Banking For NRIs: A Primer

By | May 7, 2018

Knowing about the different types of bank accounts NRIs can operate in India can make money management easier for them. Read on to know all about it.

Banking For NRIs: A Primer

Managing money back in the home country is one of the key concerns of people face when their status changes from Non-Resident, i.e. when they become NRI. Knowing about the types of bank accounts that NRIs can operate in India can make money management easier for them. Based on aspects such as purpose, tax obligation, repatriation requirement, interest rate, etc. NRIs can easily decide which bank account would be most suitable to them. To make things easier for you, we’ll explain to you about the different types of accounts for NRIs and the salient features of such accounts.

Non-Resident Ordinary Account

An NRO account can be opened for operating a Savings Account, current account, or a Fixed Deposit account. It is a rupee-based, non-repatriable account. When the status of a person is about to change from ‘Normal Resident’ to ‘NRI’, it is mandatory to convert the existing saving account to NRO account. All income accrued from India such as interest income, commission, rent from property, dividends are allowed to be deposited in the NRO account. The interest rate on NRO Savings Account today ranges between 3.5% to 4% per annum whereas the interest on an NRO Fixed Deposit is normally offered at par with the domestic FD interest rates. Interest earned from an NRO account is subject to tax at 30% rate (plus applicable cess and surcharge). Such tax can be saved if you furnish the Tax Residency Certificate (TRC), Form 10 F, and PAN details, provided there is a Double Taxation Avoidance Agreement (DTAA) between the home country as well as the source country.

Non-Resident External Account (NRE Account)

If you are looking for a bank account with easy outward remittance facility, then an NRE account could be the best option for you. An NRE account is rupee-denominated and it also allows repatriation of funds. While any remittance from India to any other country is allowed, there are certain conditions attached to it. NRE account allows credits such as remittances from other countries, income such as interest, dividend, rent from India, etc.

You can open an NRE account in the form of savings account, fixed deposit or a current account. Interest earned from an NRE account is exempt from tax in India. However, it may be taxable in your country of residence.

The main purpose of this account is to deposit the overseas income after converting it into rupees. The principal amount held in the NRE account, as well as interest income, is freely repatriable.

Foreign Currency Non-Resident Account (FCNR Account)

NRIs who are looking to invest money in foreign currency denomination and earn interest income can do so by opening an FCNR deposit account. It is a fixed deposit account in foreign currency. The deposit period ranges from one to five years. NRIs looking to avoid currency fluctuation risk can invest their money in an FCNR account. The deposits in an FCNR account can be made in denominations like USD, Japanese Yen, Euro, Sterling Pound etc. The interest from FCNR account are exempt from taxes till the residency status of investor is NRI.

Resident Foreign Currency Account (RFC Account)

When your residency status changes from ‘Normal Citizen’ to ‘NRI’, at that time you require an ‘NRO’ account to deposit income earned from India. Similarly, after working for several years in a foreign country, when you plan to come back to India you may still get income from foreign investments as well as from assets abroad. To deposit such income, you can open an RFC account with a bank in India. In the future, if the person’s status again changes to NRI, the RFC account can be easily converted into an NRE or FCNR account. An RFC account can be opened in the form of Savings, current or Fixed Deposit account. The account is maintained in an eligible foreign currency denomination. Interest earned on the RFC account is taxable at the applicable rate.

When you decide to open a bank account, it is important to note that you are not normally allowed to transfer money from an NRO account to an NRE or FCNR account as it is not repatriable. However, as per recent RBI guideline, subject to applicable condition and by providing requisite documents, an amount up to USD 1 million (Rs. 6.6 crores) can be transferred in a financial year.

Types of NRI Bank Account in a Nutshell

Detail NRO Account NRE Account FCNR Account RFC Account
Suitable For Depositing earning from India such as rental income, interest, dividend etc. Deposit fund from overseas in foreign currency, converting to INR Depositing foreign currency without converting to INR Deposit income from overseas investment after NRI returns to India
Denomination INR INR Eligible foreign currency such as USD, Euro, Yen etc. Eligible foreign currency such as USD, Euro, Yen etc.
Types of Account Savings, Current, Fixed Deposit Savings, Current, Fixed Deposit Fixed Deposit Savings, Current, Fixed Deposit
TDS Obligation TDS applicable on income Exempt from TDS Exempt from TDS TDS applicable is a leading online marketplace in India that helps consumers compare and apply for Credit CardPersonal LoanHome LoanCar Loan, and insurance.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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