Non-Resident Indians (NRIs) who have investments in India can open an NRI account to manage their finances and investments. Those residing outside India for over 120 days in a year and if have spent less than 365 days in India in the last four years are eligible to open an NRI bank account. These accounts are designed for NRIs and offer benefits, such as tax savings, easy money transfers and investment opportunities.
What is an NRI account?
A Non-Resident Indian Account or an NRI account is opened by a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) or an Overseas Citizen of India (OCI) with a bank or financial institution (FI) authorised by the Reserve Bank of India (RBI). NRIs can use the NRI accounts to deposit their income from India or any other country through their employer or from an investment.
Types of NRI accounts
There are various types of NRI accounts designed to fulfil different financial needs of an individual:
- Non-Resident Ordinary (NRO) Account: This type of account can be opened with earnings arising from India. The income source can include assets or investments, such as rental income, dividends, interest, etc. One can earn interest on deposits and make remittances of funds to India.
- Non-Resident External (NRE) Account: The NRE account can be opened by an NRI with his income originating in his country of employment/ residence. This enables him to easily manage his foreign earnings and make remittances to home country. Interest earned does not attract tax in India.
- Foreign Currency Non-Resident (Banks) Account/ FCNR (B): This type of account comprises bank deposits made by NRIs, PIOs and OCIs. The deposits may be denominated in a foreign currency as prescribed by the RBI. Interest on foreign currency deposits is tax-free. There are higher interest rates in FCNR-B accounts compared to NRO accounts.
NRI account benefits
There are several advantages of opening an NRI account, which include easy transfer of funds, tax savings, etc.
See also: How are funds saved in an NRO account taxed?
Easy money transfer
An NRI account is beneficial in terms of seamless funds transfer. One can easily transfer money to and from his NRI account in India to his bank account in his home country. Having an NRI account allows him to repatriate his income to his families in India, manage his finances and make investments in his home country.
Repatriation of funds
NRO and NRE savings account provide a seamless transfer of funds, including the principal and interest abroad, without any restrictions. Thus, an NRI can easily withdraw money from his account or transfer the money back to his foreign bank account without any penalty. Funds in NRE accounts are completely freely repatriable, while funds in an NRO account are repatriable after applicable taxes.
Tax savings
NRIs get tax benefits on the interest earned on NRE and FCNR (B) accounts under the Income Tax Act 1961. The interest income on NRE accounts is completely tax-free in India, whereas interest on FCNR accounts is exempted from income tax for the first five years. Thus, an NRI account is a reliable investment option for NRIs to increase his wealth without any tax liabilities.
Convenience
An NRI can easily open and maintain an NRI account from his location overseas without the need to visit his bank branch in India. Banks normally provide online and mobile banking facility, which makes the process smooth and simple.
Investment avenues and attractive returns
Opening an NRI account allows NRIs to make investments in India, such as mutual funds, equity, debt instruments, etc. The investments are facilitated through the Portfolio Investment Scheme (PIS), a scheme enabled by the RBI through banks and FIs for trading and investments by NRIs in India. One can also invest in fixed deposits and other asset classes through his NRI accounts. These investments allow them to gain steady returns, capital appreciation and financial security in the long run.
Loan facility
NRI account holders can avail a loan from an authorised bank or FI in India against the security of the funds deposited in the NRI account. Here, loan refers to all types of fund-based and non-fund-based facilities.
Safeguard against Exchange Rate Fluctuations
The savings made in an FCNR-B by NRIs from their income earned in a foreign country account do not require conversion into INR. This helps NRIs lower the risk of foreign currency rate fluctuations and the subsequent reduction in deposit value. Thus, opening an NRI account can protect the individual from the depreciation of the Indian rupee.
Minimum balance requirement
Most banks or FIs do not have any minimum balance requirements for majority of the accounts. Most banks may need the account holder to maintain only Rs 10,000 as a minimum balance.
In addition to the above benefits, banks may also provide a range of debit and credit cards to NRIs. One also gets dedicated customer support.
FAQs
What is the minimum balance in the NRI account?
One must check the minimum balance requirement for an NRI account from the bank or FI. In most banks, the requirement is only Rs 10,000 as a minimum balance.
What are the types of NRI accounts?
There are three types of NRI accounts – a Non-Resident External (NRE) account applicable for income generated in foreign currency, a Non-Resident Ordinary (NRO) account applicable for both foreign currency and Indian rupees and Foreign Currency Non-Resident (FCNR) account where an NRI can hold only foreign currency.
What are the interest rates applicable for NRI accounts?
The interest rates applicable for NRI accounts are usually higher than the rates applicable for resident accounts. The interest rates vary based on the bank, type of account, and the amount deposited.
What are the tax benefits of opening an NRI account?
The interest income on NRE and FCNR accounts is tax-free in India.
Do NRIs have to pay taxes?
Interest generated on NRO accounts is subject to taxation. NRIs are required to pay capital gains tax on the sale of assets in India.
How to open an NRI account?
An NRI can open an NRI account online or visit bank branch in India. The KYC documents will include passport, visa, etc.
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