putting through bona fide business transactions in rupees.