nro,fcnr,nre account scheme and foreign investment

• Ordinary none-resident account in rupees.
• The existing accounts of any Indian National can be
designated as Ordinary Non-Resident Accounts, upon your
NRI status.
• these accounts can also be opened with initial deposits paid
into any bank or post office (saving a/c) authorized to open
Non-Resident accounts.
• NRO account can be of any type: saving, current or Fixed
• Interest payable on NRO accounts is the same as on
resident accounts. They vary from bank to bank as they
have been freed from RBI regulation. You can also have a
joint account with residents in India.
• NRO accounts may be re-designated as resident accounts
when the account holder becomes a resident in India.
• Interest earned on balances in NRO Accounts is not
exempted from Indian Income tax. Instead income tax is
deducted at source (TDS) i.e. at the time of payment of
interest by the bank.
• Balance held in NRO account can neither be repatriated. No
remittance in foreign currency is allowed without prior
approval of Reserve Bank as well. So overall, the money
stays 'as is' in India.
• Foreign Currency (Non Resident) Account (FCNR A/C)
• FCNR A/C is maintained only in term deposit. The account
can be maintained only in Pound, Sterling, U.S. dollar,
Deutsche Mark and Japanese Yen.
• The interest and the repayment of the deposit is also made
in the same foreign currency in which the account is
• The depositor may at his own will, obtain repayment in
Indian rupees, converted at the buying rate on the date of
• Deposits under this scheme are held for the following
period: 6 months and above, but less than 1 yr-1 yr and
above but less than 2 yrs-2 yrs and above but less than 3
yrs-3 yrs only.
• Premature withdrawal is allowed, but there will be a
• Non-Resident Account holders can grant power of attorney
or such other authority to residents in India for operating
their FCNR(B) accounts in India.
• Persons of Indian nationality or origin resident abroad may
open, with authorized banks in India, Non-resident
(External) Accounts (NRE Accounts), designated in
• These accounts can be maintained in the form of savings,
current or term deposit accounts.
• Opening of NRE Accounts jointly in the names of two or
more non residents is permitted provided all the account
holders are persons of Indian nationality or origin.
• For opening these accounts, the funds are required to be
remitted to India through
a). proceeds of foreign exchange remittances from
abroad through banking channels in an approved manner.
b).proceeds of foreign currency notes and traveler
cheques brought into India by the non-resident while on a
temporary visit to India.
C).Transfer from an existing Non-Resident
(External) FCNR account of the same person.
– 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 are permitted on
non-repatriable basis.
– Remittances from the account to the country of residence
of the account holder or any other country are freely
– Authorized dealers may allow operations on NRE
Accounts by persons resident in India in terms of Powers
of Attorney (Annexure 14.5) or other appropriate
authority granted in their favor of non-resident account
holders, provided the powers are restricted to
withdrawals for local payments.
– The resident power of attorney holder cannot repatriate
funds held in accounts outside India under any
circumstances or make payment of gifts on behalf of the
account holder.
– Immediately upon return of the account holder to India
and on his becoming resident in India, NR (E) account
will be redisignated as resident rupees account or
converted to RFC account as per the option of the
account holder.
– However, if the account holder is only on a short visit to
India, the account will continue to be treated as NR (E)
account even during his stay in India.
– In respect of funds held in fixed deposits in NR(E)
Accounts, interest will be payable at the rate originally
fixed, provided the deposit is held for the full even after
conversions into resident account.
– The NRO account can't be converted into NRE. Also funds
can't be transferred from NRO to NRE account without a
special permission from RBI and proof of all existing
funds required, which is a complex procedure than
opening a new NRE account.
Term deposits for one year and above made by nonresidents carry interest at rates higher than those
available to residents in India.
The interest on deposits and any other income accruing
on the balance in the accounts are free of Indian Incometax.
The balances in the accounts are free of Wealth-tax.
The entire credit balance (inclusive of interest earned
thereon) can be repatriated outside India at any time
without reference to the Reserve Bank.
