4 Kinds of NRI Accounts and Reasons Why You Need Them

A Non-Residential Indian (NRI) is an individual who is an Indian citizen, residing abroad for a minimum of 248 days in a financial year, or who intends to stay there for an indefinite time. The number of people migrating to foreign countries for better employment opportunities, education, or some other purpose is ever increasing. One of the primary concerns, when someone decides to shift abroad, is how to manage the finances. They can have several banking needs that are difficult to be served by a regular banking account.

Since they reside abroad, their savings and incomes are mostly in foreign denominations. They can get anxious sometimes regarding their transactions and deposits of funds from another country. Some of them might also need to manage different forms of investments in India. Such individuals need to open a separate NRI account based on their specific requirements. Learn more about NRI accounts in India by clicking here.

Know about different NRI accounts before opening. Image Source: Entrackr.com

The term NRI account stands for an account that was opened by a Non-Resident Indian (NRI) or a Person of Indian Origin for availing diverse banking facilities. Generally, a financial institution that has been authorized by the RBI opens these accounts. The 4 kinds of NRI account with their benefits and reasons to open an NRI account are as follows:

NRO Account

The Non-Resident Ordinary Account is primarily used for local payments and to make a deposit from India or abroad. Many individuals receive a different form of income as rents, investments,or pension. The NRO account is maintained in Indian rupees; therefore it becomes a must if you want to keep the income in Indian currency. It serves as a resident account for practical purposes. Some of the features of this kind of account are:

  • The interests earned on funds in this account are taxable
  • This can be used as a savings account or a fixed deposit in case the individual wants to lock the money for a longer period of time to get better returns
  • Funds in NRO account are repatriable and can be transferred to NRE accounts
  • The account can be held jointly with a resident or non-resident Indian
  • The NRO account can be converted to a regular resident account as and when the individual decides to move back

NRE Account

The Non-Resident External Account lets customers keep money in India in a foreign denomination. Customers can access their funds in Indian currency and also convert them to a foreign currency anytime they wish. Here are some of the features of NRE account:

  • Funds in this account are freely repatriable
  • NRE fixed deposit gives better interest income which is fully exempt from taxes in India
  • Funds are transferable from NRE account to NRO account without any restrictions, money can be easily sent abroad from India
  • Loans are available to NRE account holder against the security of fixed deposit in the account
  • The NRE account can be converted to a regular resident account as and when the individual decides to move back

FCNR Account

The Foreign Country Non-Resident Account is a fixed deposit account and is maintained in a freely convertible foreign currency like US Dollar, Pound, Euro, Canadian Dollar, Japanese Yen, etc. Since these are maintained in foreign currency, Indian rupees cannot be deposited in such accounts. Some of the features of such accounts are:

  • Funds and interest earned held in this account can be transferred abroad in the same currency in which the account is maintained or any other convertible currency
  • Interest earned on the funds is in foreign currency, and the deposits are only for a year and can extend from 1 to 5 years
  • All the funds including interest earned are exempt from taxes
  • Since the accounts are maintained in foreign currency, they don’t have currency risk and are easy to repatriate
  • If the account holder decides to become a regular citizen and move back to India, deposits can be allowed to mature as per Rate of interest if desired by the account holder

RFC Account

The Resident Foreign Currency Account is best for returning Indians or NRIs to deposit their foreign currency after moving back. This account can be maintained only in foreign currency. Here are some of the key features of RFC account:

  • This can be maintained as a savings account or term deposit
  • Funds can be withdrawn anytime, but interest will only be paid for a term of 1 year
  • There is no foreign exchange risk
  • The interest earned from the funds is taxable in India. But this can be avoided if you have RNOR status, which is automatically given to returning NRIs
  • Funds can be converted back to NRE or FCNR account if the holder decides to move back or vice versa
  • The interest earned by the account is fully repatriable
  • The loan can not be availed against the deposits in RFC account

Understanding the fine differences between these NRI accounts helps an NRI choose the most appropriate bank account as per their requirements. Hence if you are an NRI, then understand your needs and kinds of transactions you would need to make in the future. Based on that, make a well-informed decision in choosing your NRI Account.

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