NRI BANKING

Name:s.s.Abin
What is an NRI Account?

In India, there are three types of accounts that Non-Resident Indians (NRIs) can

open – NRE Account, NRO Account, and FCNR (B) Account.

These NRI accounts can only be opened by individuals who have been residing out

of the geographical territories of India for at least 120 days in a year and spent less

than 365 days in India in four previous years. It is because such individuals’

residential status would then change to an NRI, as per the Income Tax Act 1961.

However, if an individual leaves India with the purpose of employment in a

different nation, he/she shall be declared NRI immediately.

As per another condition, the individual must stay for less than 4 years out of 10

previous years in India to classify as a non-resident Indian. This was a tweak

introduced in the Union Budget 2020, whereby the earlier classification considered

2 years instead of 4 and 182 days instead of 120 for the purpose.

It is essential for NRIs to understand the various characteristic features of the three

bank accounts which are available to them in India. This facilitates the fulfilment
of their investment objectives, financial obligations, and plans for their residency

adequately.

NRIs can open these accounts with their earnings either originating from within

India or from their country of residence, depending on the type of NRI account.

Types of NRI Accounts

As mentioned earlier, there are three types of accounts available to NRIs in India –

NRE stands for Non-Resident External Account, NRO stands for Non-Resident

Ordinary Account, and FCNR (Foreign Currency Non-Resident) bank Account.

The fundamental distinction points among these types of accounts are enumerated

below –

 NRE Account

Non-Residential External or NRE Account can be opened and maintained by NRIs

with earnings originating from the respective individual’s country of residence but

shall be held in Indian rupee denominations.

For better understanding, let’s consider the following instance – Ms. Avantika is

employed in Paris, France, but her mother, who is a dependent individual, stays in

Mumbai. She remits 2000 euros every month in her NRE Account for her mother,

which is deposited in the account in Indian currency. Therefore, considering the

prevailing exchange rate in that month was 1 EUR = 80 INR, her remittance of

2000 Euro would be held as Rs. 1,60,000 in her NRE Account.

 NRO Account

An NRO or Non-Residential Ordinary Account can be opened with income earned

from within India and shall be held in that deposit account in INR denominations.

The source of income can either be rent, dividends, etc.

For instance, Mr. Rahul, who is an NRI residing in Newark, USA has an apartment

in Mumbai which he has leased to Mr. Arman. To receive rent earnings from such

a lease, Rahul has to open an NRO account where Arman shall deposit the

stipulated rent amount periodically.

As deposits in an NRO account are made in rupee denominations, there is no step

of currency conversion involved.

  FCNR (B) Account

FCNR or Foreign Currency Non-Residential Account facilitates deposits made by

Non-Residential Indians (NRIs) or Persons of Indian Origin (POI). NRIs or POI

can make these deposits in the currency of their country of residence and shall be

held in that account in any one of the foreign currencies prescribed by RBI.

The currencies in which deposits can be held in an FCNR (B) Account are – US

Dollars (USD), Canadian Dollar (CAD), Australian Dollar (AUD), Euro (EUR),

Great Britain Pound Sterling (GBP), Singapore Dollar (SGD), Hong Kong Dollar

(HKD), Japanese Yen (JPY) and Swiss Franc (CHF).

Hence, for instance, if an individual has earnings in any of these currencies, their

deposits in an FCNR (B) Account shall not be subject to conversion. On the other

hand, if an individual earns in any other currency, deposits made in it shall be

converted to any one of the prescribed currencies mentioned above.

Differences between the NRI Accounts

The key distinctions among the three types of NRI Accounts are discussed in the

table below.
 Parameters NRO Account NRE Account FCNR (B)
of difference Account

Currency Indian Rupee Indian Rupee USD, CAD,

denomination (INR) (INR) AUD, HKD,
of deposits SGD, EUR, GBP,
CHF, JPY

Purpose of An NRO An NRI An NRI can open

account account can Account can be an FCNR account
be opened by opened by an to deposit his/her
an NRI to NRI to deposit earnings from that
deposit his/her his/her earnings individual’s
earnings that that originate residential country
originate from from that in any of the nine
India in INR. individual’s currencies
country of mentioned above.
residence in INR.

Taxability  Both principal The entire Interest earned on

and interest balance (interest FCNR deposits is
earned are + principal) is exempted from
taxable. exempted from
tax.
 tax.

Types of Individuals NRE accounts Only fixed deposit

accounts  can open facilitate savings, accounts can be
savings, current, and fixed opened with a
current, or deposit accounts minimum
fixed deposit maturity period of
accounts 1 year
under this
category

Joint account It can be It can only be It can only be

facility opened with opened with opened with
another NRI another NRI. another NRI.
or an Indian
resident.