Local disbursement from the accounts can be made
Purchases of Units of Unit Trust of India (UTI), Central
and State Government Securities and National
Plan/Savings Certificates can be made freely from the
balances in these accounts.
Sale proceeds/maturity proceeds/repurchase price of
Units of UTI, securities or certificates originally purchased
out of the funds in the account can be freely credited to
these accounts by banks, without reference to the
Reserve Bank.
8. Account holders are supplied special series of cheques
forms for operations on these accounts.
9. Account holders can avail of loans/overdrafts from banks
against security of fixed deposits in their NRE accounts.
10. No need to joint account with an Indian resident.
NR (E) accounts are opened in Indian rupees and all
foreign exchange remittances received for credit of those
accounts are first converted to Indian rupees at the
buying rates by the banks. Any withdrawal in foreign
currency will be permitted by the bank by converting
Indian rupees in the account to foreign currency at the
selling rate. This conversion loss is to be borne by the
account holder.
Exchange rates are subject to fluctuation on day to day
basis and Indian rupee has depreciated against all major
foreign currencies in recent past. Balances held in Indian
rupees in NR (E) accounts are thus exposed to exchange
fluctuation risk
Comparison of three
account scheme
Ordinary Rupee
Account Scheme
[NRO Account
[NRE Account
Who can
open an
Any person resident
outside India (other than a
person resident in Nepal
and Bhutan). Individuals /
entities of Bangladesh /
Pakistan nationality /
ownership as well as
erstwhile Overseas
Corporate Bodies require
prior approval of the
Reserve Bank.
NRIs (individuals /
entities of Bangladesh
/ Pakistan
require prior approval
of RBI)
NRIs (individuals /
entities of
Pakistan nationality/
ownership require
prior approval of
Joint account
May be held jointly with
In the names of two
or more nonresident individuals
provided all the
account holders are
persons of Indian
nationality or origin.
In the names of two or
more non-resident
individuals provided all
the account holders are
persons of Indian
nationality or origin.
Currency in
which account
is denominated
Indian Rupees
Indian Rupees
Pound Sterling, US Dollar,
Japanese Yen, Euro,
Canadian Dollar and
Australian Dollar
Not repatriable except for
the following:
i) current income ii) up to
USD 1 (one) million per
financial year (April-March),
for any bonafide purpose,
out of the balances in the
account, e.g., sale
proceeds of assets in India
acquired by way of
purchase/ inheritance /
legacy inclusive of assets
acquired out of settlement
subject to certain
Type of
Savings, Current,
Recurring, Fixed
Savings, Current,
Recurring, Fixed
Term Deposit only
Period for
As applicable to
resident accounts
At the discretion of the
For terms not less than
1 year and not more
than 5 years.
1. How do NRE and NRO accounts differ?
Funds remitted from overseas sources or local funds
that would otherwise have been sent to the accountholder abroad
can instead be transferred to NRE Accounts. On the other hand,
local funds that aren’t eligible to be remitted abroad must be
credited to an NRO account.
Can you transfer funds from an NRE to an NRO
account and vice versa?
It’s easy to transfer funds from an NRE to an NRO
account. But it’s not possible to transfer funds from an NRO
account to an NRE account. Once you transfer funds from an NRE
to an NRO account, the amount is non-repairable. Consequently,
you cannot transfer it back.
What’s the difference in the tax treatment for interest
earned on an NRE and an NRO account?
The interest earned on any type of NRO bank as well
as the credit balances in this kind of account are taxed under the account
holder’s tax bracket. On the other hand, interest earned on the NRE
account is totally exempted from income tax, and the credit balances in
the account don’t attract any wealth tax. Any gift given to a close relative
doesn’t attract gift tax.
NRE and NRO accounts are two different types of rupee
accounts permitted by the Government of India for NRIs. Have you tried
opening either of these accounts? With which bank did you open your
account? How did you decide which one to go for?
Are there any provision of repatriating the money held
in the bank accounts in India ?
