In India, there are three types of accounts that Non-Resident Indians (NRIs) can open – NRE Account, NRO Account, and FCNR (B) Account.
These NRI accounts can only be opened by individuals who have been residing out of the geographical territories of India for at least 120 days in a year and spent less than 365 days in India in four previous years. It is because such individuals’ residential status would then change to an NRI, as per the Income Tax Act 1961. However, if an individual leaves India with the purpose of employment in a different nation, he/she shall be declared NRI immediately.
As per another condition, the individual must stay for less than 4 years out of 10 previous years in India to classify as a non-resident Indian. This was a tweak introduced in the Union Budget 2020, whereby the earlier classification considered 2 years instead of 4 and 182 days instead of 120 for the purpose.
It is essential for NRIs to understand the various characteristic features of the three bank accounts which are available to them in India. This facilitates the fulfilment of their investment objectives, financial obligations, and plans for their residency adequately.
NRIs can open these accounts with their earnings either originating from within India or from their country of residence, depending on the type of NRI account.
As mentioned earlier, there are three types of accounts available to NRIs in India – NRE stands for Non-Resident External Account, NRO stands for Non-Resident Ordinary Account, and FCNR (Foreign Currency Non-Resident) bank Account.
The fundamental distinction points among these types of accounts are enumerated below –
Non-Residential External or NRE Account can be opened and maintained by NRIs with earnings originating from the respective individual’s country of residence but shall be held in Indian rupee denominations.
For better understanding, let’s consider the following instance – Ms. Avantika is employed in Paris, France, but her mother, who is a dependent individual, stays in Mumbai. She remits 2000 euros every month in her NRE Account for her mother, which is deposited in the account in Indian currency. Therefore, considering the prevailing exchange rate in that month was 1 EUR = 80 INR, her remittance of 2000 Euro would be held as Rs. 1,60,000 in her NRE Account.
An NRO or Non-Residential Ordinary Account can be opened with income earned from within India and shall be held in that deposit account in INR denominations. The source of income can either be rent, dividends, etc.
For instance, Mr. Rahul, who is an NRI residing in Newark, USA has an apartment in Mumbai which he has leased to Mr. Arman. To receive rent earnings from such a lease, Rahul has to open an NRO account where Arman shall deposit the stipulated rent amount periodically.
As deposits in an NRO account are made in rupee denominations, there is no step of currency conversion involved.
FCNR or Foreign Currency Non-Residential Account facilitates deposits made by Non-Residential Indians (NRIs) or Persons of Indian Origin (POI). NRIs or POI can make these deposits in the currency of their country of residence and shall be held in that account in any one of the foreign currencies prescribed by RBI.
The currencies in which deposits can be held in an FCNR (B) Account are – US Dollars (USD), Canadian Dollar (CAD), Australian Dollar (AUD), Euro (EUR), Great Britain Pound Sterling (GBP), Singapore Dollar (SGD), Hong Kong Dollar (HKD), Japanese Yen (JPY) and Swiss Franc (CHF).
Hence, for instance, if an individual has earnings in any of these currencies, their deposits in an FCNR (B) Account shall not be subject to conversion. On the other hand, if an individual earns in any other currency, deposits made in it shall be converted to any one of the prescribed currencies mentioned above.
The key distinctions among the three types of NRI Accounts are discussed in the table below.
| Parameters of difference | NRO Account | NRE Account | FCNR (B) Account |
| Currency denomination of deposits | Indian Rupee (INR) | Indian Rupee (INR) | USD, CAD, AUD, HKD, SGD, EUR, GBP, CHF, JPY |
| Purpose of account | An NRO account can be opened by an NRI to deposit his/her earnings that originate from India in INR. | An NRI Account can be opened by an NRI to deposit his/her earnings that originate from that individual’s country of residence in INR. | An NRI can open an FCNR account to deposit his/her earnings from that individual’s residential country in any of the nine currencies mentioned above. |
| Taxability | Both principal and interest earned are taxable. | The entire balance (interest + principal) is exempted from tax. | Interest earned on FCNR deposits is exempted from tax. |
| Types of accounts | Individuals can open savings, current, or fixed deposit accounts under this category | NRE accounts facilitate savings, current, and fixed deposit accounts | Only fixed deposit accounts can be opened with a minimum maturity period of 1 year |
| Joint account facility | It can be opened with another NRI or an Indian resident. | It can only be opened with another NRI. | It can only be opened with another NRI. |
| Repatriation of balances | The interest earnings can be repatriated fully.
The principal amount can only be repatriated to the extent of 1 million USD or equivalent in a fiscal year. |
The entire balance is fully repatriable. | The entire balance is fully repatriable. |
| Period of fixed deposits | Depends on the financial institution. | Depends on the financial institution. | Maturity tenure allowed on FCNR fixed deposits is 1 – 5 years. |
| Effect of exchange rate | Not affected by prevailing exchange rates | Affected by prevailing exchange rates | Affected by prevailing exchange rates if there is currency conversion involved and vice versa |
The eligibility criteria for opening an NRE, NRO, and FCNR (B) account depend upon respective banks. However, specific eligibility criteria are followed by every financial institution in India in regard to NRI accounts. The following categories of individuals can open these accounts –
The documents required for NRI account are –
Several other forms might be required for opening an NRI account, depending upon the concerned financial institution.
One of the primary NRI account benefits is that individuals can partake in the stock market trading and different investment schemes through them. Such investments are facilitated through the Portfolio Investment Scheme (PIS) or NRI Portfolio Investment offered by financial institutions.
It is an RBI scheme that allows NRIs to trade in market-linked financial instruments such as equity shares or debt instruments such as company debentures through their NRI accounts.
Individuals with NRE and FCNR (B) accounts can enjoy tax-free interest earnings on their deposits as per the Income Tax Act 1961.
Such global earnings would, however, be taxable in India by virtue of his/her domicile or residence if an NRI does not bear a tax liability to any other country, as per the Union Budget 2020 proposal.
NRIs choosing to park their funds in any fixed deposit account such as NRE FDs or FCNR enjoy substantial returns on total deposits; at negligible risks as such accounts have no underlying ties to stock market fluctuations.
Individuals can choose to deposit their earnings originating from a foreign country in an FCNR without such earnings undergoing conversion into INR. This facility allows NRIs to avoid exchange rate fluctuations and consequent reductions in the deposit value.
Individuals who choose to invest in FCNR to safeguard their finances against exchange rate fluctuations have only the option to open a fixed deposit account with maturity tenure ranging from 1 – 5 years.
Deposits made in foreign currencies in an NRE account are subject to conversion into Indian rupees. Hence, such deposits might fluctuate in value due to appreciation of domestic currency (or depreciation of foreign currency), thereby incurring losses during repatriation.
Even though the option of premature withdrawal is available on such accounts, any cancellation of such fixed deposits made before one year would result in nullification of interest earnings from such deposits.
Individuals who have a source of income in India can open an NRO account to keep such funds parked.
Other than that, NRIs who have dependents in India or are planning to return after a point of time shall open an NRI account to facilitate remittance.
Additionally, individuals seeking to participate in stock market trading in India shall also open NRI accounts to enable such transactions.
However, it is necessary to note that the three types of NRI accounts have varying terms and conditions and cater to different monetary requirements.
Also, these terms might marginally vary concerning respective financial institutions. Hence, individuals should duly undertake adequate financial planning and requirements and accordingly deposit funds in the most suitable and best NRI account(s).