Compared to residents, NRIs or Persons of Indian Origin (PIO) have different banking and investment requirements. This is due to their dealing with multiple currencies, and their income and savings being in foreign denominations. To fulfil this, NRIs require a special type of bank account that fulfils their unique financial needs while providing them with the means to contribute to the overall Indian economy.
What is an NRI Bank Account?
NRIs accounts are a special kind of bank account helping individuals to manage their finances between India and abroad. Most of the large banks, both public and private, offer services to open NRI accounts. These accounts offer features like repatriation, fund transfers, local payments, etc.
These accounts help manage NRIs' unique needs by letting them hold and convert their earnings into INR. They also come with certain benefits and tax reliefs that are attractive to those who are smart about their finances.
But what are these accounts exactly? Let’s explore this topic in detail.
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Types of NRI Bank Accounts
Governed by the RBI, there are three main types of NRI bank accounts, each with unique features and benefits. These are:
NRE Account (Non-Resident External Account)
NRO Account (Non-Resident Ordinary Account)
FCNR (B) Account (Foreign Currency Non-Resident Account)
NRE Account
NRE Accounts are rupee-denominated accounts that can be opened as savings or current accounts used by NRIs to park their foreign income in India. These accounts have the unique benefit of having no taxation on interest earned (as per Section 10(4)(ii) of the Income Tax Act).
NRO Account
NRO Accounts are rupee-denominated accounts for depositing domestic income (i.e. income earned in India) such as rent, dividends, pension, etc. Existing Resident Accounts can be converted to NRO Accounts once the individual’s resident status changes to NRI status. Although used for domestic income, foreign income can also be deposited here, provided it comes through the proper banking channels and is converted to INR before depositing.
FCNR Account
FCNR (B) Accounts are designed for NRIs to park their foreign-generated income under any of the select list of foreign currencies prescribed by the RBI (such as USD, GBP, CAD, to name a few). These accounts can only be opened as Fixed Deposit (Term Deposit) Accounts wherein the interest earned on these deposits is tax-free, fully repatriable, and protected from exchange rate fluctuations.
Comparison of NRE, NRO, and FCNR Accounts
As mentioned previously, there are three main types of NRI Accounts that you should be aware of. These accounts and key aspects/features of which are summarised in the table below:
| Aspect | NRE Account | NRO Account | FCNR Account |
| Definition/Purpose | For parking foreign income in India. This type of acc. is ideal for NRIs wanting to remit earnings to India and maintain it in INR. | For managing income earned in India. | For holding foreign currency as fixed deposits in India. This type of acc. is ideal for non-residents aiming to avoid currency risk and earn returns in foreign currency |
| Currency Denomination | INR | INR | Select foreign currencies; |
| Affected by exchange rates? | Yes, because they are converted from foreign currency to INR. | Same as NRE accounts | No: because funds are maintained in a foreign currency. |
| Taxation | Interest earned is tax-free (in India) | Interest earned is subject to Income Tax (TDS) | Interest earned is tax free in India |
| Repatriability | Both principal and interest are fully repatriable. | Principal repatriation is restricted to 1 Million USD; whereas interest is fully repatriable | Same as NRE accounts |
| Joint Account Facility | Permitted only with another NRI | Permitted with another NRI or a resident who is a close relative | Same as NRE accounts |
Eligibility: Who Can Open an NRI Account?
Since these accounts were developed for non-residents, you must first qualify as either a non-resident Indian or a person of Indian origin or OCI (overseas citizen of India) to open an NRI account. The overall criteria for opening an account are relatively straightforward and involve the following aspects:
NRI Status: You must qualify as belonging to any of the following statuses: NRI, POI, or OCS, as per official recognition from the Indian Government.
Duration of Stay: As per FEMA regulations, you are an NRI if you have moved outside India for employment or other purposes without the intention of returning to India permanently.
Age: You must be 18 years old (or older) to open an NRI account. However, minors can have NRI accounts to their names opened by their guardians.
Documentation: You must have valid documentation proving their identity and NRI status. Required documents can include a valid passport, visa, and proof of residence (abroad).
Compliance: You must ensure that they comply with the regulations set under the Foreign Exchange Management Act (FEMA) and other relevant regulations set by the government.
Why NRI Accounts are Important
To summarise our look into NRI Accounts: their types, features, benefits, and requirements, NRI accounts are a crucial tool non-residents use to maintain and manage their finances in India. The three types of NRI accounts mentioned each serve their distinct purpose and, accordingly, come with their benefits and use cases. Whether it's the tax benefits of NRE and FCNR accounts or the ability to manage domestic income through an NRO account, these options cater to a wide range of unique financial requirements. However, to maximise the utility these accounts offer, NRIs must stay current with the ever-changing regulations and norms set by regulatory authorities.
