When it comes to investment opportunities and banking needs in India, NRIs are required to open special NRI bank accounts. As per RBI guidelines, any person who has attained the status of an NRI is no longer allowed to operate a regular bank account in India and must open an NRI bank account for their financial needs. An NRI bank account can be opened by a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO), and allows an individual to deposit, invest, and manage the income they earn abroad or in India. Many RBI-regulated banks in India offer NRI account facilities that can be availed for fulfilling a wide range of financial objectives, like savings, remittances to dependants still living in India, making investments in India, taxation, etc. There are basically three types of NRI bank accounts that an individual can open, based on their financial goals.
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About the Different Types of NRI Accounts
Different types of NRI accounts serve different purposes. An NRI should consider why they are opening the account (for remittances, investment purposes, savings, etc.), which earnings they want to deposit (income from Indian sources or from foreign sources), and their financial goals, before choosing the type of NRI account they wish to open, based on the features and benefits the accounts offer.
These are INR-denominated accounts that can be opened by an NRI alone or jointly, but only with another NRI or PIO, and are the best way for transferring their income to India. You can only deposit income earned from foreign sources in an NRE account. Deposits and withdrawals can be made in foreign currency, where the deposits will be converted to INR, and back to the foreign currency in case of a withdrawal. NRIs can also make investments in India through an NRE account. The interest earned with this type of NRI account is tax-free.
These are also INR-denominated accounts that can be opened by an NRI alone or jointly, with another NRI, PIO, or an Indian resident. The NRO account is for depositing the income an NRI earns from Indian sources. While deposits can be made in Indian as well as foreign currencies, withdrawals can only be made in INR. The interest earned is liable for taxation.
These are fixed deposit accounts that can be opened by an NRI alone or jointly, with another NRI, PIO, or a close Indian relative. The deposits can be retained in RBI-approved foreign currencies (USD, GBP, EUR, SGD, HKD, CAD, AUD, CHF, and JPY). As deposits are in foreign currencies, the interest rate offered, being free from stock market fluctuations, is fixed, but may vary based on the tenure of deposit and the foreign currency.
While NRO and NRE accounts can be opened in the form of savings, current, recurrent, or fixed deposit accounts, FCNR accounts can only be opened as fixed deposit accounts.
Benefits of Opening an NRI Account
Here are the best benefits that NRI accounts offer:
1. Easy Income Management
An NRI bank account makes it easy for an NRI to manage their income from Indian sources, like dividends, pension, rental income, etc.
2. Enables Investments in India
One of the top benefits of NRI accounts is that they allow you to invest in Indian instruments. NRIs who want to diversify their investment portfolio and wish to invest in Indian avenues like the stock market, mutual funds, equities, debt instruments, etc., need to open an NRI bank account. RBI has a special Portfolio Investment Scheme (PIS) in place to facilitate such investments.
3. Tax Benefits
According to the Income Tax Act of 1961, the interest generated by deposits made in NRE and FCNR accounts in India is exempt from taxes.
An NRI account makes it extremely easy for NRIs to transfer funds to their loved ones or dependents who are still residing in India. With NRE and FCNR accounts, the income you earn from investments in India, the principal amount you have deposited, and the interest generated by your deposit are fully repatriable, with no applicable limits. On the other hand, while NRO accounts also allow for repatriation, there are certain limits on the same, which may vary from bank to bank.
5. Low Minimum Balance Requirements
Most banks have quite reasonable minimum balance requirements for NRI accounts, which may be as low as INR 10,000. So, NRIs don’t have to worry about being unable to use a large portion of their deposits in order to maintain the minimum balance required.
6. Make Deposits in Multiple Currencies
NRIs can make deposits in their NRI accounts in Indian currency or in the currency of the country they are presently residing in, as long as it is one of the currencies approved by the RBI for the same. Additionally, NRIs can also retain their deposits in RBI-approved foreign currencies through FCNR deposits.
7. High Returns
NRIs can opt to open NRE or FCNR fixed deposit accounts, which offer substantial returns on the deposit. The risks involved in these accounts are also negligible as they are not affected by the fluctuations of the stock market.
8. Avoid Fluctuations in Exchange Rate
NRIs can deposit the income they earn from foreign sources in an FCNR account, where they aren’t required to convert the deposit from the foreign currency to INR. This makes it easy to avoid fluctuations in foreign exchange rates, which many times leads to a reduction in the deposit value.
9. Loan Facilities
Many banks offer NRI account holders fund-based and non-fund-based loan facilities, where they can get loans sanctioned against the money deposited in their NRI account as security. This can help NRIs meet urgent financial needs in a convenient manner.
Today, an NRI can open any type of NRI account with an Indian bank remotely, without having to visit the branch themselves. Most banks have an option to open NRI accounts online in a hassle-free manner, with easy documentation. Additionally, banks also offer several facilities for enhanced convenience, like internet banking, which allows NRIs to operate and manage their accounts from anywhere in the world; international debit cards, which can be used for transactions or withdrawals; etc. FCNR deposits can only be withdrawn after maturity, but premature withdrawal is also allowed, subject to certain terms and conditions.
Opening an NRI account is the most convenient and safe way for NRIs to manage their income and savings.