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The Most Common Bank Account Options for NRIs

Asian Couple Banking

When one moves out of India, the first thing they do is to open a bank account in India for themselves as Non Residents. Rightly so, they can have a whole lot of benefits by doing so. Plus, it is very easy to open and operate one of these accounts with the banks in India. Basic KYC documents are the requirement, plus the proof that you are an NRI.

 

The Bank Accounts that can be opened are:

  • A Foreign Currency Non Resident Account or FCNR account.
  • A Non Resident External Account or NRE Account
  • A Non Resident Ordinary Account or NRO Account

FCNR Account

The FCNR account is an account that can be opened in a foreign currency only with an Indian bank, as the account name suggests. This type of account can be opened for a minimum period of 1 year to a maximum of 5 years. No deposits in the form of Indian Rupee can be made into this account. Regular interest is paid on this account by the bank. This is a kind of a fixed deposit account with regular interest credits. The interest rate depends on the currency and the tenor of the account. The interest rate ranges from 1.50 % to 5.60 % depending on the above factors of tenor and currency. The best part is that the interest earned is exempt from Income Tax in India. But under FATCA this interest has to be declared in the US for eligible tax payers. Having this type of account, the account holder is free from the currency fluctuation risk, since the money are held in foreign currency only. The permissible currencies are US Dollar, British Pound, Euro, Japanese Yen, Australian Dollar and Canadian Dollar.

NRE Account

The NRE account is an Indian Rupee denominated account, which is freely Repatriable. This form of NRI account can be in the form of savings, current, recurring or fixed deposits. The income is deemed to be earned outside India. Indian Rupees cannot be deposited into this account; only foreign currency can be deposited which will be converted into Indian Rupee at the time of deposit. The interest earned on the balances at the end of quarter is free from any income tax. However, the NRI can send his remittances from abroad into this type of account. The bank pays interest on the balance at their own determined rates. Under the FATCA the account holder may have to declare this account to the US authorities if the account holder is an eligible tax payer in the US. Loans can be extended against the security of the balance of this type of account. Such accounts can be operated through a Power of Attorney, in favor of Resident Indians for limited purposes, for example withdrawal for the remittances sent and the like. The interest rate are regular interest rates applied on domestic accounts. The NRI can park his money in the NRE Account and earn that much more in interests, as compared to the interest rates in the banks in US. If the deposit in the NRE account is in the form of fixed deposit, then the interest rate cannot exceed the LIBOR rate plus 1%.

NRO Account

The NRO Account is an Indian Rupee denominated and can be in the form of savings, current, recurring or fixed deposits. Same like the NRE account. The difference between a NRE & NRO is that in the NRO the income is deemed arise or accrue inside India. Since the income is deemed to be inside India, the taxes on the same follow. The tax that is applicable is the Tax deducted at source or withholding tax, as per the Indian tax rules and regulations. The interest earned will be taxed in a same way like the ordinary domestic account. Indian Rupee can be deposited into this account. The NRI can also send his remittances into this account.

 

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