A Non-resident Indian (NRI) who lives overseas may want to send back their earnings to their families or make investments in India.
Therefore, they require an account that can protect their money, save on tax, hold and convert their funds and securities into Indian Rupees.
This is exactly what an NRI account does.
A Non-resident Indian account is a bank account opened by a Non-resident Indian, an Overseas Citizen of India, or a Person of Indian Origin (PIO).
It is a bank account that is authorized by the Reserve Bank of India which functions to provide various banking and financial services to people of Indian descent living and working abroad.
Non-resident Indians have the choice between three types of accounts to open in India.
These include the following:
- NRE Account
- NRO Account
- FCNR-B Account
Who classifies as a Non-Indian Resident?
A non-resident Indian is anyone who has lived outside India for at least 120 days in a year and has spent less than 365 days in India in the past four years.
All those who fit this criterion are eligible to set up an NRI account.
Anyone who leaves India with the intention to work in another country will have their residential status switched to an NRI automatically.
It is extremely important for non-resident Indians to understand the differences between the three bank accounts.
Each of the account types is subject to different regulatory restrictions and has different features and benefits.
Choosing the right one depending on your personal circumstances allows you to conveniently manage your finances in India from abroad.
The Three Types of NRI Accounts
- NRE Account
An NRE account is an Indian rupee-dominated account that is repatriable.
This allows Non-resident Indians to easily send back their income earned abroad back to India.
The biggest benefit of an NRE account is that it is completely tax-free.
There is no tax charged on your earnings as well as the interest earned on the NRE account.
- NRO Account
A Non-Resident Ordinary account is a bank account where funds and income earned within India can be deposited and held in Indian Rupees.
There are no restrictions regarding the source of income including income earned from rent, dividends, and any other source of income.
With an NRO account, you don’t have to worry about conversion loss or exchange rate fluctuations as this account only caters to deposits made in Indian rupee denominations.
- FCNR Account
A Foreign Currency Non-Residential Account allows Non-Resident Indians including Persons of Indian Origin and Overseas Indian Citizens to make deposits in foreign currencies.
The deposits can be made in the denomination of the country they are living and working in.
However, the deposits made must be held in one of the foreign currencies recommended by the Reserve Bank of India in that particular account.
These currencies include US Dollars (USD), Singapore Dollar (SGD), Hong Kong Dollar (HKD), Canadian Dollar (CAD), Australian Dollar (AUD), Great British Pound (GBP), Swiss Franc (CHF), Euro (EUR) and Japanese Yen (JPY).
Opening an NRI Account
Opening an NRI Account is a simple process with little to no complications.
- Eligibility Criteria
Individuals with the following status are eligible to set up a Non-resident Indian bank account:
- People on official deputation abroad by the Government of India or for any other Public Sector Undertaking.
- Indian citizens living abroad for business, studies, and employment purposes.
- Individuals who held an Indian passport at a particular point in time.
- Individuals whose grandparents or parents were Citizens of India according to the provisions of the India Citizen Act 1955
- The spouses of NRIs, PIOs, OCIs.
- Required Documents
You will be required to provide the following documents when applying for an NRI account:
- A copy of a valid passport
- Proof of Indian and overseas address
- NRI status proof by way of valid Employment Permit / Residence Visa / Student Visa
- Copy of Pan card or Form 60
- Recent passport size colored photograph
- Bank Branch Visit
The following banks are the best rated for opening an NRI account in India:
- ICICI Bank
- HDFC Bank
- State Bank of India
- Kotak Mahindra Bank
- Axis Bank
Why should you open an NRI Account?
Enables Greater Investment in India
An NRI account also allows non-residents to use their income earned abroad to invest in India through many different ways including debt instruments and equity.
The Portfolio Investment Scheme (PIS), powered by the Reserve Bank of India is responsible for such investments and facilitating such transactions.
All interest earned on income stored on NRE and FCNR-B accounts is exempt from being taxed under the Income Tax Act 1961.
Increases Inward Remittances
The major benefit of opening an NRI account is that it allows non-residents to repatriate their income to their families back in India.
This helps many NRIs who are earning abroad to support their parents, siblings, or children back home.
Avoids Exchange Rate Fluctuations
All deposits of foreign earned income made into an FCNR-B account from NRIs do not need to be converted to Indian Rupees.
This allows NRIs to avoid any currency conversion loss from currency rate fluctuations.
Choosing the right NRI is an important decision that can affect how you manage your finances in India from abroad.
Make sure to learn about the different types of accounts offered, their benefits, and restrictions before making your decision.