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There are several options available for NRIs considering opening a account in an
Indian bank:
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- Non-Resident Ordinary (NRO) Savings Account
- NRO Fixed Deposit Account
- Non-Resident External (NRE) Savings Account
- NRE Fixed Deposit Account and
- Foreign Currency Non Resident (FCNR) Fixed Deposit
Account
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Each of these account types has certain advantages and disadvantages. Understanding
them can help you in making a choice.
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- NRE accounts are maintained in rupees. This means that
the foreign currency is converted to Indian rupees at the prevailing foreign exchange
rates when the money is deposited into the account.
- The primary source of funds deposited into NRE accounts
must be from your earnings abroad. In other words, you cannot deposit money from
sources in India such as house rent or pensions in this account.
- The principal amount and the interest are fully repatriable
(can be converted to any foreign currency). The conversion back to foreign currency
is done at the prevailing forex rates.
- Interest income earned on the money in a NRE account
is non-taxable in India. However, it may be taxable in your country of residence
as per that country's tax rules.
- You can only have other NRIs as joint account holders
on NRE accounts. Resident Indians cannot be joint account holders in NRE accounts
with NRIs.
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- NRO accounts are maintained in rupees. This means that
the foreign currency is converted to Indian rupees at the prevailing foreign exchange
rates when the money is deposited into the account.
- The source of funds deposited into NRO accounts can
be from India or abroad. NRO accounts are appropriate for NRIs who have had earnings
in India earlier and became NRIs later as well as NRIs with income from sources
in India such as house rent, pensions etc. You an also deposit money from your earnings
abroad or transfer money from a NRE account into a NRO account.
- Current Income like rent, dividend, pension can be
remitted abroad through the NRO account. Funds which can be repatriated from the
NRO are subject to a maximum limit of USD 1 million per financial year. Repatriability
is subject to conditions.
- Interest income earned on the money in a NRO account
is liable for taxes in India.
- You can have other NRIs or resident Indians as joint
account holders on NRO accounts.
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- FCNR accounts have to be opened and maintained in the
foreign currency itself.
- The source of funds deposited into FCNR accounts have
to be from sources abroad. They can also be from your other NRE or FCNR accounts.
- The principal amount and the interest are fully repatriable
- Interest income earned on the money in a FCNR account
is non-taxable in India. However, it may be taxable in your country of residence
as per that country's tax rules.
- You can only have other NRIs as joint account holders
on FCNR accounts. Resident Indians cannot be joint account holders in FCNR accounts
with NRIs.
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NRE and FCNR accounts have the advantages of not having to pay taxes in India which
could be a hassle for NRIs trying to figure out the tax rules in India as well as
their country of residence.
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People opening NRE accounts and would like to repatriate their funds at some point
must consider the foreign currency conversion rates at the time the funds are being
deposited versus the time when the funds have to be repatriated. This can carry
risks as well as rewards depending on the forex rates trend. For example, if $1000
is converted to Indian rupees at Rs. 50 per dollar and then converted back to dollars
at a conversion rate of Rs. 40 per dollar, then you would get back $1250 for a good
gain. On the other hand, if the dollar is at Rs. 55 per dollar, you would lose some
of your principal when you do the repatriation.
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FCNR accounts do not carry any forex rate risk as the accounts are always maintained
in the foreign currency.
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NRO accounts have the advantage of being able to deposit funds from both sources
in India and abroad and having joint account holders in India. Repatriability of
funds is a disadvatage for NRO accounts. The key advantage of NRO fixed deposit
accounts is the substantially higher interest rates as compared to FCNR and NRE
accounts. The rate of interest offered is different in different banks and also
depends on the fixed deposit tenure. So your choice of which bank to open a account
in can depend on the interest rates.
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FCNR and NRE fixed deposit accounts typically yield much lower than NRO fixed deposit
accounts. Most banks in India offer the same interest rate for FCNR and NRE fixed
deposit accounts. So if you are planning to choose a bank for your NRE or FCNR fixed
deposits, interest rates offered is not a consideration.
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Both NRE and NRO savings accounts yield 3.5% currently. There is no savings account
option for FCNR accounts.
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NRE Savings and NRO Savings accounts allow you to have family members in India as
mandate holders whereas you cannot have mandatees for the fixed deposit options
available in NRE, NRO and FCNR accounts. Mandate holders can withdraw funds from
your accounts in India with some type of a card such as a debit card of a ATM card.
They can also withdraw funds at the bank locations.
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Most banks also provide for taking loans for a certain percentage of your existing
balance on your NRE, NRO and FCNR fixed deposit accounts.
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