Non Resident Indian Investors

An NRI is an Indian citizen who stays outside India: (a) for purposes of carrying out employment or any business or vocation; (b) under circumstances indicating an intention to stay outside India for an uncertain duration (c) any Indian citizen deputed outside India for a temporary period in connection with employment.

 A citizen of a foreign country (other than a citizen of Bangladesh or Pakistan) is a PIO if (a) he/ she at any time held an Indian passport; or (b) he/ she or either of his/ her parents or any of his/ her grandparents was a citizen of India, or (c) spouse of an Indian citizen or (a) or (b) above

 Persons of Indian nationality or origin resident abroad may open, with authorised banks in India, Non-resident (External) Accounts (NRE Accounts) (Principal / Interest Repatriable), designated in rupees. can be maintained in the form of savings, current or term deposit accounts. Savings - The interest rates on NRE Savings deposits shall be at the rate applicable to domestic savings deposits. Currently the interest rate is 3.5%. Term deposits For 1 year to 3 years, the interest rates on fresh repatriable NonResident (External) Rupee (NRE) Term deposits should not exceed the LIBOR/SWAP rates, as on the last working day of the previous month, for US dollar of corresponding maturity plus 50 basis points. The interest rates for three year deposits are also applicable in case the maturity period exceeds three years. The changes in interest rates will apply to NRE deposits renewed after their present maturity period. 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. Opening of a joint account by a non-resident person with a person resident in India is not permitted under NR (E) Scheme.

NRE Savings Bank A/C Only for non-resident Indians (NRIs). Can be a joint account with another NRI (In case the joint account holder is the spouse, she / he should also be an NRI). Minimum balance Rs.1000/- (Rs. 5000/- in case of Personal Banking Branches)

Note: Amounts in excess of $ 5000 (or equivalent) in currency or $ 10,000/- (or equivalent) in Travellers cheques should be accompanied by a Currency Declaration Form.

NRE Term Deposits Rupee deposits of fixed tenure. Min pd of 1 yr , Max pd 5 yrs. Interest paid quarterly on Term Deposit Receipts (TDRs). Principal & interest amount are fully repatriable. Premature withdrawals permitted based on the following conditions: Interest payable will be the applicable rate less 1%, for the period for which the deposit has been with the bank. No interest is payable for deposits less than 12 months. Recurring Deposits Investment of fixed sum monthly and on maturity - total amount with interest paid. Special Term Deposits Deposit money for a pd between 1 - 5 yrs. Get 2 fold income, with interest both on deposit & on the interest accrued on it. Investment in affordable/very low Min Deposit Amt of Rs. 1000/- only. higher returns with compounded interest every quarter. Access to accounts 24X7 from anywhere in the world, with Internet Banking facility.

 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)credits of income from the account holders investment from the funds in the account except where the investments are permitted on non-repatriable basis. (c) proceeds of foreign currency notes and traveller cheques brought into India by the NRI while on a temporary visit to India, provided bk is satisfied that the prospective account holder has not ceased to be a NRI. The amount so tendered would be endorsed on the Currency Declaration Form CDF, before crediting the rupee equivalent to the account. (d) transfer from an existing Non-Resident (External) /FCNR account of the same person.

Other requirements: The account holder has to furnish undertaking that he would promptly intimate his bank if and when he returns to India for permanent residence. Remittances from the account to the country of residence of the account holder or any other country are freely allowed.

 NRIs can grant power of attorney or such other authority to residents in India for operating their NR (E) Accounts in India. Such authority is restricted to withdrawals for local payments only. The resident power of attorney holder cannot repatriate funds held in the a/cs, outside India, under any circumstances or make payment of gifts on behalf of the account holder.

Safety : Liquidity : can avail a loan / overdraft of up to 90% of deposit amount, against deposit. Premature Withdrawal : on premature withdrawal of special term deposits - interest at 1.0% below the rate applicable for the period the deposit has remained with the bank. Transferability : Transfer to any branch without any extra charges.

