Tuesday, July 28, 2020

Types of Non Resident Bank Accounts

Normally, non-residents are not allowed to have bank accounts in India. However, Non Resident Indians (NRIs) and Persons of Indian Origin (PIO) can hold accounts in India subject to certain conditions.

There are primarily six types of bank accounts in India for non-residents.

1. NRE - Non Resident External Account
2. NRO - Non Resident Ordinary Account
3. FCNR - Foreign Currency Non Resident Account
4. RFC - Resident Foreign Currency Account
5. SNRR - Special Non Resident Rupee Account
6. Escrow Account

NRE Account

- primary use it to make deposits from abroad
- freely repatriable funds - can be transferred to NRO account or an account outside India
- interest earned on this account is not chargeable to tax
- can be savings, current, fixed deposit or recurring deposit in nature
- the amount transferred is converted to Indian Rupees at the forex buying rate by the bank
- money can be withdrawn in the form of forex after conversion at the prevailing rate
- has to be converted to a regular account when the foreign resident becomes a resident of India
- it cannot be held jointly with a resident

NRO Account

- used to make deposits from India or abroad
- current bank account held by a resident Indian is designated as NRO as soon as the person becomes non-resident
- funds held in NRO account are repatriable on fulfillment of certain conditions
- maximum limit of funds transferable from an NRO to NRE account is USD 1 Million in a financial year
- interest earned on this account is chargeable to tax
- can be savings, current, fixed deposit or recurring deposit in nature
- amount is maintained in Indian Rupees
- can be held jointly with a resident
- citizens of Bangladesh or Pakistan and of religious minority communities in those countries residing in India and having Long Term Visa (LTV) can open only one NRO account with an AD bank only

FCNR Account

- held only in the form of term deposits with maturity from 1 to 3 years
- held in any permitted foreign currency (usually USD, GBP, EUR, JPY)
- deposit of INR is not allowed
- interest earned is exempt from tax
- can be opened jointly with a resident close relative or survivor
- on changing of the holder's status to resident, funds may be held as is till maturity of the term
- loan can be availed against deposits

RFC Account

- held in foreign currency
- mostly opened by returning NRIs wanting to deposit their foreign currency in India
- can transfer funds from NRE or FCNR account on becoming resident
- can be held as a savings account or term deposit
- Indian Rupees cannot be deposited
- interest earned is taxable in India. However, returning NRIs having RNOR status can get tax exemption
- interest earned is fully repatriable
- loan cannot be availed against deposits

SNRR Account

- a non-resident having a business interest in India can open a SNRR Account with an authorised dealer (AD) for the purpose of putting through bona fide transactions in Rupees
- it is a non interest bearing account
- permissible transactions are debits/credits specific to the business proposed to be done by the account holder
- the funds in the account are repatriable
- the term of the account is specified based on bonafide business interest in India and may be renewed after 7 years with RBI approval
- business interests include:
-- investment in equity and debt instruments
-- import/export of goods or services
-- trade credit transactions and ECB lending

Escrow Account

- can be opened with an AD only
- non-residents may use this for acquisition/transfer of capital instruments, convertible notes through open offers, delisting, exit offers, etc.

Other Important Notes & Definitions

1. A ‘Non-Resident Indian (NRI)' is a person resident outside India who is a citizen of India.

2. A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:
(a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
(b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or
(c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); [up to 4th generation] or
(d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)
A PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955. Such an OCI Card holder should also be a person resident outside India.

3. 'Deposit' includes deposit of money with bank, company, proprietary concern, partnership firm, body corporate, trust or any other person. Bank accounts are considered as deposits.

For more info, you can also refer to the RBI's website here: