The Reserve Bank of India (RBI) regulates the type of bank accounts an NRI (Non-Resident Indian) can hold in India. As per the RBI Regulations, NRIs can open three types of bank accounts in India, viz. NRE accounts, NRO accounts, and FCNR (B) deposits. Salient features of each type of accounts are discussed below:
- NRO Accounts – It stands for Non-Resident (Ordinary) Account and is the most commonly used NRI bank account. When the residential status of a resident Indian gets converted to Non-Resident, all the existing bank accounts are automatically converted into NRO accounts. Such accounts are denominated in Indian currency and can receive inward remittances from overseas and rupee credits from within India. One can use NRO accounts to receive domestic income within India, like investment income, sale proceeds of investments and property, dividend income, rental income etc. However, while NRO accounts are flexible in receiving funds from any source, the funds cannot be repatriated freely abroad from such accounts. The principal amount in NRO accounts can be transferred outside India only within limits specified under RBI Regulations. However, the interest income can be transferred without restrictions. Such accounts can be held jointly with any NRI or resident Indian.
- NRE Account – It stands for Non-Resident (External) Account. Just like NRO accounts, NRE accounts are also denominated in Indian currency. An NRI can open such accounts through inward remittance from outside India or transfer funds from another NRE/ FCNR account. Such accounts can only receive foreign currency remittances from overseas and cannot receive any rupee credits. NRE accounts are not suitable for NRIs having income within the country. However, with restrictions on receiving incomes from within the country, NRE accounts provide free repatriability of funds outside India, thereby meaning that the account balances can be transferred outside India without any limits.
Further, the interest income on such NRE accounts and deposits are tax-exempt for the account holders. As such, NRIs need not worry about tax compliance and ITR filing, when they hold only NRE accounts. One can hold both NRE and NRO accounts and use both these categories of accounts as per their transactional requirements. Such accounts can be held jointly only with another Non-Resident Indian.
- FCNR (B) Deposits – It stands for Foreign Currency Non-Resident (Bank) deposits. An NRI can open an FCNR(B) account only as a time deposit and not as a current or savings account. FCNR deposits are denominated in any of the eligible foreign currencies, viz. USD, EUR, JPY, GBP, etc. Apart from this, such deposits are akin to NRE accounts regarding funding requirements, repatriation benefits, tax benefits etc. As such, FCNR deposits can be funded through inward overseas remittance or through funds from any existing NRE/ FCNR accounts. The maturity proceeds of FCNR deposits are also freely repatriable outside India.
Further, the account holder enjoys tax-free interest income from FCNR deposits. Such deposits are beneficial if one intends to use their savings for future expenses outside India, like child education or transferring funds outside India. Like NRE accounts, such accounts can also be held only with another NRI.
While NRO accounts are more flexible for account operations including accepting transactions in Indian currency and allowing operations jointly with resident Indian, NRE and FCNR accounts provide flexibility in the free repatriation of funds outside India and tax benefits for interest income. One can choose different types of banking accounts depending upon their banking requirements.
The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules, as tax benefits are subject to changes due to change in tax laws.
