Types of NRI Bank Accounts

Ordinary Non-Resident Accounts can be opened by Non-Resident individuals / entities. Rupee accounts of the following categories of persons / firms / companies etc. are treated as resident accounts for exchange control purposes:

I. Indian, Nepalese or Bhutanese in Nepal & Bhutan.
ii. Offices and branches situated in Nepal or Bhutan of any business carried on by a company or a corporation incorporated or established under any law in force in India, Nepal or Bhutan.
Offices and branches situated in Nepal or Bhutan of any business carried on as a partnership firm or otherwise by Indians, Nepalese or Bhutanese.

Opening of NRO Accounts

The existing accounts of Indian Nationals going abroad and gaining Non-Resident status are automatically designated as Ordinary Non-Resident Accounts. These accounts can also be opened with initial deposits paid into any bank authorized to open Non-Resident accounts in any of the following manners:

a. By proceeds of foreign exchange remittance from abroad through banking channels in an approved manner.
b. By proceeds of foreign currency notes and traveler cheques brought into India by the non-resident while on a temporary visit to India.
c. By transfer from an existing non-resident account in the name of the same person.
d. By funds from a local source representing bonafide transactions in rupees.

Post Offices have also been authorized to maintain savings bank accounts in the names of persons resident outside India and to allow operations on these accounts subject to the same rules as are applicable to NRO accounts maintained by authorized dealers. All non-residents including foreign nationals and foreign companies' etc. are eligible to open accounts under the scheme.

Types of Accounts

All types of accounts viz., current, savings and term deposits etc. can be opened under Ordinary Non-Resident Account Scheme. However, savings bank accounts are allowed to be opened by individuals only. Corporate entities are not allowed to open savings bank accounts.
Interest payable on NRO accounts is the same as on resident accounts. They vary from bank to bank as they have been freed from RBI regulation.

Joint Accounts

Non-residents can open joint accounts with residents in India.Change of Status from Resident to Non-resident A/c and Vice Versa All resident accounts of a person with banks in India will automatically be treated Ordinary Non-Resident Accounts on his (account holder) becoming Non-Resident. Similarly NRO accounts may be re-designated as resident accounts on the account holder becoming resident in India. It may be noted that residential status of a person will be determined as per the definition under Foreign Exchange Regulation Act, 1973.

Remittance of Balances

Accounts opened under NRO scheme do not have any repatriation benefits and as such no remittance abroad out of balances held in such accounts are normally permitted. Reserve Bank may however, consider applications from account holders for remittance of those funds derived by remittances from abroad and which have not lost their identity. Application in this regard should be made to Reserve Bank along with the following information/documents:

i. Full details of source of funds in the existing account.
ii. Complete transcript of operations on the existing non-resident ordinary account, giving full particulars of debits and credits during the entire period covering the sources of present balance in the account, applying the first in first out principle.
iii. Certificate from income-tax authorities confirming that no Indian tax liability is outstanding against the account holder in respect of the funds in the existing non-resident account.

The bank will permit remittance of balance only after approval from Reserve Bank of India is received.

Disadvantages of Ordinary Non-resident Accounts

Interest earned on balances in NRO Accounts is not exempt from Indian Income tax. Instead income tax (at present @ 20%) is deducted at source i.e. at the time of payment of interest by the bank.
Balance held in NRO account can neither be repatriated nor any remittance in foreign currency is allowed without prior approval of Reserve Bank.

 

In order to encourage remittances from Non-Resident Indians, NR(E) accounts were introduced with effect from 21st February, 1970 under the Non-resident (External) Accounts Rules, 1970. The accounts opened under these rules enjoy the following benefits:

The rates of interest on term deposit kept under NR(E) are generally higher than the rates of interest on NRO depositsThe interest on deposits and any other income accruing on the balances in the account are free of Indian Income Tax. Prior to 1.10.1998, gift to close relatives in India from out of the balances in the accounts were free of gift tax. As per the new regulations, which came in force from 1.10.1998, no gift tax in payable on any gifts made after 30.9.1998. The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without any reference to Reserve Bank of India. Purchase of units of Unit Trust of India (UTI), Central & State Government securities and National Plan/Savings Certificates can be made freely from the balances in NR (E) account Special cheque books for operations on these accounts are supplied to facilitate prompt disposal.Accounts under the scheme can be opened by Non-Residents of Indian nationality or origin and also by eligible Overseas Corporate Bodies (OCBs). However, exemption from Indian Income Tax is available to individuals only and not to OCBs.

Joint Accounts

A Non-Resident can open joint account with other Non-Resident provided all the account holders are persons of Indian nationality or origin. However, opening of a joint account by a Non-Resident person with a person resident in India is not permitted under NR(E) scheme.

Operations of NR(E) Accounts by Residents

Non-Resident account holders can grant a power of attorney (for a specimen, click here) or such other authority to residents in India for operating their NR(E) Accounts in India. Such authority is, however, restricted to withdrawals for local payments only. The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.

Rates of Interest

The rates of interest payable on NR(E) accounts are subject to change from time to time as per directions issued from Reserve Bank of India.

Opening of Accounts

Non-Resident Indians including Persons of Indian Origin and eligible OCBs are permitted to open NR(E) accounts. An eligible Non-Resident Indian can also open an account during his temporary visit to India.

The initial deposit in NR(E) account can be made in any of the following manners:

a. By proceeds of foreign exchange remittances from abroad through banking channels in an approved manner.
b. By proceeds of foreign currency notes and traveler cheques brought into India by the non-resident while on a temporary visit to India.
c. By transfer from an existing Non-Resident (External) Account of the same person.

