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- Being at par with the ordinary saving bank account in India, any funds can be deposited and withdrawn from a NRO account.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 .