NRI Accounts - NRE, NRO and FCNR

1. Non-Resident (External) Rupee Accounts (NRE Accounts)
NRIs, PIOs, OCBs are eligible to open NRE Accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Balances held in NRE accounts can be repatriated abroad freely. Consequently, funds remitted from abroad or local funds which can otherwise be remitted abroad to the account holder can only be credited to NRE accounts. However, NRE accounts cannot be held jointly with residents. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts. The attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.

Funds held in NRE accounts may be freely transferred to FCNR accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders. The rates of interest on term deposit kept under NRE account are generally higher than the rates of interest on NRO deposits. Under section 10(4)(ii) of Income Tax Act the interest income of the person resident outside India from the NRE account is not taxable in India.

2. Ordinary Non-Resident Rupee Accounts (NRO Accounts)
These are Rupee denominated accounts and can be in the form of savings, current recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National/PIO resident in India leaves for taking up employment, etc. outside the country, his existing bank account in India can be designated as Ordinary Non-Resident Account.

Funds in NRO account cannot be remitted abroad but used only for local payments in rupees. Funds which do not qualify, under the Exchange Control regulations, for remittance outside India are required to be credited to NRO accounts. A NRO account can't be converted into NRE, or funds can't be transferred from NRO to NRE account without a special permission from RBI and proof of all existing funds required, which is a complex procedure than opening a new NRE account.

NRO accounts can be held jointly with residents. Interest payable on NRO accounts is the same as on resident accounts. Interest income, from NRO accounts is taxable. The TDS is deducted at 30% tax rate plus edu cess (while TDS rate on resident accounts is 10% plus edu cess).

3. Foreign Currency (Non–Resident) Accounts (FCNR Accounts)
NRIs/PIOs/OCBs are permitted to open such accounts in US Dollars, Sterling Pounds, Deutsche Marks, Japanese Yen and Euro. The account may be opened only in the form of term deposit for any of the three maturity periods: (i) one year and above but less than two years
(ii) two years and above but leas than three years and
(iii) three years only.

The interest and the repayment of the deposit are in the same foreign currency in which the account is maintained. Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws.

The depositor can also get repayment in Indian rupees, converted at the buying rate on the date of repayment. FCNR accounts can also be utilised for local disbursements including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.