Conversion of NRO to NR(E) Accounts

It is not permissible to open NR(E) Account by transfer of funds from existing NRO Account. Prior approval of Reserve Bank is required for such transfer. Application in this regard should by made to Reserve Bank giving following information/documents:

i. Full details of source of funds in the existing account.
ii. Complete transcript of operations on the existing non-resident ordinary account, giving full particulars of debits and credits during the entire back period covering the sources of present balance in the account, applying the first in first out principle.
iii. Certificate from Income-tax authorities confirming no Indian tax liability is outstanding against the account holder in respect of the funds in the existing non-resident account or a certificate from the bank that adequate provision has been made for meeting such tax liabilities.

Application for the above purpose is to be made through the bank with whom NRO Account is maintained.

Transfer of Funds between NR(E) Accounts of different persons

Authorized dealers may allow transfer of funds between NRE accounts of different persons held with them or different authorized dealers for any purpose. In case of transfer of funds between NRE Accounts held with different authorized dealers, the authorized dealer transferring the funds should issue a certificate confirming the non-resident status of the transferor.

Change of Status from Non-Resident to Resident

Immediately upon return of the account holder to India and on his becoming a resident in India, NR(E) Account will be re-designated as Resident Rupee Account or converted to RFC account as per the option of the account holder. However, if the account holder is only on a short visit to India, the account will continue to be treated as NR(E) account even during his (account holder's) stay in India.

Disadvantages of NR(E) Accounts

NR(E) Accounts are opened in Indian rupees and all foreign exchange remittances received for credit of that account are first converted to Indian rupees at the buying rates by the banks. The bank will permit any withdrawal in foreign currency by converting Indian rupees in the account to foreign currency at the selling rate. All balances in the account are held in Indian rupees and are thus exposed to exchange fluctuation risk.

 

The Reserve Bank of India discontinued the FCNR scheme w.e.f. 15th August 1994. However, to enable NRI depositors to continue with foreign currency deposits, a new scheme known as FCNR(Banks) was introduced with effect from 15th May, 1993. There is basically no difference for the depositor between the two schemes. Deposits under this scheme are held for the following period:
6 months and above but less than one year One year and above but less than 2 years 2 years and above but less than 3 years 3 years only.

The deposits under FCNR(Banks) scheme is held in foreign currency. The interest and the repayment of the deposit is also made in the same foreign currency in which the account is maintained. The depositor may at his own will obtain repayment in Indian rupees, converted at the ruling TT buying rate on the date of repayment. Funds in FCNR(B) accounts can be used for payment for exports from India.

Operations on FCNR(B) Accounts by Residents

Non-Resident Account holders can grant power of attorney (for a specimen click here) or such other authority to residents in India for operating their FCNR(B) accounts in India.

Interest rates

The Reserve Bank of India has issued guidelines to banks on payment of interest rates on Foreign Currency Non-Resident Accounts (Banks). Banks have been given the flexibility to offer interest rates on FCNR deposits subject to the RBI guidelines.
In respect of deposits of six months and above but less than one year and floating rate deposits, interest shall be paid within the ceiling of LIBOR for the respective currency/maturity. For floating rate deposits, the interest-reset period shall be six months.
In respect of deposits for maturity of one year and above the interest shall be paid within the ceiling of swap rates for the respective currency/ maturity. The LIBOR/swap rates as on the last working day of the preceding week would be the ceiling rates for the interest rates that would be offered.

FCNR(B) Deposits of NRIs on Return to India

The FCNR(B) deposits of persons of Indian nationality/origin who return to India for permanent settlement may be allowed to be continued till maturity at the contracted rate of interest, if desired. However, except the provisions relating to rate of interest for all other purposes such deposit would be treated as resident deposits from the date of return of the account holder to India.
In case the FCNR(B) deposits are withdrawn before maturity, the directions issued in this regard by Reserve Bank including directions, if any, about levy of penalty would be applicable.

 

NON-RESIDENT (NON-REPATRIABLE) RUPEE DEPOSIT SCHEME [NR(NR)]

With a view to providing wider options to NRIs / OCBs and giving opportunities for making investments in India, RBI has formulated a Deposit Scheme viz. Non-Resident (Non-Repatriable) Rupee Deposit Scheme. The Scheme came into effect from 15th June, 1992.

The Scheme is open to all non-residents including foreign citizens of non-Indian origin (except Pakistani and Bangladeshi nationals) and overseas corporate bodies owned by them.

Accounts under the Non-Resident (Non-Repatriable) Rupee Deposit Scheme may be opened in Indian rupees out of the funds in freely convertible foreign exchange transferred for the purpose to India in an approved manner from the country of residence of the prospective non-resident account holder or from any other country. Transfer of funds from the existing NRE/FCNR Accounts of the non-resident account holder may also open accounts. No penal interest is charged in case of premature withdrawal of existing NRE/FCNR deposits for the purpose of making investment under the Scheme. .

The maturity period of such deposits is between six months and three years. Income from deposits under the scheme is exempt from Indian Income tax. However, the exemption is not available to resident donees and those residents who, being joint holders, become owners of the deposits as survivors of the non-resident depositor.

Interest rates

Banks are also free to fix the rate of interest payable on such deposits. The exact rates may be ascertained from the concerned bank.

The maturity proceeds of the deposit will not qualify for repatriation outside India at any time. However, the interest accrued on the deposits held under the scheme from the quarter beginning October 1,1994 are eligible for repatriation vide RBI Circular DT. 19.8.1994.

Joint Accounts

Non-residents can open joint accounts with other Non-Residents (except Pakistan and Bangladeshi nationals) or resident close relatives in India