A Non Resident Indian’s banking requirements are different from that of a resident Indian. This is because they can have income sources, both, in India as well as their country of residence. Therefore, the products and services offered by banks for such customers are specific and based on the needs of NRIs. One such banking product is the NRI account. Let’s have a look at the concept of an NRI account, its features, eligibility criteria and other pertinent information.
NRI or Non Resident Indian
An Indian citizen or Person of Indian origin who stays out of the country is referred to as ‘Non Resident Indian’ (NRI). A person who is employed for a company based outside India will be deemed NRI immediately. From a taxation point of view, individuals need to satisfy any of the following conditions for identifying their status as ‘Resident Indian’ : If they were in India for a period of 182 days or more during previous Financial Year, or They were in India for a period of 60 days or more during the previous FY and 365 days or more during the four years immediately preceding the previous year In case these conditions are not satisfied, the person is considered as a Non Resident Indian.
What is an NRI Account
Non Resident Indian or Person of Indian Origin (PIO) can own and operate a bank account in India, which is known as an NRI account. This account can be a savings, current or deposit account and can be used by NRIs for saving and investing their earnings from India or abroad. NRI accounts can be rupee denominated or in prescribed Foreign currency.
Eligibility criteria for opening an NRI Account
The following type of individuals are eligible to open an NRI account:
- Officials of Government or PSU, posted abroad
- Persons employed with UN (or its allied organizations)
- Person of Indian Origin (PIO) or Overseas Citizen of India (OCI)
- Non Resident Indian
- Indian citizen residing outside for studies, business or employment
A foreign passport holder (except Pakistan or Bangladesh)
- who has held an Indian passport in the past
- whose grandparent or parent was an Indian citizen as per Indian Citizen Act or Constitution of India
- who is a spouse of PIO or Indian Citizen
Documents required for opening an NRI Account
The following documents are required while opening an NRI account :
- Copy of valid passport with all the basic details
- NRI proof document like – valid work permit / visa,
- Address proof
- PAN Card or Form 60
These documents have to be duly verified by authorized personnel.
How to open an NRI account?
Opening an NRI account is an easy process that can be done online or at a branch office. To open an NRI account online, one needs the following documents and information:
- Valid proof of identity: PAN card, driving license, passport, voter ID, etc.
- Valid proof of address: utility bills, bank account statement, rental agreement, etc.
- NRI status proof: employment visa or residency permit issued by the government of the host country.
- Contact information and details of the applicant’s bank account.
Once the applicant has arranged for these documents, he/she can open the NRI account online by providing the required information. The bank may also ask for additional information for verification.
When opening an NRI account at a branch office, one needs to submit the same documents, along with a copy of the applicant’s overseas address and income proof. Once the documents have been verified, the applicant’s NRI account will be opened.
Types of NRI accounts
There are three types of NRI accounts offered by banks :
1. Non – Resident Ordinary Account (NRO)
NRIs can operate Non Resident Ordinary (Rupee) accounts for receiving and managing their income arising in India. The source of income can be rent, pension, dividends etc. The withdrawal from this account can only be in INR and interest earned is liable to tax.
2. Non – Resident External Account (NRE)
It is a rupee based account and can be opened with any bank offering this service. NRE accounts can be opened from funds generated abroad and allows easy fund repatriation. Interest amount generated for this account is exempted from tax for the NRI.
3. FCNR Account
Foreign Currency Non Resident Bank account or FCNR – B account facilitates only time deposits for NRIs, Persons of Indian Origin or Overseas Citizens.These deposits can be made in any of the nine foreign currencies as per Reserve Bank of India’s guidelines. The current prescribed currencies are : US Dollar (USD), Great Britain Pound Sterling (GBP), Euro (EUR), Singapore Dollar (SGD), Hong Kong Dollar (HKD), Canadian Dollar (CAD), Australian Dollar (AUD), Swiss Franc (CHF) and Japanese Yen (JPY). The rate of interest is communicated at the time of deposit and does not fluctuate thereafter.
How is NRI account different from NRE and NRO accounts
Let us understand some of the major differences between these three accounts :
|Parameter||NRE Account||NRO Account||FCNR Account|
|Account Purpose||Can be opened by NRI for depositing earnings from his/her country of residence (in INR)||Can be opened by NRI for Indian earnings (in INR)||Can be opened by an NRI for depositing earnings from country of residence in one of RBI approved currencies|
|Account Type||Savings, Current and Fixed Deposit accounts can be opened||Savings, Current and Fixed Deposit accounts allowed||Only Fixed Deposit accounts allowed with min 1 year maturity|
|Joint Account||Joint Account holder should be NRI||No restriction-joint account holder can be a resident Indian or NRI||Can be opened with another NRI only|
|Taxation||Interest earned is Tax exempt||Income earned is taxed||Interest earned is Tax exempt|
|Repatriation of funds||Entire balance can be repatriated||Interest amount can be repatriated fully. Principal can be repatriated to a maximum of $1 Million per year||Entire amount can be fully repatriated on maturity. Penalty applicable if broken prematurely|
|Exchange rate Impact||The amount is affected by exchange rate fluctuations as well as during conversion||Not affected by exchange rate fluctuations||Affected if currency conversion is involved|
|Currency denomination allowed||INR||INR||USD, EUR, JPY, GBP, AUD, HKD, SGD, CAD, CHF|
|Fund Transfer||Funds can be transferred to other NRE or NRO account||Funds cannot be transferred to NRE account||It is a time deposit and charges will apply for premature w/d. Funds can then be transferred to NRE account|
Advantages of NRI account
These are some of the advantages of NRI account :
Under the Income Tax Act 1961, NRE and FCNR accounts do not attract tax liability.
2. Good returns
NRE FDs or FCNR deposits present NRIs with an opportunity for earning good returns. The interest rates on offer are better than in most of the developed countries.
3. Inward remittance
For people working/residing abroad and helping their family in India, NRI accounts play a vital role.
4. Investment in India
NRI accounts also give an opportunity to NRIs for investing in various avenues in India and thus diversifying their portfolio.
5. Low balance requirement
The balance requirement for maintaining most of these accounts is quite low.
Disadvantages of NRI account
FCNR deposit is used by NRIs for hedging against rate changes, however these deposits come with a minimum lock-in period of one year.
Foreign Currency Deposits carry the risk of loss during conversion into INR. The returns on these deposits might lose value due to change in exchange rates.
Banks offering NRI accounts
Here are some of the banks in India that offer NRI (Non-Resident Indian) accounts:
- State Bank of India (SBI)
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
- Punjab National Bank (PNB)
- Bank of Baroda (BOB)
- Canara Bank
- Union Bank of India
- IDBI Bank
With a number of Indians moving abroad for work and settling there for better opportunities, their Indian savings account cannot be used for banking transactions. NRI accounts, thus, provide the much needed access, ease and facility for making their financial lives better. To top it, these accounts come with a host of features and are quite user friendly.
A person who has moved abroad but still has a regular income generating source in India can open an NRO account for parking such funds.
Interest on NRO accounts is taxable while that on NRE and FCNR accounts is tax-free in India. This is subject to his tax status in another country.
A person can have only one residential status. Thus, it is not possible to have both these accounts simultaneously. Any residential status change needs to be communicated to the bank.
Prominent Indian/Foreign banks like HDFC Bank, ICICI Bank, Axis Bank, SBI, Kotak Mahindra Bank, Standard Chartered Bank, Deutsche Bank offer NRI Account services.