BANK PROCEDURES FOR NRI's
BANK DEPOSITS
What is the procedure for NRI's to open a bank account in India?
What are the various options available to NRI's as far as bank deposits are concerned?
What is the distinction between the three forms of rupee accounts what is their status pertaining to repatration and taxability?
What are the bank deposit avenues available to NRI's ?
What are the rates of interest available on these bank deposits ?
Why are the rates of interest on FCNR deposits different for different currencies and why are they lower than other deposit avenues ?
Are the principal and interest on these deposits repatriable to the country of the NRI's choice ?
What are the minimum investment and lock-in requirements in case of bank deposits ?
What is the taxable status of returns on NRI bank deposits ?
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What is the procedure for NRI's to open a bank account in India?
NRI's can open accounts with any bank holding authorized dealers'
license or banks specifically authorised by the Reserve Bank of India
to accept such NRI funds inspite of not holding a dealers license.
Exchange houses in the Gulf have been authorised to send remittances
into Indians by means of demand drafts, money transfer or telegraphic
transfer. Funds for opening and NRI account has to be either remitted
from abroad or tendered in the form of foreign currency or travellers
cheques while on a visit to India. In case of foreign currency or
travellers cheques in excess of US$10,000 will be permitted only if
they were declared to the Customs in Currency Declaration Form (CDF)
at the time of entry into India.
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What are the various options available to NRI's as far as bank deposits
are concerned?
NRI's can park funds either in Non-Resident External (NRE), Non-Resident
Ordinary (NRO), Non-Resident Non Repatriable (NRNR) and Foreign Currency
Non Resident (FCNR) accounts. While the first three are rupee accounts
with swap costs borne by the depositor, FCNR accounts are maintained in
any of the hard currencies with the swap costs being borne by bank.
Interest rates on NRE and NRNR deposits have been totally freed by the RBI
while NRO deposits attract the same rate as domestic deposits.
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What is the distinction between the three forms of rupee accounts what is their status pertaining to repatration and taxability?
Funds remitted from abroad or local funds which can otherwise be remitted
abroad can be credited to the NRE account. Local funds which do not qualify
under the Exchange Control Regulations for remittance outside India are
required to be credited to NRO accounts. Under the NRNR schemes NRI's as
well as other non-residents can keep deposits in India. Such accounts can
also be opened by NRI's by transferring funds from their NRE / FCNR accounts.
Funds held in NRE accounts can be freely repatriated while in case of NRO and NRNR accounts only the interest portion can be repatriated while the principal portion cannot be repatriated. NRE and FCNR accounts are exempt from income tax and gift tax while NRNR accounts are only exempt from income tax and one time gift tax. Since NRO accounts are akin to domestic deposits, they are liable to income and gift tax. While NRO accounts can be jointly with resident Indians, NRE accounts cannot be jointly held with resident Indians.
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What are the bank deposit avenues available to NRI's ?
NRI's can invest in India through Foreign Currency Non-Resident (FCNR), Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Non-Resident Non-Repatriable (NRNR) accounts. Of these only FCNR deposits are maintained in foreign currency. Foreign currency deposits can be maintained in any of the following 5 permitted currencies viz. US$, UK pound, DM, Yen and SFr. NRE accounts can be maintained as savings accounts or as term deposits while the others can be maintained only as term deposits.
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What are the rates of interest available on these bank deposits ?
Please refer to the table below applicable to amounts over Rs. 2,00,000 as on March 1995. These rates are however are subject to revisions from time to time.
| Deposit | Currency | 6 months | 12-24 months | 24-36 months | 36 months |
|---|
| FCNR-B | UK pound | 5.25 | 6.25 | 7 | 7.5 |
| - | US $ | 4.5 | 5.5 | 6.25 | 6.5 |
| - | DM | 4.5 | 4.75 | 5.25 | 5.5 |
| - | Yen | 2 | 2 | 2.75 | 3.25 |
| NRE-FD | - | 8 | 8 | 8 | 9.5 |
| NRO-FD | - | 10 | 10 | 10 | 10 |
| NRNR | - | 11 | 12 | 10 | 10 |
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Why are the rates of interest on FCNR deposits different for different currencies and why are they lower than other deposit avenues ?
Rates of interest on FCNR deposits are directly proportional to the value of the external currency vis-a-vis the Indian rupee. These rates are lower than other deposits because, FCNR deposits are maintained in foreign currency and according to RBI regulations it is necessary to maintain forward cover on these deposits. Until recently RBI used to bear the cost of forward cover but recently it has been made the liability of individual
banks to maintain forward cover. e.g. if the forward cover on the US$ is 8% then the cost of forward cover is factored in the form of lower interest rates.
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Are the principal and interest on these deposits repatriable to the
country of the NRI's choice ?
In case of FCNR and NRE deposits the principal as well as the interest amounts are repatriable to the country of the NRI's choice. In case of NRO deposits neither the principal nor the interest is repatriable. According to the guidelines issued by the RBI on May 26, 1995, interest on NRO deposits will be made fully repatriable effective March 31, 1996. This will be done in tranches viz. 1/3 effective immediately, 2/3 by March 31, 1996 and the entire amount after that. In case of NRNR deposits the interest is repatriable but the principal portion is not repatriable to the country of the NRI's choice.
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What are the minimum investment and lock-in requirements in case of bank deposits ?
NRI term deposits have to be made for a minimum period of 6 months and the minimum denomination is US$10,000.
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What is the taxable status of returns on NRI bank deposits ?
All interest on NRE, FCNR and NRNR deposits are totally tax-free. However, interest on NRO deposits beyond Rs. 13,000 is taxable during any assessment year. Apart from the aforementioned exemptions the following additional exemptions are also available :
- Interest on NRI Bonds, 1988 issued by State Bank of India.
Significantly, this exemption is also available to the nominee or survivor of the NRI or any individual to whom these bonds have been gifted by an NRI.
- Interest on India Development Bonds
- Interest on National Savings Certificates VI and VII issues subscribed
to in convertible foreign exchange.
- Interest on deposits in foreign currency with a scheduled bank under a
scheme approved by the RBI. Such benefit is also available to a person who is not ordinarily resident.
- Bonds notified by the Government of India from time to time.
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