Timely Payment of Interest : Flexibility of payment on maturity through cash (subject to limit specified for cash repayments), banker's cheque, or credit to the bank account.
Tax Implications exempt from IT

Operation of NRE Accounts There are certain restrictions on operation of NR (E) accounts and Form A2 / Form A4 is to be completed for few transaction. These forms may be completed either by the resident party to the transaction or by the bk after obtaining necessary information from the resident party account holder. Following transactions of debits/credits are permitted in NR(E) accounts:

Change of Status from Non-resident to Resident Immediately upon return of the account holder to India & on his becoming resident in India, NR (E) account will be redesignated as resident Rs. a/c or converted to RFC a/c as per the option of the a/c holder. However, if the a/c holder is on a short visit to India, the a/c will continue to be treated as NR (E) account even during his stay in India. In respect of funds held in fixed deposits in NR(E) A/cs, interest will be payable at the rate originally fixed, provided the deposit is held for the full even after conversions into resident a/c.

Advantages of NRE Account

1. Term deposits for 1 yr & above made by NRIs carry interest at rates higher than that available to residents in India. 2. The int on deposits & any other income accruing on the bal in the a/cs are free of Indian IT. 3. Balances in the a/cs are free of Wealth-tax. 4. Gifts to close relatives in India from out of balances in the a/cs are free of Gift-tax, when gifted before 1st October, 1998, thereafter there is no gift tax in India. 5. The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without reference to the RBI.

6. Local disbursement from the a/cs can be made freely. 7. Purchases of Units of UTI, Central and State Govt Securities and National Plan/Savings Certificates can be made freely from the balances in these a/cs. 8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or certificates originally purchased out of the funds in the a/c can be freely credited to these accounts by banks, without reference to RBI. 9. A/c holders are supplied special series of cheques for operations on these a/cs. 10. A/c holders can avail of loans/o/ds from bks against security of FDs in their NRE a/cs.

 Disadvantages of NR(E) Accounts NR (E) a/cs are opened in Indian Rs. & all foreign exchange remittances received for credit to those a/cs are first converted to Indian Rs. at the buying rates by the bks. Withdrawal in foreign currency will be permitted by the bank by converting Rs. in the a/c to foreign currency at the selling rate. This conversion loss is to be borne by the a/c holder. Exchange rates are subject to fluctuation on day to day basis and Indian Re 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.

 b) FCNR (B) (Principal/Interest Repatriable)

Deposits of funds in the account may be accepted in such permissible currencies as may be designated by RBI from time to time. Presently the term deposit can be placed with ADs in India in 6 specific foreign currencies (US Dollar, Pound Sterling, EURO, Japanese Yen, Australian Dollar and Canadian Dollar) + 4 others now. Rate of Interest - Fixed or floating within the ceiling rate of LIBOR/SWAP rates for the respective currency/corresponding term minus 25 basis points.

 Can be opened only by an NRI/PIO or jointly with other NRIs. Accounts may be opened with funds remitted from outside, existing NRE/ FCNR accounts, etc. Deposits can be opened in USD, EURO, GBP, CAN$, JPY, AUD, CHF, DKK, NZD and SEK. Conversion to currency other than the designated currency also permitted at the risk and cost of the remitter. Deposit can be made for a min of 1 yr & a max of 5 yrs. Minimum deposit USD 1000 or equivalent. Both principal and interest are payable in foreign currency. Hence, no exchange loss on principal and interest. Premature withdrawal subject to a penal interest of 1%. No interest payable if the deposit is closed within a year. Rupee loans can be taken in India against the security of the deposit.
By the depositor(s) By third parties

Foreign currency loans can be availed against the security of FCNR deposits. Interest earned on FCNR accounts is exempt from Indian income tax.

Features of FCNR Account Only term deposits can be maintained in FCNR accounts, in a time range of 6 months to 3 years. As per RBI guidelines, now banks are free to offer interest on FCNR deposits below LIBOR rates, less 25 basis points for deposits between 6 months to one year, and LIBOR rates plus 50 basis points for deposits over a year. Banks are also free to decide on a fixed or a floating rate of interest on FCNR term deposits. Interest rates are reviewed periodically and determined by directives from RBI. The account holder can choose the periodicity of interest, from half-yearly to annual payments. For permissible debits and credits, the regulations for FCNR accounts are similar to the NRE accounts.

 For conversion of currencies, from designated currency to rupees and vice versa, the days rate of conversion will apply. Funds from the FCNR account are allowed to move within the country at no extra cost to the account holder. For loans and overdrafts against FCNR accounts, the same conditions as the NRE accounts apply. In case of premature withdrawal of the FCNR Term Deposit, a penalty is levied. Interest paid on the account is calculated at a 1% below the committed rate if accounts are closed prematurely. However, no interest is paid on deposits held for less than 6 months, and a penalty would have to be paid as per directives from the apex bank. The RBI guidelines prevail on these terms, issued as and when required.

FCNR A/c after Change in Resident Status NRI deposits such as the FCNR can continue till the maturity date at the contracted rate of interest even after the account holders resident status changes to resident Indian. However, except for interest rates and reserve requirements of FCNR deposits, these accounts are treated as resident accounts from the account holders date of return to India. On maturity, these accounts are converted to either an RFC account or the Resident Rupee Deposit account. As for joint accounts, the same rules as those for NRE accounts apply to FCNR deposits too. For repatriation of funds from the FCNR account, the same conditions as those for NRE accounts apply. Other Features RBI will not provide foreign exchange guarantee.

c) NRO Accounts (Current earnings, repatriable) Savings - Normally operated for crediting rupee earnings / income such as dividends, interest. Currently the interest rate is 3.5 per cent. Term Deposits - Banks are free to determine interest rates. Not tax free Repatriation from NRO balances Authorised Dealers can allow remittance/s upto USD 1 million per financial year (April-March) for bonafide purposes, from balances in NRO accounts subject to payment of applicable taxes. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIO.

 Joint account with other non-residents / resident Indians. May be Savings Bank, Current Accounts, Term Deposit / Special term Deposit / Recurring Deposit. Accounts can be withdrawn for making local payments in Rupees. Investment in shares / securities / immovable properties on nonrepatriable basis with general or specific permission from the RBI. Balances up to a maximum of US$ one million per calendar year, can be repatriated for any bona fide purpose, subject to payment of taxes, and production of a certificate and undertaking as per RBI guidelines. Income Tax rates will be as per DTAA (Double Taxation Avoidance Agreement). Customer can avail the DTAA benefit by submitting Tax Residency Certificate and a Self-declaration. If no Tax Residency Certificate submitted by the depositor, then Income Tax at a rate of 30.90% deducted at source on interest earned in the NRO accounts irrespective of the amount of interest. Advance against NRO term deposits is permissible. Income in India and remittances from abroad can be credited to NRO accounts. Multi-City Cheque (MCC) facility

 Recurring Deposits Invest a small amount every month earn at compounded rates of interest. Flexibility in period of deposit with maturity ranging from 12 months to 120 months Attractive interest rates i.e. from 8.75% to 9.00% (rates are subject to change) loan/overdraft against deposit available Premature withdrawal allowed Minimum monthly instalment of Rs.1000/-

II. Other Investments on repatriation basis

Government dated securities/treasury bills. Units of domestic mutual funds. Bonds issued by a PSU in India. NCDs of a company incorporated in India. Shares in PSUs being dis-invested by the GOI, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids. Shares and convertible debentures of Indian cos under FDI scheme (including automatic route & FIPB). Shares and convertible debentures of Indian cos through stock exchange under Portfolio Investment Scheme. Perpetual debt instruments and debt capital instruments issued by banks in India.

 III. Other Investments on non-repatriation basis Government dated securities (other than bearer securities)/TBs. Units of domestic MFs. Units of Money Market Mutual Funds in India. NCDs of a company incorporated in India. The capital of a firm or proprietary concern in India, not engaged in any agricultural or plantation activity or real estate business. Deposits with a company registered under the Companies Act, 1956 including NBFC registered with RBI, or a body corporate created under an Act of Parliament or State Legislature, a proprietorship concern or a firm out of rupee funds which do not represent inward remittances or transfer from NRE/FCNR(B) Accounts into the NRO Account. Commercial Paper issued by an Indian company. Shares and convertible debentures of Indian cos other than under Portfolio Investment Scheme.

IV. Investment in immovable Property

May acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and non-repatriable funds. In respect of such investments NRIs are eligible to repatriate sale proceeds of immovable property acquired in India to the extent of repatriable funds used for acquiring the property, up to two residential properties. The balance will be repatriable through NRO Account subject to conditions mentioned at item (I) (d). Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR(B) account/inward remittances. Housing Loan in rupees availed of by NRIs from ADs / Housing Financial Institutions can be repaid by the close relatives in India of the borrower.

