NRO,FCNR,NRE ACCOUNT SCHEME AND FOREIGN INVESTMENT

1. NRO,FCNR,NRE ACCOUNT SCHEME AND FOREIGN INVESTMENT

2. NRO –ACCOUNT • Ordinary non-resident account in rupees. • The existing accounts of any Indian National can be designated as Ordinary Non-Resident Accounts, upon your NRI status. • these accounts can also be opened with initial deposits paid into any bank or post office (saving a/c) authorized to open Non-Resident accounts. • NRO account can be of any type: saving, current or Fixed Deposit. • Interest payable on NRO accounts is the same as on resident accounts. They vary from bank to bank as they have been freed from RBI regulation. You can also have a joint account with residents in India. • NRO accounts may be re-designated as resident accounts when the account holder becomes a resident in India. 

3. DISADVANTAGES OF NRO: • Interest earned on balances in NRO Accounts is not exempted from Indian Income tax. Instead income tax is deducted at source (TDS) i.e. at the time of payment of interest by the bank. • Balance held in NRO account can neither be repatriated. No remittance in foreign currency is allowed without prior approval of Reserve Bank as well. So overall, the money stays 'as is' in India.

4. FCNR ACCOUNT: • Foreign Currency (Non Resident) Account (FCNR A/C) • FCNR A/C is maintained only in term deposit. The account can be maintained only in Pound, Sterling, U.S. dollar, Deutsche Mark and Japanese Yen. • The interest and the repayment of the deposit is also made in the same foreign currency in which the account is maintained. • The depositor may at his own will, obtain repayment in Indian rupees, converted at the buying rate on the date of repayment. • Deposits under this scheme are held for the following period: 6 months and above, but less than 1 yr-1 yr and above but less than 2 yrs-2 yrs and above but less than 3 yrs-3 yrs only.  • Premature withdrawal is allowed, but there will be a penalty. • Non-Resident Account holders can grant power of attorney or such other authority to residents in India for operating their FCNR(B) accounts in India.

5. NRE ACCOUNT • Persons of Indian nationality or origin resident abroad may open, with authorized banks in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees. • These accounts can be maintained in the form of savings, current or term deposit accounts. • Opening of NRE Accounts jointly in the names of two or more non residents is permitted provided all the account holders are persons of Indian nationality or origin.  • For opening these accounts, the funds are required to be remitted to India through a). proceeds of foreign exchange remittances from abroad through banking channels in an approved manner. b).proceeds of foreign currency notes and traveler cheques brought into India by the non-resident while on a temporary visit to India. C).Transfer from an existing Non-Resident (External) FCNR account of the same person.

6. Proceeds of remittance arranged by the account holder through banking channels from any country can be credited to this account. • Authorized dealers may allow operations on NRE Accounts by persons resident in India in terms of Powers of Attorney • The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.

7. ADVANTAGES OF NRE ACCOUNT • Term deposits for one year and above made by non-residents carry interest at rates higher than those available to residents in India. • The interest on deposits and any other income accruing on the balance in the accounts are free of Indian Income-tax. • The balances in the accounts are free of Wealth-tax. • The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without reference to the Reserve Bank. • Local disbursement from the accounts can be made freely. • Purchases of Units of Unit Trust of India (UTI), Central and State Government Securities and National Plan/Savings Certificates can be made freely from the balances in these accounts.

8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or certificates originally purchased out of the funds in the account can be freely credited to these accounts by banks, without reference to the Reserve Bank. • Account holders are supplied special series of cheques forms for operations on these accounts. • Account holders can avail of loans/overdrafts from banks against security of fixed deposits in their NRE accounts. • No need to joint account with an Indian resident.

9. DISADVANTAGES OF NR(E) ACCOUNTS • NR (E) accounts are opened in Indian rupees and all foreign exchange remittances received for credit of those accounts are first converted to Indian rupees at the buying rates by the banks. Any withdrawal in foreign currency will be permitted by the bank by converting Indian rupees in the account to foreign currency at the selling rate. This conversion loss is to be borne by the account holder. • Exchange rates are subject to fluctuation on day to day basis and Indian rupee has depreciated against all major foreign currencies in recent past. Balances held in Indian rupees in NR (E) accounts are thus exposed to exchange fluctuation risk

10. Comparison of three account scheme

13. 3. What’s the difference in the tax treatment for interest earned on an NRE and an NRO account? • The interest earned on any type of NRO bank as well as the credit balances in this kind of account are taxed under the account holder’s tax bracket. On the other hand, interest earned on the NRE account is totally exempted from income tax, and the credit balances in the account don’t attract any wealth tax. Any gift given to a close relative doesn’t attract gift tax. •  NRE and NRO accounts are two different types of rupee accounts permitted by the Government of India for NRIs. Have you tried opening either of these accounts? With which bank did you open your account? How did you decide which one to go for?

14. UNDERSTANDING OF SOME IMPORTANT TERMS. • Person origin India: • He/she, at any time, held an Indian passport, or • Parents or any of his grandparents hold Indian citizenship. Invest on repatriable basis: To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions: • The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE / FCNR account of the non-resident investor. • The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax. 

15. N.R.I AS PER FEMA ACT: • An individual shall be deemed to be a non-resident in following cases: • When he stays in India for less than or up to 182 days during the preceding financial year. The period of stay may not be ‘continuous’ and the same shall be calculated by adding up the days of his stay in India during that financial year. Thus a student who goes for studies abroad and his stay in India during a financial year is less than 182 days, then he shall be treated as non-resident Indian for the next financial year. Similarly, tourists and all others who have gone out of India without the purpose of taking up employment or starting any business abroad, shall be treated as non-residents if, their stay in India during the preceding financial year was less than or up to 182 days. • When he goes or stays outside India for any of the following purposes: • For or on taking up employment outside India, or • For carrying on outside India a business or vocation outside India, or • For any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. • In such cases, the person becomes a ‘non-resident’ irrespective of the period of his stay in India. It is pertinent to note here that while the period of his stay in India shall be reckoned for the preceding financial year, the event of going or staying abroad for any of the aforesaid purposes shall be reckoned for the current financial year.