05 Foreigner accounts in India

Higher interest rates make opening savings account in foreign banks attractive. Repatriability and taxation should be considered.

Regular accounts

  • Eligibility
    • Foreign Nationals who are employed in India can open domestic bank accounts.
    • Non residents can’t have this. Once you are an NRI, you must redesignate your resident bank accounts as NRO accounts or NRE accounts.
    • When OCI comes to India with an intention to stay for an indefinite period and stays more than 182 days, he/she loses the privileges available to NRIs/PIOs/OCIs. Such OCI is required re- designate / convert his/her NRE/NRO/FCNR Accounts to resident account, or NRE/FCNB account to RFC account as the case may be.

NRO rupee Accounts

  • Eligibility
    • Non-resident (including OCI, NRI), International students, Foreign tourists
    • can be opened as a joint account with other Non-Resident Indian(s) and Resident Indians. However only resident close relative can be added as joint account holder in NRO accounts on “Former or Survivor” basis only.
  • Funds in this account can be repatriated subject to documentation upto USD 1 Million per financial year.
  • Credits
    • purpose of depositing income earned in India.
      • legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.
    • transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels
  • Interest
    • 30.9% TDS is levied on the interest earned on NRO accounts. Customers can avail of DTAA benefits on their NRO accounts thereby lowering the TDS on their interest earned (valid Tax Residency Certificate (TRC) for the current year, Form 10F ,PAN & DTAA application letter need to be submitted every financial year)
  • Debit
    • Eligible debits include all local payments in rupees
  • Remittance
    • Funds up to USD 1 million (or equivalent) per financial year.

FCNR Deposits

These accounts are held in foreign currency - usually $. They yield a lower interest rate.

NRE rupee Accounts

  • Eligibility
    • Non-resident (including OCI, NRI)
  • Credit
    • These accounts are opened for the purpose of depositing income earned overseas. Basically - to invest in rupees or Indian companies.
  • Interest
    • NRE accounts are not taxable in India.
    • Balances held in such accounts are exempt from wealth tax.
  • Debit
    • Eligible debits are local disbursements, transfer to other NRE/ FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares/ securities/commercial paper of an Indian company, etc.
  • Repatriation - no restrictions.

Investment routing

Portfolio Investment Scheme (PINS) is a scheme of Reserve Bank of India defined in Schedule 3 of Foreign Exchange Management Act 2000. Investments made from foreign accounts is repatriable only if it was made from a designated ’repatriable’ account.

As per recent RBI guidelines, NRI/OCI should have a separate bank account exclusively for PINS purposes. Transactions relating to their personal banking as well as on account of transactions relating to shares acquired other then under PINS including IPOs should be routed in a separate bank account not linked to PINS. Account/s can be joint.

The sales proceeds are subject to Capital Gains tax. The rate of tax depends upon the period of holding. Currently the rate for short-term capital gains tax is 30.6% and for long-term capital gains is 10.2% inclusive of surcharge in both the cases. Such tax will be deducted at source by the Designated Bank.