 V. Facilities to returning NRIs/PIO Returning NRIs/ PIO May continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India. May open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts. Proceeds of assets held outside India at the time of return, can be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

 General With a view to providing further incentives and wider options to persons of Indian Nationality/Origin residing abroad (NRIs) and Overseas Corporate Bodies predominantly owned by NRIs (OCBs) as well as giving opportunities to persons of non-Indian origin and overseas corporate bodies owned by them for making investments in India, Reserve Bank has formulated Non-resident (Non-repatriable) Rupee Deposit Scheme. The Scheme came into effect from 15th June, 1992. Scheme open to all NRIs including foreign citizens of non-Indian origin (except Pakistani and Bangladeshi Nationals) and Overseas Corporate Bodies owned by them. A/cs under the Non-resident (Non-Repatriable ) Rupee Deposit Scheme may be opened in Indian Rs. by ADs out of the funds in freely convertible foreign exchange transferred for the purpose to India, from the country of residence of the prospective non-resident a/c holder or from any other country. A/cs may also be opened by transfer of funds from the existing NRE/FCNR A/cs of the non-resident a/c holder. No penal interest is charged on premature withdrawal of existing NRE/FCNR deposits for the purpose of making investment under the scheme.

 Authorised dealers are free to fix the maturity period of such deposits between 6 mths & 3 yrs. They are also free to fix the rate of interest payable on such deposits. The exact rates may be ascertained from the concerned bank. The maturity proceed of the deposit will not qualify for repatriation outside India at any time. However, the interest accrued on the deposits held under the scheme from the quarter beginning October 1, 1994 are eligible for repatriation . Income from deposits under the schemes will be free from Indian IT. Exemption from IT will, not be available to resident donees and those resident who being joint holders, become owners of the deposits as survivors of the non-resident depositor.

 NRNR vis- a- vis NRO Account The depositor under both the schemes are accepted in Indian rupees on non-repatriation basis. The main points of distinction under both the schemes are as under : (a) Accounts under NR (NR) Scheme can be opened only with proceeds of fresh remittances from abroad or by transfer from existing NR (E) FCNR Accounts of the depositor, whereas legitimate local resources may be utilised to open NRO Accounts. (b) Advances against security of deposit under NRO Scheme are governed by directives of Reserve Bank of India, whereas banks have freedom to determine rates of interest, margin etc. while granting advances against security of deposits held under NR (NR) Scheme.

 Deposits under FCNR scheme were accepted by banks for maturities from 6 months to 3 years. Acceptance of deposits for shorter maturities was discontinued, in a phased manner & w.e.f. 15th Feb, 1994, deposits under FCNR scheme can be accepted only for a maturity pd of 3 yrs. To enable NRI depositors to continue with foreign currency deposits of shorter maturities, a new scheme known as Foreign Currency (Non-resident) Accounts (Banks) Scheme (FCNR (Banks) was introduced, w.e.f. 15th May, 1993. Basically no diff for the depositor between these 2 schemes except the pd of deposits. For bks accepting deposits under this scheme, there are few changes. Exchange risk cover from RBI will not be available & will be borne by the bks themselves. There will be no obligation under the SLR or priority sector lending. No obligation for CRR. Resources mobilised under the scheme can be invested by the banks without any interest rate stipulation. However, nonresident depositors are not affected by these provisions.

 How to choose: Over the years, the RBI has made repatriation fairly liberal. Can freely repatriate NRE and FCNR balances, NRO account balances are repatriable up to USD 1 million per financial year. Important - are tax and currency risk. Check tax impact Interest on the NRO account is taxable and for NRIs, tax is deducted at source at 30%. In case of a Double Taxation Avoidance Agreement (DTAA) between India and other countries, this TDS rate would be lower.

 Interest on the NRE account and FCNR account are tax free in India. However, countries like the US, which levy tax on global income of its residents and citizens will tax this income. So while interest on NRE and FCNR accounts maybe tax free in India, a US resident or citizen would have to add this interest to his total income in the US tax return and pay taxes thereon. For NRIs in tax free zones like the Gulf region, the NRE and FCNR option would work best. For residents of the US, the choice would depend on the tax slab applicable in the US. Assess currency risk Currently, the rupee-dollar relationship is extremely volatile. In such times, currency risk is an important consideration while making investments in India.