So you became a NRI huh ? The first financial difficulty which arises to NRIs is opening up a bank account in India and choosing up from the multiple options available. Primarily there are three bank account options available for NRIs, however, the bank managers would not want to provide you much details on the exact differences and motives to open such accounts. Firstly they would want you to open as many accounts as possible – meets their internal targets. Secondly, they themselves are not aware about the exact differences – hard luck !
NRO is the Non Resident Ordinary bank account.
It is equivalent to the basic bank account in India that resident Indians can have. The difference is that it is held by a non-resident Indian.
- Funds are held in Indian Rupees.
- Interest is accrued over the balances, but just like ordinary bank accounts one has to pay tax on the interest earned. However, unlike resident bank account, this tax is deducted at source so there is no worry about filing tax returns.
- One can’t repatriate the amount outside India except in certain cases with permission from RBI. Repatriation means that a person cannot convert it to foreign currency and send it outside India.
- A person can have a resident Indian as a joint account holder in the NRO bank account.
- Once the account holder returns back to India and becomes an Indian resident, NRO account can be converted to a normal resident account.
- Being at par with the ordinary saving bank account in India, any funds can be deposited and withdrawn from a NRO account.
- This account can be opened if you want to deposit earnings / receipts originating in India. Further, you can also use this account if you don’t want to repatriate the funds held in this account to outside India.
NRE stands for Non Resident External Bank account.
- Funds are held in Indian Rupees.
- Any interest earned on deposits held in NRE bank account is tax free and hence not subject to tax deduction. Refer to our other blog note NRE Fixed Deposit – Should you invest in it which tries to take advantage of tax free characteristics of NRE bank account.
- With a NRE account one is able to freely repatriate the funds held in the account to outside India.
- A NRI cannot have a joint account with resident Indian but can have another NRI as a joint account holder. However, a Power of Attorney can be granted to any residents in India for operating the NRE Accounts in India. A Power of attorney holder can make withdrawals for local payments.
- A NRE account can also be converted to ordinary account if the account holder returns back to India.
- Proceeds of remittance arranged by the account holder through banking channels from any country can be credited to this account. Similarly, income from the account holder’s investment from the funds in the account can be credited to it, except in cases where the investments were made on non-repatriable basis.
- You should use this account if you want to have an option of ‘No Questions Asked’ policy while trying to repatriate funds outside India. No other account shall give this flexibility.
FCNR stands for Foreign Currency Non Resident account.
If one is worried that in case the Indian rupee becomes stronger, it will diminish the value of the funds in foreign currency, then this account is the answer.
- The funds are held in foreign currency eg. US dollars, Sterling pound etc. One has to nominate a currency say GBP or US dollars in which the account should be maintained.
- Any interest or repayments to the account holder will be made in the nominated currency. One can still ask for repayment in Indian rupees which will be calculated on prevailing exchange rate.
- These are not normal bank accounts but more of fixed deposits which are held for a specified period. Any withdrawal before that period may incur penalty.
- Just like NRE/ NRO account power of attorney can be given to a resident Indian to operate a FCNR bank account
This blog note represents the intellectual property of Banyan Financial Advisors. You can visit us on www.banyanfa.com .
Thank you so much for the detailed write up. This is very helpful.
Thanks Venkat. I am glad you liked it.
Regards BFA
Thank you for informative post. I’ve a question. Whether power of attorney holder of an NRE account withdraw money and deposit at will in India? I’m an NRI and want to open an NRE account so that my funds will be available to my family there on temporary basis and wants repatriate whenever I need it in foreign country.
Hi Srinivas,
When you open a NRE account, you have an option to allow the account to be operated by a Power of Attorney (POA) holder. POA holder can do all things which you as an account holder do. He can withdraw funds. He can deposit your cheques in your account. However, we can not deposit his cheques in your account.
Ideally you should get only trust worthy people as your POA holder in your account as they would be able to sign your cheques.However, your POA holder can not repatriate funds on your behalf outside India. Repatriation can only be performed by an account holder.
Does that answer your question ?
Regards
BFA
Hi,
As you know money staying in U.S. Bank accounts earns no interests.
Because in the USA, the rate of interest on fixed deposits can go max upto 1% only.
So having the money in US dollars in my bank account is of no use.
Whereas Indian Banks offer attractive Fixed Deposit rates ( of upto 9% )
For me to take advantage of this Fixed Deposit schemes in Indian Bank,
what is the best option for me ?
1) Do I transfer the money to India and
put it in a Resident
account ?
Can I get
that money back in the USA after the maturity date is over ( Principal
And/Or Interest amount ) ?
2) Do I create a new NRE account while I
am still in the USA or do I need to come over to India for creating the
NRE account ?
In this case,
if my dollar money is converted into INR, for account
opeining, what happens when I want to get the money back to USA (
after the Maturity date ) ?
Would they convert the INR into US
dollars back again ? And is it a
long process to do all this transfer, or is it completely operable over
the Internet for
major Indian Bank accounts( Like ICICI and HDFC )?
And does the
interest accumulated after maturity needs to be show to
the US government as an extra income ? Or do I need to report
this extra interest amount anywhere in India ? –
3) In all, does all this
transfer of money involve a lot of negative attention from the FBI / RBI agencies, that I
need to worry about explaining to them, or is it something a lot of
other NRIs are already doing without any problem ?
