Know the different types of NRI Accounts in India
A Non-Resident Indian (NRI) or Person of Indian Origin (PIO) can open different types of bank accounts in India, depending upon their liquidity and investment requirements. Further, the type of bank account being opted for may also depend upon the repatriation requirements of the account holder. One can make an informed decision in this respect, only after knowing about different options available.
Here are different categories of accounts an NRI/PIO can open in India:
1.Non-Resident External (NRE) Account (Savings Account/Fixed Deposit)
NRE Accounts are rupee-denominated accounts, wherein the NRIs/PIOs can deposit their money in foreign currency and park such amount in Indian account. An NRI/PIO can open such an account in his/her name solely, or open a joint account with another NRI/PIO. In such accounts, one can deposit the funds in foreign currency which is converted into the Indian currency upon deposit at prevalent foreign exchange rates and credited to the account. Thereafter, the account holder can freely withdraw the money in domestic currency. However, no rupee credits are allowed in such accounts, as such accounts accept only the foreign currency credits. To further add to the utility of NRE Accounts, the account holder is free to repatriate the account balance outside the country without any limit. This means that you can freely transfer the principal amount deposited and also the interest earned on such deposit. Further, the interest earned by the NRIs on NRE Savings and Fixed Deposit Accounts is tax-free in the hands of the account holder.
2.Non-Resident Ordinary (NRO) Account (Savings Account/Fixed Deposit)
NRO Accounts are rupee-denominated accounts, wherein the NRIs/PIOs can deposit their Indian as well as foreign incomes. Such incomes can include interest income, rental income, dividend, pension, etc. An NRI/PIO can open such an account with ‘Single’ operations or operate a joint account with an NRI/PIO or even a resident. The account holders can credit the account with Indian currency as well as the foreign currency. In case of foreign currency credits, the funds are converted into the Indian currency at the prevalent foreign exchange rates. The account holder can freely withdraw the money in domestic currency. However, in terms of repatriability of the account balance, the account holder can repatriate the interest earned but is restrained from transferring the principal balance beyond the limits specified under the Foreign Exchange Management Act. The interest earned by the NRIs on NRO Savings and Fixed Deposit Accounts is also taxable in the hands of the account holder as per the Income Tax laws.
3. Foreign Currency Non-Resident (FCNR) Fixed Deposit Account
NRIs/PIOs can also invest in FCNR Fixed Deposit Accounts, wherein the funds invested continue to be maintained in foreign currency, unlike the rupee-denominated NRE/NRO Accounts stated above. Accordingly, such accounts mitigate the foreign exchange risk for the account holders. However, such accounts can only be opened for a fixed tenure like normal Fixed Deposits. Both, the principal and the interest amount in FCNR (Bank) accounts can be freely transferred to foreign country. As per the prevalent Income Tax laws, the non-residents do not have to pay any tax on interest income through such accounts.
With different types of bank accounts and deposit options available, NRIs can opt for the account type best suiting their operations and investment needs.