Numerous NRIs in recent times are opening NRI accounts to facilitate easy savings as investments in India for the money they earn overseas. NRI accounts are rupee denominated accounts and can be categorised into three types – NRE, NRO, and FCNR deposit accounts. Choosing the right account is a decision that must be taken after due consideration of the advantages and disadvantages of each type of account.
What is an NRI Account?
An NRI account can be opened by a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) at any RBI-authorised financial institution like a bank. NRIs can use these accounts for saving or investing the money they make overseas in India. NRI accounts can be saving, current, or deposit accounts and are governed by the RBI FEMA Regulation and the Income Tax Act of India.
NRI accounts can be opened by an NRI (Non-Resident Indian), PIO (Person of Indian Origin), or OCI (Overseas Citizen of India). An Indian citizen is defined as an NRI when they stay abroad for reasons. like:
- Carrying out employment, their studies, business or vocation, indicating an intention of staying outside the country for an uncertain duration.
- Being posted in UN organisations or if they are officials deputed abroad by the government or by public sector undertaking on a temporary assignment
- Indian nationals who are mariners/working on oil rigs/working with foreign airlines are also considered as NRIs.
Please Note: The Indian Income Tax Act has different definitions for NRIs, which are important for taxation purposes. However, financial institutions and banks may not be limited to those definitions when they consider an applicant for opening NRI accounts. So, it is always a good idea to check the eligibility criteria of the bank where you plan to open your account.
Types of NRI Account
Opening an NRI account is not tough these days. But understanding the different types of NRI accounts is important to be able to choose the right account, based on one’s needs.
- Non-Resident External Account (NRE)
This type of account can be a savings, current, fixed deposit, or recurring deposit account and can be used by NRIs to deposit their earnings from their country of residency in Indian rupees. If opened jointly, it can be opened with another NRI or PIO, or a resident Indian who is a close relative, with the “former or survivor” mode of operation. However, the deposits that are made in this type of account can only arise from a foreign country and not earned in India. As withdrawals can only be made in the currency of the account holder’s resident country, this account is subject to the fluctuations of foreign exchange rates.
- Non-Resident Ordinary Account (NRO)
This type of account can be used to manage any income the NRI is still earning in India and can be used to invest in Indian instruments. Deposits can be made in Indian as well as foreign currency, as the credits into an NRO account are automatically converted into INR and any withdrawals made will be in Indian currency. The account can be a savings, current, fixed deposit, or recurring deposit account and can be opened jointly as well with either another NRI or PIO or with an Indian citizen with “former or survivor” mode of operation.
- Foreign Currency Non-Resident Account (FCNR)
This is a term account that allows deposits to be made in only one of the nine currencies allowed by the RBI. These include the US Dollar (USD), Great Britain Pound (GBP), Australian Dollar (AUD), Singaporean Dollar (SGD), Canadian Dollar (CAD), Swiss Franc (CHF), Hong Kong Dollar (HKD), Euro (EUR), and Japanese Yen (JPY). This is a tax-free account in India, free from the fluctuations of foreign exchange rates.
Advantages of Opening an NRI Account
If you are opening an NRI account online in India, the following are some of the top benefits you get:
- Financial Investment Facility in India
NRI accounts make investments in India very easy. NRIs can broaden their financial portfolios by investing in India. An NRI account allows an individual to buy and sell stocks through the PIS route, or mutual funds and other assets as well.
- Taxation Benefits
Understanding interest and taxes applicable on various accounts can help you select the right account. While the interest earned on NRE savings accounts and NRE fixed deposit accounts is tax-free in India, funds in NRO savings accounts and NRO fixed deposits are subjected to TDS as per the Income Tax laws of India. After paying the applicable taxes, you can also transfer money from your NRO account to your NRE account up to a USD 1 million limit per financial year.
- High-Profit Margins
NRIs who choose to deposit their savings in an NRI fixed deposit account, like NRE FDs or FCNR, receive considerably high returns on their total deposits with minimal risks, as these accounts have no underlying links to stock market fluctuations.
- Flexibility in Fund Repatriation
The present Indian legislation offers flexibility in repatriation of balances accessible in NRE Accounts, for both the principal amount and interest income. To put it simply, the amount in an NRE Account can be later transferred to a foreign nation without limitations. However, if you open an NRO Account, you can transfer the income received as interest in the account without restrictions. However, but there are restrictions on transferring the principal amount, based on the present currency regulations. Balances in an NRO account of NRIs/PIOs can be remitted up to an amount of USD 1 million per financial year (April-March) along with their other eligible assets.
Disadvantages of Opening an NRI Account in India
Following are the disadvantages of opening an NRI account in India:
- Fixed Maturity
One of the disadvantages that have to be reckoned with by individuals interested in investing in an FCNR account is inadequate liquidity. While FCNR accounts do provide liquidity and protect the deposited money from exchange rate fluctuations, they have fixed maturity periods ranging from 1 to 5 years and if the deposit is broken before that time, no interest is paid out.
- Risk of Loss
When money is deposited in foreign currencies into an NRE account, they are converted into Indian rupees. This results in high risk of losses during repatriation as the value deposited may change owing to currency fluctuations. To bypass this risk, an FCNR deposit account may be opted for.
Even when accounts allow early withdrawals, any cancellation of the fixed deposit before maturity can result in a loss of interest earned.
IndusInd Bank is a universal bank that offers hassle-free transactions and services and up to 5% p.a. interest on NRI savings accounts. They have a global footprint with more than 2,000 branches in India alone. IndusInd Bank offers several benefits with the opening of an NRI account in terms of currency denomination, transferability of funds, taxation, and more. They also offer the facility of opening an NRI account online for enhanced convenience.