4) And last but not the least, am I helping India in Anyway
by investing with foreign funds in Indian Bank Accounts or am I not
helping, if I intend to take the money back to USA, after the
maturity date?
Note
:–
I am on a Work Visa ( H1 Visa ) in the
USA and may get settled here in the USA at a later stage
Please let me know…
Hi Vinod,
I am fully aware of US Interest rate situation. We have several US NRI clients whom we have helped to get over exact queries which you have. If you could email me your contact number on info@banyanfa.com, I shall give you a call to quickly help you with your plan. Just to answer your questions :
1. NRIs can not open Resident account legally. You would need to open either a NRE or NRO account. You can get further details on types of Non Resident Accounts at http://insight.banyanfa.com/?p=146. We would suggest NRE account if you want to repatriate money back into US in future.
2. a. Several banks in India now open NRE bank accounts for customers remotely. You need not visit India to open your bank account.
2. b. You would remit your USD from US to your NRE bank account in India which holds funds in INR. Your funds in India would be in INR. When you wish to repatriate your funds from your Indian NRE account, your INR funds are converted into USD and transferred to your bank account in US. Currently this process requires some paper work and is not an online / internet banking process. I can’t comment right now, but possibly 10 years down the line this may become online. You can operate your Indian bank account completely online to transfer funds within India.
2.c. Depending on where you invest, your interest income may be tax free. Investment into NRE Fixed Deposits is tax free in India. However, you should report this interest income in USA where it is taxed in your normal tax slab. We have some idea around US taxation and discuss this matter a bit more in detail when we have a chance to speak.
3) There is no negative attention as long as you are doing everything legally;
4) Obviously sending funds in India and investing in India helps in India’s growth / deposit base. But this should not be your sole decision to send funds to India.
Regards
BFA
Hi Banyan Financial Advisors,
Thanks for your detailed reply.
I just need these quick clarifications over the detailed answer of yours.
1. Is it really necessary to open an NRE account to move funds to India and then covert it back to USD?
2. Can’t it be done with the normal savings account which I already hold in India before becoming an NRI?
3. What are the pros and cons in these two approaches?
Hi Hari,
1. If you are NRI, then ideally speaking – you should convert your Saving account held in India into a NRO account. You can either have a NRO or a NRE account to move funds to India. Both accounts offer you the option to repatriate funds outside India. If you are after the hassle free option, go for NRE. For NRO, you would need a certificate from a CA to vet that your funds have been subject to appropriate taxes.
2. You can if you want to – however it is not legal.
3. NRE account doesn’t offer any disadvantages. Hence, my advise would be to go for NRE bank account. If you would go with your normal saving account, it would not be legally correct. However, it is likely that the bank may not even identify that you are operating your normal saving account. But by doing so, you would be violating the provisions of FEMA. I would better be on the right side of the law, specially when it comes with no tedious procedures.
Let me know if you need any more clarifications / guidance.
Very good Post, Thanks you
I have some doubt?
Scenario goes on like this: Suppose there is an indian(currently in US) with some property in India which is rented out to someone, and that NRI don’t plan to come back to India.
How can he get the rent from that property if he wish to use the rent money to be used in US only, an have no plans to use the same money in India?
Should he use NRO/NRE account?
Suneet,
Unfortunately rental proceeds of your property in India shall go into NRO account only. Bank manager will not honour the credit of rent proceeds into NRE.
If you then intend to remit the funds outside India from NRO account, you need to complete some formalities (your banker will tell you in detail) after which you can remit the funds. However, I believe that it won’t be cost effective to transfer any funds less than a few lacs as your cost of remittance would eat your proceeds.
My scenario is like this:
I have taken huge education loan and just after graduation I have been recruited to work for a firm in Japan. Now after joining I would like send money from Japan to India which will be used to repay loan and sometimes I would like to send money to my parents as well (who are now living in India). And there will be hardly any cases of sending money from India to Japan, except for the first time when I am going.
For this scenario, if I am not wrong, I should go ahead to open NRE account?
Hi, Good artlicle.
What account would one open if they are a not an Indian citizen and would to invest in India (Fixed Deposits & Capital Equity Markets).
I am an South African Indian who would to take advantage on investment opeertunities in India, what account would one then neeed to open to allow this
Vishal,
You need to open NRE /NRO bank account. Please contact us at info@banyanfa.com if you need help in your objectives.
Hi,
My wife is an NRI and is not a citizen of India. She however has her savings bank accounts and Fixed deposit accounts with banks in India. The accounts are currently being operated by her sister and her mother who are joint holders with herself. She also has 2 LIC policies which will be maturing in 2015 and 2017.
Should she convert her accounts into NRO or NRE accounts?
If she converts her accounts would the maturity proceeds from the LIC policies be credited to her nominated bank Account?
What happens to the joint holders?
Thanks
Krish
Hi Krish,
Strictly speaking she should convert her bank accounts into NRO (NRE is not possible). However, doing that, the Fixed deposit will have to be forcefully matured attracting penal itnerest rates. If you choose to do so, you can have residents as Joint account holders. LIC policies can also be credited to NRO account on the instruction of your wife.
Hi Thanks for your prompt reply and advice. Its much appreciated