An NRI Can Open 3 Types of Bank Accounts in India

Are you confused about which bank account to open as a Non-Resident Indian (NRI)? This article will describe the different types of bank accounts an NRI can open as per Indian banking laws. NRIs can hold and maintain bank accounts in India in rupee or foreign currency accounts. However, a foreign currency account can be maintained with the bank authorised to deal in foreign exchange.

Indian Banks mainly offer three types of NRI bank accounts:

1. Non-Residency Ordinary (NRO) Account
2. Non-Resident External (NRE) Account
3. Foreign Currency Non-Resident (FCNR) Fixed Deposit Account

NRO Account

NRO account is maintained in Indian rupees. NRI can open an NRO account in the form of savings, current or fixed/recurring deposits account. One important aspect of this account is that the funds in this account are non-repatriable. You cannot transfer funds from this account to an NRE account or any account holder abroad. Any transfer of funds from this account needs RBI’s prior permission. It can be held jointly with residents or with NRI. The NRIs can convert an NRO account into a regular resident account after returning to India and becoming an Indian citizen. Interest earned on NRO accounts is fully taxable. You can use an NRI account only for payments within India in rupees.

NRE Account

NRE account is a rupee account maintained with a bank. You can open an NRE account in the form of savings, current or fixed/recurring deposits. Money from NRE accounts is freely repatriable. Hence, funds from this account are freely transferable to any other account. You can also transfer funds to NRO accounts without restrictions. Similarly, you can receive the money transferred from another NRE account or remitted from abroad in this account. Interest earned on an NRE account is tax-exempt in the hands of an NRI.  

To deposit all foreign exchange, the banks first convert it to Indian rupees at the buying rate, and withdrawal in foreign currency is allowed. The Indian rupees in the account are converted to the same at the selling rates. However, the account holder shall bear the conversion loss. The NRIs can convert an NRE account into a regular resident account after returning to India and becoming an Indian citizen.

FCNR Fixed Deposit Account

You can open an FCNR account only in the form of term deposits with maturity ranging from one to five years. You can maintain this account in any freely convertible currency, mainly U.S. Dollar, Pound Sterling, etc. However, you cannot deposit the amount in Indian currency in this account. The account balances, i.e. the principal and interest earned, can be transferred outside India in the same currency the account is maintained or any other convertible currency. The entire deposit amount, principal and interest, is exempt from tax.

Understanding the above features of NRE, NRO and FCNR accounts will help NRIs choose the right kind of account.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in