What are the different types of NRI bank accounts?

Posted by neha sharma on May 13th, 2019

The change of residential status for a Resident Indian to a Non Resident Indian (NRI) means a lot more than simply a change of location. There are a lot of changes that happen in terms of personal finance as well. One of the primary changes is that a non resident is not allowed to operate any account other than the special NRI accounts. There are three types of NRI bank account that an NRI can open depending on the transactions to be done in India:

Types of NRI bank account:

1. Non Resident External (NRE) account:

An NRE account is a Indian rupee account in which money can be remitted from a foreign bank account. NRE accounts can be either savings or current accounts. It is also possible to open a fixed deposit with the funds from an NRE account.

These accounts earn interest, however, no tax has to be paid on these deposits. The funds in an NRE account can freely be transferred to the NRO account for use in India. This account has no restrictions on repatriation. Funds in an NRE account can be freely transferred abroad.

This account can be opened jointly with another non resident. It cannot be opened with a resident Indian. It is possible to use the funds in this account to make investments in India in shares, mutual funds, fixed income products etc.

2. Non Resident Ordinary (NRO) account:

This account is used to receive all moneys earned by the foreign resident in India, for example, rental income, dividend income, interest income. The incomes earned in this account are taxable, which means the NRI will have to pay tax on them since they are earned in India.

Interest earned on NRO account balance incurs a 30% tax with a 3% surcharge. However, the non resident can take advantage of the double taxation avoidance agreement between India and the foreign country and pay tax at a lower rate.

It is possible to open a fixed deposit with the funds in the NRO account.

However, there is one important distinguishing factor between an NRE and an NRO account. The funds in an NRE account can be repatriated to a foreign country at any time. The funds in an NRO account have to be kept in India. They cannot be repatriated.

An NRO account can be opened jointly with a resident Indian.

3. Foreign Currency Non Resident (FCNR) account:

This is a foreign currency account which is meant for non residents to earn interest income in India. There are two types of foreign currency accounts:

• FCNR account
• Resident Foreign Currency (RFC) account

These accounts are generally held in 6 major foreign currencies i.e US Dollar, British Pound, Japanese Yen, Euro, Australian Dollar, Canadian Dollar.

These accounts are like opening fixed deposits. The funds can be fully repatriated along with interest to a foreign country on maturity. The funds can also be transferred to an NRE account. However, an NRE account is an Indian Rupee account which means the foreign currency will get converted into Indian Rupees before getting credited to the NRE account.

Knowing which account to open can help an NRI decide how to plan finances after leaving India.