One of the first things that Indians need to take care of when they turn non resident is their bank accounts. As per RBI regulations, NRIs are not allowed to hold a current account or savings account in the country. There are specific non resident bank accounts that have to be maintained depending on what economic transaction the non resident wants to do.
To collect incomes from sources in India, an NRI has to maintain a Non Resident Ordinary account. To invest funds in the stock market and maintain a freely repatriable account, an NRE account has to be opened. However, these two accounts are maintained in Indian Rupees. To maintain a foreign currency account, NRI’s can opt for an FCNR account.
FCNR stands for Foreign Currency Non Resident which means a foreign currency deposit account. An FCNR account is like maintaining a fixed deposit but in foreign currency.
Here are some of the features of this account:
This account is held in foreign currency which means the investor is not exposed to any foreign currency risks due to changes in exchange rates. The foreign currencies in which this account can be opened depends on the bank. Some of the popular currencies in which an FCNR account can be opened are US Dollar, Euro, British Pound, Japanese Yen, Australian Dollar, Canadian Dollar.
This account can be opened by a non resident or a person of Indian origin. It can be opened jointly with other non residents.
Since the FCNR deposit is maintained in foreign currency, the entire amount can be freely repatriated. Both principal amount and interest are freely repatriable.
The interest earned on the deposit will not be chargeable to tax. It is exempt which means it will not be considered as the non resident’s income in India. However, the non resident has to consider the taxation impact in his country of residence.
The standard duration of this fixed deposit is 1 year and the deposit can be renewed after the end of one year.
An NRI can avail a loan under the FCNR deposit scheme just like it is possible to take a loan against a fixed deposit. However, the loan amount cannot be used for agricultural purposes in India and to re-invest the funds. Investment in real estate is also not permitted.
Before opening an FCNR account, it is important to check the minimum deposit allowed under this scheme.
There are rules for premature withdrawals on FCNR account. If the deposit is withdrawn before the completion of 1 year, then no interest is payable even on a pro rata basis. However, if the deposit is withdrawn after the completion of 1 year, the rate will depend on the FCNR deposit rates of the bank. For example, if the deposit is withdrawn after 2 years instead of 3 years, the interest rate for 2 year deposit will apply.