Aravali Institute of Management

Presentation on

NRI Deposits

Presented by Dhiraj Yadav

Dheeraj Yadav A 1
ravali Institute of Management
Who is NRI ?
• Non Resident Indian (NRI) means a person who has gone out
of India or who stays outside India
• Section 6(1) Income Tax Act provides that an individual is a
resident in India, if such individual satisfies any
• one of the following two conditions:
– The individual is in India for at least 182 days in the relevant financial
year; or
– The individual is in India for more than 60 days in the relevant
financial year and for
– 365 days or more in the immediately preceding four financial years

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Who is PIO

• Person of Indian Origin means any person

– a) who 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 by virtue of the Constitution of India or the
Citizenship Act, 1955 (57 of 1955) or
– c) the person is a spouse of an Indian citizen or a person referred to in
clause (a) or (b) above

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 OCB
• "Overseas Corporate Body“ means a Company,
Partnership Firm, Society wherein 60 % or more
ownership lies with NRIs or a Trust wherein 60% or more
financial interest is irrevocably held by NRIs.

• Discontinued since 03/10/20031

1. Source – Reserve Bank of India

(http://rbidocs.rbi.org.in/rdocs/notification/PDFs/40569.pdf)
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NRE Account (Non-Resident (External) Rupee Accounts)
• NRIs and PIOs, are eligible to open NRE Accounts
• These are rupee denominated accounts
• Accounts can be in the form of savings, current, recurring
or fixed deposit accounts
• Funds held in NRE accounts may be freely transferred to
Foreign Currency Non Resident (FCNR) accounts of the
same account holder

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NRO Account (Ordinary Non-Resident Rupee Accounts)
• 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, other than
Nepal or Bhutan his bank account in India gets designated as
NRO account
• The RBI determines the rate of interest on these accounts and
issues guidelines for opening, operating and maintaining
them.
• Joint accounts are permitted with resident and non-residents

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 Distinction among NRE account and NRO account

• Balances held in NRE accounts can be repatriated abroad

freely, whereas funds in NRO account are not generally
repatriable up to USD 1 million per financial year (April-
March)1
• The interest income earned on NRO attract income tax
deduction at source
• NRO accounts can be held jointly with residents. However,
NRE accounts cannot be held jointly with residents. It can
be held jointly only with NRIs

1. Source – Reserve Bank of India (http://www.rbi.org.in/scripts/faqview.aspx?

id=52)
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Foreign Currency Account
Foreign Currency Non Resident (Banks) Accounts (FCNR Accounts)

• With the exception of persons of Indian origin from

Bangladesh and Pakistan, all NRIs and PIOs are eligible to
maintain an FCNR account with an authorised bank in India
• The account may be opened only in the form of term deposit
for any of the three maturity periods viz;
– (i) one year and above but less than two years
– (ii) two years and above but less than three years and
– (iii) three years only

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FCNR
• FCNR accounts can be opened with designated
currencies, which are: GBP, USD, Deutsche Mark,
Japanese Yen and the Euro
• As per RBI guidelines, 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

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FCNR
• Interest income is tax free in the hands of NRI until he
maintains a non-resident status under the Indian tax
laws
• FCNR(B) accounts can also be utilised for local
disbursements including payment for exports from India
and for making investments in India, as per foreign
investment guidelines
• Banks are also free to decide on a fixed or a floating rate
of interest on FCNR term deposits

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FCNR
• Interest rates are reviewed periodically and
determined by directives from the Reserve Bank
• Funds from the FCNR account are allowed to
move within the country at no extra cost to the
account holder

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RFC Account - Resident Foreign Currency Account
• Returning NRIs/ PIO may open, hold and maintain
with an authorised dealer in India a Resident
Foreign Currency (RFC) Account to transfer
balances held in NRE/FCNR accounts
• Proceeds of assets held outside India at the time of
return, can be credited to the 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

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RFC Account - Resident Foreign Currency Account
• All NRIs who had been resident outside India for a
continuous period for 1 year eligible
• No cheque book issued for RFC(SB)
account/Current Account

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NON-RESIDENT (SPECIAL) RUPEE ACCOUNTS
– NRSR

• Non Resident Special Rupee [NRSR] Account could

be opened and maintained by an NRI being a citizen
of India or foreign citizens of Indian origin residing
outside India
• The accounts were non-convertible / non-repatriable
and were maintained in Indian rupees in the form of
savings, current and recurring or fixed deposit
accounts
• NRSR accounts discontinued since 01/04/2002

