Understanding different types of bank accounts for NRIs

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There are three types of accounts that an NRI can have in India–

  1. NRO Account
  2. NRE Account
  3. FCNR account

Let’s learn about each one of these:

1) Non Resident Ordinary (NRO) Account

As the name suggests, this account is a like an ordinary account bank account that allows an NRI to manage income earned in India such as rent, dividends, or pension from abroad. The account balance is held in Indian Rupees. The account holder can deposit and manage accumulated rupee funds conveniently through an NRO account. Money transfer from/ to countries outside India is very easy through this account.

Features of NRO Account:

  • Low cost and Hassle-free money transfers: Available through various online and offline modes at competitive exchange rates
  • Low balance required: Minimum monthly account balance as low as ₹ 10,000 only
  • Beneficial interest rates: Interest rates at 3-5% per annum for end of day balances.
  • Easy movement: Interest earned in current financial year is fully repatriable (after deducting tax). Funds in NRO account can be repatriated upto USD 1 million per financial year for all bonafide purposes.
  • Money2India: Safe and simple online money transfer and tracking with online transfer to over 100 banks in India.
  • Joint holding: With an Indian resident or NRI.
  • Easy redesignation: Any resident bank account can be converted to NRO Account when you become an NRI. Your account number remains the same.
  • Taxability of interest income: Interest income earned in this account is taxable in India.

2) Non Resident External (NRE) Account

NRE account is similar to a NRO account except the following difference:

  • Repatriation: NRE account is freely repatriable (Principal and interest earned) while the NRO account has restricted repatriability i.e permitted remittance allowed from NRO is up to USD 1 million net of applicable taxes in a financial year after giving undertaking along with a certificate from a chartered accountant.
  • Tax Treatment: NRE account is Tax free (no Income tax, wealth tax and gift tax) in India. On the other hand the interest earned in NRO account and credit balances are subject to respective income tax bracket.
  • Deposit of Rupee funds generated in India: If an NRI is earning income originating in India (such as salary, rent, dividends etc.) he/she is only allowed to deposit it in NRO account. Deposit of such earnings is not permitted in NRE account.
  • Joint Holding: NRE account can be iointly held with another NRI but not with resident Indian. On the other hand NRO account can be held with NRI as well as resident Indian (close relative) as defined under Section 6 of the Companies Act 1956.

3) Foreign Currency Non Resident (FCNR) Account

FCNR deposits stands for Foreign Currency Non-Repatriable account deposits. This is a Fixed Deposit Foreign Currency account and not a savings accountDeposits in this account can be made in any of the major currencies like US Dollar, UK Pound, Canadian Dollar, Deutsche Mark, Japanese Yen and Euro.

Features of FCNR Account:

  • It can be opened by NRI or a Person of Indian Origin.
  • Since balance is maintained in foreign currency so there is no currency fluctuation risk.
  • Deposits of only more than 1 year and less than 5 years can be opened.
  • Loan can also be taken against these deposits.
  • Recurring deposits are not accepted under this scheme.
  • The interest income from this account is not taxable in India.