The entire The entire balance

balance is fully is fully
Repatriation The interest repatriable. repatriable.
of balances  earnings can
be repatriated
fully.
 The principal

amount can

only be

repatriated to

the extent of 1

million USD

or equivalent

in a fiscal

year.

Period of fixed Depends on Depends on the Maturity tenure

deposits the financial financial allowed on FCNR
institution. institution. fixed deposits is 1
– 5 years.

Effect of Not affected Affected by Affected by

exchange rate by prevailing prevailing prevailing
exchange exchange rates exchange rates if
rates there is currency
conversion
involved and vice
versa
Eligibility Criteria and Documents Required for Opening an NRI Account

The eligibility criteria for opening an NRE, NRO, and FCNR (B) account depend

upon respective banks. However, specific eligibility criteria are followed by every

financial institution in India in regard to NRI accounts. The following categories of

individuals can open these accounts –

 Should be employed, own a business, or practise some form of trade in a

foreign country

 Should be employed with the Indian Navy, airlines registered with a foreign

country, an oil rig, or overseas shipping companies that necessitates that

individual to be outside India’s domestic territories for at least 182 days

 Government employees possessing diplomat passports

 Students pursuing education in foreign countries

The documents required for NRI account are –

 Application form

 Photocopies of different pages of the passport containing details such as

name, address, birth date, date of passport issuance and expiration, etc.
  Employment proof

 Work permit, Student Visa, Visa permit, Employment Visa, or Residence

Visa

 KYC documents (if any)

Several other forms might be required for opening an NRI account, depending

upon the concerned financial institution.

Advantages of an NRI Account?

 Facilitates investment in financial instruments

One of the primary NRI account benefits is that individuals can partake in the

stock market trading and different investment schemes through them. Such

investments are facilitated through the Portfolio Investment Scheme (PIS) or NRI

Portfolio Investment offered by financial institutions.

It is an RBI scheme that allows NRIs to trade in market-linked financial

instruments such as equity shares or debt instruments such as company debentures

through their NRI accounts.

  Tax benefits

Individuals with NRE and FCNR (B) accounts can enjoy tax-free interest earnings

on their deposits as per the Income Tax Act 1961.

Such global earnings would, however, be taxable in India by virtue of his/her

domicile or residence if an NRI does not bear a tax liability to any other country, as

per the Union Budget 2020 proposal.

 High returns 

NRIs choosing to park their funds in any fixed deposit account such as NRE FDs

or FCNR enjoy substantial returns on total deposits; at negligible risks as such

accounts have no underlying ties to stock market fluctuations.

 Avoidance of exchange rate fluctuations

Individuals can choose to deposit their earnings originating from a foreign country

in an FCNR without such earnings undergoing conversion into INR. This facility

allows NRIs to avoid exchange rate fluctuations and consequent reductions in the

deposit value.
Disadvantages of an NRI Account

 Low liquidity

Individuals who choose to invest in FCNR to safeguard their finances against

exchange rate fluctuations have only the option to open a fixed deposit account

with maturity tenure ranging from 1 – 5 years.

 Prone to risk

Deposits made in foreign currencies in an NRE account are subject to conversion

into Indian rupees. Hence, such deposits might fluctuate in value due to

appreciation of domestic currency (or depreciation of foreign currency), thereby

incurring losses during repatriation.

Even though the option of premature withdrawal is available on such accounts, any

cancellation of such fixed deposits made before one year would result in

nullification of interest earnings from such deposits.

Who Should Open NRI Accounts?

Individuals who have a source of income in India can open an NRO account to

keep such funds parked.

Other than that, NRIs who have dependents in India or are planning to return after

a point of time shall open an NRI account to facilitate remittance.

Additionally, individuals seeking to participate in stock market trading in India

shall also open NRI accounts to enable such transactions.

However, it is necessary to note that the three types of NRI accounts have varying

terms and conditions and cater to different monetary requirements.

Also, these terms might marginally vary concerning respective financial

institutions. Hence, individuals should duly undertake adequate financial planning

and requirements and accordingly deposit funds in the most suitable and best NRI

account(s).
 TYPES OF NRI ACCOUNT AND DEPOSITS
 NRE Savings Account.
 NRO Savings Account.
 NRE FD Account.
 NRO FD Account.
 NRE FD (Without Premature Withdrawal facility)
 NRO FD (Without Premature Withdrawal facility)
 Rupee Plus Plan.
 FCNR FD.