A Non Resident Indian has multiple account opening choices in India. Banks offer special account facilities like the NRE account, NRO account and the FCNR account. Each of them has their unique features and their unique applications. NRO account is deemed to be at par with resident account and hence it carries the benefits of a normal resident account. The funds however, can be repatriated by following certain processes which is not involved in a NRE account. You must choose between NRE and NRO depending upon your trading / investment pattern and your preference on repatriating money. Note that it is not impossible to repatriate NRO funds. Its just that certain processes are to be fulfilled to take back the money.
Let us broadly look at a comparative analysis of the three most popular types of NRI bank accounts available in India. Any bank having an authorized dealer (AD) license, can offer these accounts to the NRI.
Non Resident External (NRE) Account
Non Resident External (NRE) account is for Indians residing abroad and having a non-resident status as defined by the Income Tax Act. NRE account allows transfer of foreign earnings easily to India and also out of India. Here are the highlights.
- NRE account can be opened as Savings and Fixed deposit accounts
- Interest earned from these accounts is entirely tax free
- NRE accounts are denominated in INR (Indian Rupee) only so the currency risk management is still on the account holder
- NRE accounts can be opened as a joint account (JA) with another NRI. However, NRI accounts cannot be open jointly with an Indian Resident
- Nomination is allowed in NRE Accounts and such nominees can be Indian residents too. There is bar or restriction on this aspect.
- NRIs or anybody else is not permitted to deposit Indian currency into these NRE accounts. Transfers can only be made through normal banking channels under the guidelines issued by the Reserve Bank of India.
Non Resident Ordinary (NRO) Account
Unlike the NRE account which is an external rupee account, the NRO account is more like an ordinary resident account for all purposes. The only difference is that the holder of the account is an NRI. Here are the features.
- NRO account can also be opened as the Savings or Fixed Deposit account.
- Only a Non Resident Indian can open a NRO account. This is usually opened by a NRI to park income arising out of India or to save funds for future use in India.
- Since this is a rupee account akin to a resident account, the interest earned in this account is taxable at the peak rate of 30% and surcharge and education cess is added to that. The tax applicable is deducted in the form of TDS on NRO accounts. If there are any excess tax deducted these can be claimed as refund by filing returns.
- The NRO account also permits nomination of resident Indians and even Indian currency deposits can be made into the NRO account, unlike the NRE account.
- From stock market point of view, unlike NRE account a NRO account offers wider and more opportunities of investments. Some of the benefits are listed below:
- No PIS bank account is required to invest in NRO status. This was relaxed in an amendment made by RBI
- As NRO account is deemed to be at par with resident account, like any other resident, one can execute intraday
trades, collateral based trades, margin trading funding etc.,
- A NRO account offers an opportunity to trade in Futures and Options which is not possible in NRE account
- Unlike NRE account, NRO account holder can buy any stock without any restriction
- Funds upto 2 million Dollar can be repatriated in a year from NRO account by providing an Auditor’s certificate.
Foreign Currency Non Resident (FCNR) Account
The FCNR is essentially a fixed deposit account (not savings) but the currency risk is borne by the bank and not by the customer. Hence NRIs who are wary of fluctuations in the rupee tend to prefer the FCNR account. Since they are denominated in the currency of your choice, the rates will be linked to the specific LIBORs and the rates of interest are much lower. Here are some of the key features.
- Indian banks offer FCNR deposits in the following designated currencies viz. US Dollars, Great British Pound, Euro, Japanese Yen, Australian Dollars and Canadian Dollars.
- Since it is a foreign currency account, you cannot deposit Indian Currency in this account.
- FCNR deposits are fixed deposits with minimum tenure of 1 year and maximum tenure of 5 years from the date of initiation.
- The entire deposit (principal and interest) is exempt from tax on redemption and such accounts can be opened jointly with another NRI
- It is possible to get an overdraft on your Savings / Current account against your FCNR Fixed Deposit
- While the nomination Facility is available for FCNR accounts, joint accounts with Indian Residents are not permitted.
The choice of the account will largely depend on your return requirements, your risk appetite, your currency risk view, and source of funds and source of application. You can opt for the choice that best suits your investment needs.