NRI Banking in India

Non-Residential Indians (NRI’s) and Persons of Indian Origin (PIO) fall into a special category of individuals who’ve been designated certain privileges by the apex body of banking in India – The Reserve Bank of India. According to the Foreign Exchange Management Act (FEMA), 1999, a person resident outside India means a person who is not resident in India.

Accounts that can be maintained by NRI’s and PIO’s:

NRI’s and PIO’s can open bank accounts with institutions authorized to trade in foreign currency without the permission of the Reserve Bank of India. They can operate three different types of NRI Banking accounts, they are:

·         Non-Resident Ordinary Rupee Account (NRO Account)

·         Non-Resident (External) Rupee Account (NRE Account)

·         Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

·         The NRO Savings accounts can also be maintained with Post Offices in India.

Non-Resident Ordinary Rupee Account (NRO Account):

This account is like any other account that can be opened by resident Indians. It can be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. The deposits though have to be in Rupees. NRI’s and PIO’s can open a joint account with resident Indians.  The two types of accounts that can be operated are:

·         Savings Account – This is no different than the usual savings account most people operate. You can credit legitimate dues /earnings / income such as dividends, interest etc., in this account with the bank free to determine the rate of interest.

·         Term Deposits – NRI’s can invest in a financial institution for a period of time. However, the interest rate can’t be higher than those offered by them on comparable domestic rupee deposits.

The NRO account is unique in that it allows the debit of income originating in India from sources like dividends or interest. As a result, these are not tax free per se and you have to pay the corresponding income, wealth and gift taxes. The other interesting thing to note is that there’s very limited scope of transferring the funds from India to overseas locations.

To open this account, you need to submit attested copies of your passport, visa, work permit along with appropriate proof of Indian or overseas address. Some countries have signed Double Tax Avoidance Agreement (DTAA) with India. In case you want to enjoy concessional tax rate, you will have to submit a Tax Residency Certificate (TRC), Permanent Account Number (PAN) card, and the original DTAA Annexure. Also, the minimum account balance that’s required is Rupees 10,000.

Non-Resident (External) Rupee Account (NRE Account):

This account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney. The account has to be maintained in Indian Rupees. Like the NRO Account, you can operate a Savings Account or invest in Term Deposits, with the concerned financial institution free to determine interest rates. The four key points to note about this account are:

·         There is no provision to allow debit of income earned in India

·         It is not taxable

·         There are no limits on the amount of money that can be transferred to a foreign country

·         You can open this account with another NRO or PIO, but not a resident Indian

Most people who open this account are willing to park funds abroad in Indian rupees.  In the current climate though, this wouldn’t be the best of ideas. Exchange rate fluctuations leave you vulnerable to taking a huge hit and any depreciation the Rupee suffers will have an adverse impact on this fund.

Foreign Currency Non Resident (Bank) Account – FCNR (B) Account:

FCNR (B) accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. The great thing about this account is that it can be in any freely convertible currency most often in US$ or Pound Sterling. Apart from these three bank accounts, a non-resident Indian also has the option of jointly owning a regular bank account with a resident India, although without the power to operate it.

Source: http://kotaksecurities.blogspot.nl/2014/02/nri-banking-in-india-40018.html