Types of Bank Accounts Non-Resident Indians Can Maintain in India

Non-Resident Indians (NRIs) can maintain various types of bank accounts in India, including Non-Resident External (NRE) accounts, Non-Resident Ordinary (NRO) accounts, and Foreign Currency Non-Resident (FCNR) accounts. These accounts are designed to meet the unique financial needs of NRIs who live abroad but continue to have financial ties with India.

1. Non-Resident External (NRE) Accounts

NRE accounts are a popular choice for NRIs and Overseas Citizens of India (OCIs) who wish to manage their Indian Rupee (INR) assets. These accounts allow NRIs to deposit and earn interest on INR held in India, despite residing abroad. The primary benefits of NRE accounts include:

Facility for Free Remittance: The funds in an NRE account can be easily remitted abroad, and the depositor bears the exchange risk. Interest Exemption: Interest earned on NRE accounts is exempt from Indian tax. Flexibility: NRE accounts can be opened as both savings and deposits ranging from 1 year to 5 years. Funds can be deposited through convertible foreign exchange and used freely in India or overseas.

2. Non-Resident Ordinary (NRO) Accounts

NRO accounts are tailored for NRIs to receive and manage local income such as rent, dividends, and other remittances. These accounts are not as flexible as NRE accounts in terms of repatriation:

Foreign Income: NRO accounts allow deposit of funds from abroad, and any received in India can be credited to the account. Use of Funds: While the balance in NRO accounts can only be utilized in India. Repatriation: Under the Liberalized Remittance Scheme (LRS), a maximum of US$1 million can be repatriated to an NRE account or abroad, subject to tax liability.

Additionally, NRO accounts feature deposits ranging from 15 days to 105 years, offering flexibility in terms of tenure. It's important to note that under the LRS, any more than the designated limit requires tax payment.

3. Foreign Currency Non-Resident (FCNR) Accounts

FCNR accounts cater to NRIs seeking to manage funds in foreign currency. These accounts offer the advantage of earning interest in a foreign currency, although the interest rate is typically lower:

Foreign Currency Deposits: NRIs can maintain FCNR deposits in currencies such as US Dollar (USD), British Pound (GBP), Australian Dollar (AUD), Canadian Dollar (CAD), and Japanese Yen (JPY). Tenure Options: FCNR accounts can be maintained for a term ranging from 1 year to 5 years. The funds can be utilized in India or abroad. Bargaining Exchange Risk: The bank bears the exchange risk as the amount is not converted to INR and remains in the foreign currency.

Key Points for NRIs

Interest and Taxation

NRE Accounts: Interest earned on NRE deposits is tax-exempt in India but taxable in the home country according to domestic tax laws. NRO Accounts: Interest from NRO accounts is taxable in India, and there is also a withholding tax of 30%. FCNR Accounts: Interest earned on FCNR deposits may be subject to tax in India and the home country, based on local tax laws.

Conclusion

Non-Resident Indians have a variety of account options available to them, each designed to meet specific financial needs and ensuring ease of management of their finances. Whether choosing to remit foreign currency or INR, the right choice of NRE, NRO, or FCNR accounts can significantly impact the financial decisions of NRIs living abroad.

Best wishes,
Rajesh H Dhruva