Accounts Maintained by NRIs

The prevailing laws in India encourage NRIs, with added incentives, in terms of repatriability of balances in their accounts and taxation vis-à-vis the accounts maintained by resident Indians.

The various types of accounts maintained by NRIs are as follows:

Non Resident Ordinary Accounts

Non Resident Ordinary [NRO] accounts are quite similar to a domestic savings account. Usually, the existing domestic account of an NRI who goes abroad is called as NRO account. Such accounts can be opened for the purpose of receiving incomes arising in India of an NRI. Such accounts may be funded either by way of inward remittances through banking channels or with other funds that cannot be credited to repatriable account under the current dispensation.

Such accounts can be opened in the joint names of an NRI and a resident individual. The main disadvantage is that the balances in NRO accounts are not repatriable. The balance can be used only for making local payments.

The interest incomes for NRO accounts have a flat rate of tax at 30 per cent and interest tax load. There are restrictions on drawing and period for which over drawings are permitted, which are set at Rs. 1000 and 2 weeks respectively.

Non Resident External Accounts

These accounts are maintained in the form of Savings Bank [SB] accounts, Current accounts [CAs] or Fixed Deposits [FDs]. NRE accounts are designated in Indian Rupees. All banks having the authorized dealer’s license as well as certain other designated banks as permitted by RBI, can offer NRE accounts.

Such accounts can be opened by a person or through any other secured mode indicated by banks, for instance, the Internet. Necessary documents need to be submitted for opening NRE accounts. The procedure for opening NRE accounts differ from bank to bank.

Foreign Currency Non Resident Accounts

FCNR accounts can be opened by banks for all NRIs. Such accounts are opened as FDs ranging for a period of six months to three years. The deposits are accepted in four currencies, namely, USD, Japanese Yen, Pound sterling and Euro.

Banks pay the FCNR deposits at rates on par with the London Inter Bank Offered Rates [LIBOR] foe a currency based on the last working day of the previous week for a certain maturity period.

The income arising from FCNR deposits are tax-exempt. Gifts given from such accounts to close relatives are also free gift tax.

FCNR accounts cannot be opened as joint account with an Indian resident. But, another NRI can be a joint account holder. Just as in any other account, FCNR account holders can nominate another person to receive the balances, in the event of their death.

Resident Foreign Currency Accounts

Resident Foreign Currency [RFC] accounts are available to NRIs returning to India for permanent settlement. These accounts replace the existing facility available under Returning Indians Foreign Exchange Entitlement Scheme [RIFEES], given to the returning Indians.

The main condition for opening an RFC account is that a person should have had a continuous stay abroad for one year or above and the income is represented as earning in foreign exchange through business employment vocation, which is carried outside India.