Yes, the balances lying in the following accounts can be
repatriated anytime outside India:
(i) NRE account holders can not only repatriate the account held in
this account but also the interest accrued on this account.
(ii)Balances in NRO account can be remitted abroad with the
permission of RBI. However, only the funds received from abroad
can be repatriated. It may be noted that normally this account is
used for depositing the local funds/incomes of NRI.
Can NRIs invest in the Mutual funds schemes?
Yes, NRIs/OCBs can invest in domestic mutual funds on
repatriation basis. NRIs/OCBs can also invest in Mutual funds
floated by public and private sector mutual funds on non
repatriation basis by giving a separate application in RBI. No
separate approval for the same is required.
Similarly, they can also invest in Money Market Mutual Funds
(MMMFs) floated by commercial banks and other financial
institutions. No separate permission is required.
3. Can I retain my savings in foreign currency even after
return to India?
Yes you can. This is usually after a continuous stay
abroad for more than a year. You can also keep your foreign currency in
Resident Foreign Currency (RFC) account in any nationalized bank in
India. These funds can again be transferred to your NRI account, if you go
abroad or become an NRI again.
4. Can NRI bring Gold to India?
NRIs can bring into India gold up to 10,000 grams,
once in six months provided they have stayed abroad for a continuous
period of six months. They are required to pay custom duty in at the
latest rate according to EXIM Policy in any convertible foreign currency.
They can pay per 10 grams of gold brought. Currently the rate is Rs.220/per 10 grams of gold.
5. In what form can gold be brought by NRIs to India?
Any form including ornaments (excluding ornaments
studded with stones and pearls).
6. I want to sell the gold/silver I take back. How
should I do this?
Gold/silver brought by NRIs can be sold to
residents for Indian rupees. According to the RBI rules, any person
in India can buy gold/silver from the NRI by using a crossed
cheque in India. Such money is credited to Ordinary Non-resident
Rupee (NRO) account of the NRI gold/silver seller.
• 7. Can NRIs bring silver to India? Is there a maximum
Yes. NRIs are allowed to bring upto 100 kgs
of silver as part of personal luggage. This attracts import duty at the rate
of Rs. 500 per kg. payable in foreign currency (U.S. dollars if going back
from the U.S.)
Person origin India:
He/she, at any time, held an Indian passport, or
Parents or any of his grandparents hold Indian citizenship.
Invest on repatriable basis:
To invest on a repatriable basis, you must have an NRE or FCNR
Bank Account in India. The Reserve Bank of India (RBI) has granted a
general permission to Mutual Funds to offer mutual fund schemes on
repatriation basis, subject to the following conditions:
The amount representing investment should be received by inward
remittance through normal banking channels, or by debit to an NRE /
FCNR account of the non-resident investor.
The net amount representing the dividend / interest and maturity
proceeds of units may be remitted through normal banking channels or
credited to NRE / FCNR account of the investor, as desired by him
subject to payment of applicable tax.
An individual shall be deemed to be a non-resident in following cases:
When he stays in India for less than or up to 182 days during the
preceding financial year. The period of stay may not be ‘continuous’
and the same shall be calculated by adding up the days of his stay in
India during that financial year. Thus a student who goes for studies
abroad and his stay in India during a financial year is less than 182
days, then he shall be treated as non-resident Indian for the next
financial year. Similarly, tourists and all others who have gone out of
India without the purpose of taking up employment or starting any
business abroad, shall be treated as non-residents if, their stay in India
during the preceding financial year was less than or up to 182 days.
When he goes or stays outside India for any of the following purposes:
For or on taking up employment outside India, or
For carrying on outside India a business or vocation outside India,
For any other purpose, in such circumstances as would indicate his
intention to stay outside India for an uncertain period.
In such cases, the person becomes a ‘non-resident’ irrespective of the
period of his stay in India. It is pertinent to note here that while the
period of his stay in India shall be reckoned for the preceding financial
year, the event of going or staying abroad for any of the aforesaid
purposes shall be reckoned for the current financial year.
Thank You
Udit Patadiya
CJ & Associates
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