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NON-RESIDENT (NON-REPATRIABLE)
DEPOSIT ACCOUNT - NRNR
• A Non Resident Non Repatriable account could be
opened and maintained by any person resident outside
India (other than individuals or entities of
Pakistan/Bangladesh) including an NRI being a citizen of
India or a foreign citizen of Indian origin residing outside
India
• Scheme of NRNR accounts is discontinued from 1-4-
2002 , The accounts were non-convertible / non-
repatriable and were maintained in Indian rupees in the
form of savings, current and recurring or fixed deposit
accounts

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India Millennium Deposit (IMD)
Scheme
• The India Millennium Deposit (IMD) Scheme, operated by the State
Bank of India got under way on October 21, 2000
• IMDs represent foreign currency deposits in India and are
denominated in US dollars, Pound Sterling and Euro
• The IMDs have a term of 5 years and the interest payment will be
made in the currency in which the IMD is denominated
• Income from the deposit certificates is exempt from Income Tax in
India and is also free from Wealth Tax and Gift Tax
• The main reason behind SBI floating the multi-billion dollar deposit
issue is to boost the foreign exchange reserves of the country and
support the rupee

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Resurgent India Bonds (RIBs)
• Effective from 5th August 98 as under issued by SBI
• Salient Features
– Tenure : 5 years
– Currencies : US Dollar, Pound Sterling and Deutsche Mark
– Interest Rates: US Dollar – 7.75% p.a., Pound Sterling – 8.00%,
Deutsche mark – 6.25%
– Minimum Subscription: US Dollars 2000; Pound Sterling 1000; DM
3000. Additional investments, in multiples of 1000
– Payment of interest: Half yearly, or at the option of the investor,
cumulative
– Tax benefits: Interest exempt from income tax.
– Bond exempt from wealth tax and gift tax. (In any case, all bonds are
free from wealth-tax & there is no gift-tax.)
– Income-tax benefit will be available to transferee and holders also

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Dheeraj Yadav A 18
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RBI Role
• Reserve Bank has granted general permission to
NRIs/PIOs, for undertaking direct investments in Indian
companies, under the Automatic Route
• Purchase of shares under Portfolio Investment Scheme,
investment in companies and proprietorship/partnership
concerns on non-repatriation basis and for remittances
of current income. NRIs/PIOs do not have to seek
specific permission for approved activities under these
schemes

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 The Reserve Bank of India has now further simplified
financial transactions by NRIs/PIOs by granting general
permissions to:
1. All domestic public/private sector mutual funds for issue of
Units to NRIs/PIOs
2. NRIs/PIOs for sale of shares acquired under direct
investment Schemes on stock exchanges in India.
3. NRIs /PIOs for transfer of shares, by way of sale under
private arrangement to another NRI or to a resident
4. NRIs/PIOs have been granted General Permission to invest
in Government Securities and Treasury Bills
Note:- NRIs/PIOs will not have to seek specific permission of the
Reserve Bank for a whole variety of approved
financial/investment transactions. This should considerably
reduce paper work and time taken for undertaking such
transactions

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• NRIs can invest in India as under:

– 1. Investment under Automatic Route with repatriation benefits

– 2. Investment with Government approval

– 3. Other investments with repatriation benefits

– 4. Investments upto 100% equity without repatriation benefits

– 5. Other investments by NRIs without repatriation benefits.

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• NRIs can invest in shares/convertible
debentures of Indian companies under the
Automatic Route without obtaining Government
or RBI permission
• NRIs can freely sell securities acquired by them
with repatriation benefits, without any
permission, through a stock exchange

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SBI Interest rate from December 2010 to
2011
• 1 year NRE deposits interest rate will be 2.54%
• 2 year NRE deposits interest rate will be 2.51%
• 3 to 5 years NRE deposits interest rate will be 2.79%
• 1 year to 2 years FCNR deposits interest rates will be
1.79 %
• 3 year to 4 years FCNR deposits interest rates will be
2.04 %
• 5 years FCNR deposits interest rates will be 2.73 %

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NRI Taxation

• Interest on NRE and FCNR deposits are

exempted from tax in India

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Economy Scenario
• The confidence of non-resident Indians in the Indian
economy seems to be reviving again. After an outflow
of $2 billion in 2008-09, NRI deposits have increased
by nearly $3.7 billion in the first four months of 2009-
10 despite the volatile movements in the interest rates
• NRI deposits had declined to $41.55 billion by end of
March 2009 from $ 43.60 billion in April 2008
• Most of the NRI comes through the Foreign Currency
Non-resident (FCNR) account and Non-resident
External Rupee Accounts

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Economy Scenario
• As interest rates on both FCNR and NR(E)RA are
linked to the Libor (London Inter Bank Rate), Indian
banks find NRI deposits quite cheap when
compared to local deposits

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 at

Dheeraj Yadav Aravali 27

Institute of Management