Bank Accounts and Deposits for NRIs in India
Non-Resident Indians (NRIs) can open various types of bank accounts in India to manage their financial transactions efficiently. These accounts cater to their specific needs and are classified as follows:
- Non-Resident External (NRE) Accounts
- Non-Resident Ordinary (NRO) Accounts
- Foreign Currency Non-Resident (FCNR) Accounts
1. Non-Resident External (NRE) Accounts
An NRE account is designed for NRIs to manage their foreign earnings in India. It can be opened as a Savings, Current, Recurring Deposit (RD), or Fixed Deposit (FD) account.
- Maintained in Indian Rupees (INR)
- Funded through remittances from overseas in any convertible foreign currency or transfers from existing NRE/FCNR accounts
- Can be jointly held with other NRIs or Persons of Indian Origin (PIOs) on an “either or survivor” basis
- Can be held jointly with a resident relative on a “former or survivor” basis
- Interest earned is tax-free in India
- Full repatriation of both principal and interest is allowed
Example: Ananya, an NRI living in the UK, opens an NRE account in India to deposit her foreign salary. The account allows her to transfer money to India in INR and repatriate funds back to the UK without restrictions. The interest earned is tax-free, making it a suitable option for her financial management.
2. Non-Resident Ordinary (NRO) Accounts
NRO accounts are primarily used to manage income earned in India, such as rent, dividends, pensions, or property sales.
- Maintained in INR
- Can be funded with both Indian and foreign earnings
- Required when a resident Indian moves abroad (resident account must be converted to NRO)
- Limited repatriation of up to USD 1 million per financial year (with tax compliance)
- Interest earned is subject to Tax Deducted at Source (TDS)
- Can be held jointly with another NRI or resident Indian
Example: Ravi, an NRI in the U.S., uses an NRO account to receive rental income from his Indian properties. While he can deposit foreign funds into the account, repatriation is subject to RBI regulations. He also uses this account to pay bills in India.
3. Foreign Currency Non-Resident (FCNR) Accounts
FCNR accounts allow NRIs to maintain deposits in six designated foreign currencies:
- U.S. Dollar (USD), Pound Sterling (GBP), Euro (EUR), Australian Dollar (AUD), Canadian Dollar (CAD), Japanese Yen (JPY)
- These are term deposits with maturities ranging from 1 to 5 years
- Funds must be remitted from abroad in convertible foreign currency
- Fully repatriable (both principal and interest)
- Interest earned is tax-free in India
- Provides protection against exchange rate fluctuations
Example: Amit, an NRI in the U.S., opens an FCNR account in USD for three years. This allows him to earn tax-free interest without worrying about currency fluctuations. Upon maturity, he can either reinvest or repatriate the funds to the U.S.
Comparative Overview of NRE, NRO, and FCNR Accounts
| Criteria | NRE Account | NRO Account | FCNR Account |
| Currency | INR | INR | Foreign currency |
| Source of Funds | Foreign earnings | Indian earnings & foreign funds | Foreign currency remitted from abroad |
| Repatriation | Fully repatriable | Limited to USD 1 million/year | Fully repatriable |
| Taxation | Interest is tax-free | Interest subject to TDS | Interest is tax-free |
| Joint Account Holding | With NRI/PIO or resident relative | With NRI/PIO or resident | With NRI/PIO only |
| Account Type | Savings, Current, RD, FD | Savings, Current, RD, FD | Fixed Deposits only |
| Regulatory Restrictions | No restrictions | Limited repatriation | Currency protection, but limited to term deposits |
| Deposit Tenure | 1 to 3 years (may extend based on bank policy) | As per resident accounts | 1 to 5 years |
Conversion of Accounts upon Change in Residency
- NRE accounts should be converted to resident accounts or transferred to a Resident Foreign Currency (RFC) account upon returning to India.
- NRO accounts may be redesignated as resident accounts upon return to India for an indefinite stay.
- FCNR accounts can continue until maturity; upon maturity, funds can be converted into a resident rupee deposit or RFC account (if eligible).
Documents Required for NRO Account Conversion
- Identity proof (Passport, Aadhaar card, Voter ID, Driver’s license, etc.)
- Proof of NRI status (Valid visa, work permit, OCI/PIO card, etc.)
- Foreign address proof (Utility bills, telephone bills, etc.)
- Recent passport-size photographs
- Additional documents as required by the bank
Consequences of Not Converting a Resident Account to NRO/NRE
Failure to convert a resident account to an NRO account after becoming an NRI can result in penalties:
- Up to three times the amount involved
- If the amount is unquantifiable, a penalty of Rs. 2 lakhs
- Additional daily penalty of Rs. 5,000 until compliance
Special Non-Resident Rupee (SNRR) Account
NRIs with business interests in India can open an SNRR account for transactions with resident Indians.
- This is a non-interest-bearing account
- The amount held is fully repatriable
- Permitted debits/credits are related to business transactions
- Tenure is concurrent with the business activity
Disclaimer
The information provided in this document is for general informational purposes only and does not constitute legal, financial, or investment advice. Banking policies and RBI regulations are subject to change. It is recommended that NRIs consult their bank or a financial advisor to understand the latest rules and regulations before opening or converting any account.
