All you want to know about Foreign Currency Non Resident (FCNR) account
3 min read . Updated: 15 Sep 2022, 05:21 PM IST
PremiumThe FCNR account can only be opened as a fixed deposit and only in 'permitted foreign currencies' freely convertible in Indian rupees
The long term and persistent depreciation in Indian Rupees results in, foreign currency denominated investment products, generally giving higher returns in terms of Indian rupees over the years. In addition to real estate and Indian equity investment in India, Foreign Currency Non Resident (FCNR) account also offers a safe and liquid investment opportunity to NRIs. Let us discuss various features of FCNR account.
Basic features of the account
The FCNR account can only be opened as a fixed deposit and only in “permitted foreign currencies" freely convertible in Indian rupees. These include various foreign currencies like Pound Sterling, US Dollar, Canadian Dollar, Australian Dollar, EURO and Japanese Yen etc.. These accounts can be opened for a period between one year and five years. In case of premature withdrawals, you have to pay penalty in terms of reduction in the interest rate which you will get. However, in case the deposits under FCNR are liquidated before completion of one year, no interest is payable.
Loan can be taken against FCNR deposits for personal or business needs but not for the purpose of onward lending or for acquiring agricultural land or for any real estate business. However you can use the money for acquiring any flat or house for your own residence in India.
Who and how of opening of FCNR account
Any person who is an Indian Citizen and a non-resident under FEMA can open an FCNR account. Moreover, non-Indian Citizen and Person of Indian Origin are also allowed to open the FCNR account. Both these categories of persons are collectively referred to as NRI under FEMA. The FCNR account can be opened in single or joint names but in case of joint account the joint holder also needs to be an NRI. Your relatives are allowed as joint account holder on “former or survivor basis". Like other bank accounts, you can appoint nominee for your FCNR account and the nominee need not be an NRI. The FCNR account can be opened with money transferred in foreign currency through banking channel outside India or by transfer from your NRE account or any other FCNR account or by way of a cheque drawn on any bank account maintained in foreign currency. It can also be opened by tendering traveller cheques or foreign currency while travelling to India.
It is not necessary for you to be physically present in India for opening an FCNR account. The NRIs can open this account in the overseas branch but need to submit some basic documents like copy of passport, proof of foreign address etc.
Interest rate and Exchange rate
The rate of interest for FCNR account for each of the currency is different. The interest rate on FCNR account is generally lower than the rate for deposits of Indian residents. However, the rate of interest on the FCNR accounts is generally higher than offered in their country of residence. Since these accounts are opened in foreign currency, there is no risk due to changes in the exchange rate of the currency of the deposit and Indian currency. As the exchange rate risk is eliminated and the rate of interest offered is higher than those offered by their home countries, these deposits offer a better risk free investment opportunity to the NRIs. The interest credited in FCNR account and the principal amount in FCNR account is fully repatriable and can be freely remitted outside India without any permission from RBI. The interest can also be credited to your NRE or NRO account.
Taxation of the interest on FCNR
The interest on FCNR account is exempt from tax in India but may be taxable in country of your residence depending on your residential status under the country of your residence. In case you become a resident under FEMA, when you return back to India for good, the interest on FCNR account will still be exempt till the maturity of the FCNR account. This is in contrast to the interest on NRE account which remains tax exempt till you are a non-resident under FEMA and becomes taxable immediately on becoming resident under FEMA.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.
