Anu Anto, a non-resident Indian (NRI) who works as an information technology professional at Emke Group in Muscat, transfers money to his family in India every month. For this, he uses his non-resident (external) rupee (NRE) account at State Bank of Travancore (SBT) in Thrissur, Kerala. “I opened the account with SBT because it is close to my house and is easier for my family to withdraw money whenever they want,” says Anto. Anto is one among many NRIs who send money to their families in India. According to data from the Reserve Bank of India, in 2011-12, NRI deposit flows witnessed a sharp rise of at least 200% and stood at $11.9 billion compared with an inflow of $3.2 billion in 2010-11.
So if you are one of those who receive money from your kid or spouse abroad or know somebody who wants to save and invest in India, you should know what banking options are available to them.
India broadly offers three accounts for NRIs: NRE account; non-resident ordinary rupee account (NRO account) and foreign currency non-resident (bank) account (FCNR (B) account). While the NRE and FCNR accounts can be opened by NRIs, the NRO account can be opened by any person who is a resident outside India, except those residing in Nepal and Bhutan.
This is the most widely used account, mainly because a majority of NRIs send money to their families and one can withdraw from the account in India. The NRE account can be opened in the form of savings, current, recurring or fixed deposit accounts. Though the banks are free to determine the interest rates of term deposits with maturity of one year and above, the rates can’t be higher than those on comparable domestic rupee deposits.
It is a rupee denominated account and the interest income and deposit here are exempt from income-tax and wealth tax, respectively.
A resident Indian can’t open an NRE account individually. However, he can open in jointly and operate it as the holder of a power of attorney (PoA). Deposits can be made only by NRIs and the PoA-holder in India can use the account only for withdrawal.
This account works for those NRIs who have investments in India or want to start investing. It can also give interest rate advantage to those living in developed countries as India offers a higher rate on savings and deposit accounts compared with the US, the UK and the euro zone. Says Vishal Dhawan, a Mumbai-based financial planner, “It works for NRIs who have income in India and who invest in India. But here you have to consider the fact that there is limit when you want to remit money overseas to this account.”
According to RBI, an NRI can’t send more that $1 million (Rs.5 crore) through an NRO account per financial year, subject to payment of applicable taxes. The limit of $1 million includes sale proceeds of immovable properties held by NRIs.
Like the NRE account, this account too is maintained in Indian rupees. Deposits can be made in NRO accounts from anywhere such as an overseas account. Also, the account holder’s dues in India such as rent, dividend, pension, interest, sale proceeds of assets, including immovable property acquired out of the Indian rupee or foreign currency funds, or funds received by way of legacy or inheritance can also be deposited in this account. Says Suresh Sadagopan a Mumbai-based financial planner, “You can withdraw money from NRO account only in India.”
NRO account can also be opened by a foreign national of non-Indian origin visiting India with funds remitted from outside India through banking channel or by sale of foreign exchange brought to India.
FCNR (B) deposit accounts are for those looking for fixed deposits in India without any forex rate risk.
It is a term deposit account with tenors between one and five years. Interest rate on FCNR (B) deposits is fixed on the basis of the London inter-bank offered rate (Libor)/swap rate prevailing on the last working day of the previous month. For example, the revised FCNR (B) deposit rate that came into effect on 1 January is based on the Libor rate released on 31 December at 5pm. Rates are revised on the first day of every month.
FCNR (B) deposits are maintained in US dollars, pound, euro, Australian dollars, Canadian dollar, yen, Swiss franc, New Zealand dollar, Swedish krona, Danish krone, among others.