Special Schemes for Non-Resident Indians (NRIs) :

Non-resident deposits are mobilized from the persons of Indian nationality, or Indian origin living abroad (NRIs) and Overseas’ Corporate Bodies (OCBs) predominantly owned by such persons.

1. Non-Resident Indians (NRIs) These fall into two categories:

(a) Indian citizens who stay abroad for employment/business/ vacation or for any other purpose in the circumstances indicating an intention to stay abroad for an uncertain period. Income Tax Act has prescribed minimum residence period abroad in a year or block of years for determining income tax liability of such persons in India.

(b) Persons of Indian Origin (PIOs) other than Pakistan or Bangladesh, who had held Indian Passport at any time, or whose parents or grand- parents were citizens of India, or the person is a spouse of an Indian citizen.

2. Overseas Corporate Bodies (OCBs): These refer to a company, partnership firm, society or other corporate body owned directly or indirectly to the extent of at least 60 per cent by NRIs.

NRIs can maintain the following types of accounts with banks in India, which are designated as Authorized Dealers (ADs) by the RBI.

(NRI accounts are exempt from income tax, wealth tax, gift tax. Loans against the security of these deposits can also be granted by banks in India.)

(a) Ordinary Non-Resident (NRO)

NRIs can open Non-Resident Ordinary (NRO) deposit accounts for collecting their funds from local bona fide transactions. NRO accounts being Rupee accounts, the exchange rate risk on such deposits is borne by the depositors themselves. When a resident becomes a NRI, his existing Rupee accounts are designated as NRO.

Such accounts also serve the requirements of foreign nationals resident in India. NRO accounts can be maintained as current, saving, recurring or term deposits. While the principal of NRO deposits is non-repatriable, current income and interest earning is repatriable. Further NRI/PIO may remit an amount, not exceeding US $ 1 million per financial year, out of the balances held in NRO accounts/ sale proceeds of assets /the assets in India acquired by him by way of inheritance/legacy, on production of documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter, and an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes vide their Circular No. 10/2002 dated October 9, 2002.

(b) Non-Resident (External) (NRE) Accounts

The Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE scheme, was introduced in 1970. Any NRI can open an NRE account with funds remitted to India through a bank abroad. This is a repatriable account and transfer from another NRE account or FCNR(B) account is also permitted. A NRE rupee account may be opened as current, savings or term deposit. Local payments can be freely made from NRE accounts. Since this account is maintained in Rupees, the depositor is exposed to exchange risk. NRIs / PIOs have the option to credit the current income to their Non-Resident (External) Rupee accounts, provided the authorized dealer is satisfied that the credit represents current income of the non-resident account holders and income tax thereon has been deducted / provided for.

(c) FCNR (B) Scheme

Non-Resident Indians can open accounts under this scheme. The account should be opened by the non-resident account holder himself and not by the holder of power of attorney in India.

– These deposits can be maintained in any fully convertible currency.

– These accounts can only be maintained in the form of term deposits for maturities of minimum 1 year to maximum 5 years.

– These deposits can be opened with funds remitted from abroad in convertible foreign currency through normal banking channel, which are of repatriable nature in terms of general or special permission granted by Reserve Bank of India.

– These accounts can be maintained with branches, of banks which are authorized for handling foreign exchange business/nominated for accepting FCNR(B) deposits.

– Funds for opening accounts under Global Foreign Currency Deposit Scheme or for credit to such accounts should be received from: –

– Remittance from outside India or

– Traveller Cheques/Currency Notes tendered on visit to India. International Postal Orders cannot be accepted for opening or credit to FCNR accounts.

– Transfer of funds from existing NRE/FCNR accounts.

– Rupee balances in the existing NRE accounts can also be converted into one of the designated currencies at the prevailing TT selling rate of that currency for opening of account or for credit to such accounts.

Advantages of FCNR (B) Deposits

– Principal along with interest freely repatriable in the currency of the choice of the depositor.

– No Exchange Risk as the deposit is maintained in foreign currency.

Loans/overdrafts in rupees can be availed by NRI depositors or 3rd parties against the security of these deposits. However, loans in foreign currency against FCNR (B) deposits in India can be availed outside India through correspondent Banks.

– No Wealth Tax & Income Tax is applicable on these deposits.

– Gifts made to close resident relatives are free from Gift Tax.

– Facility for automatic renewal of deposits on maturity and safe custody of Deposit Receipt is also available. Payment of Interest

Interest on FCNR (B) deposits is being paid on the basis of 360 days to a year. However, depositor is eligible to earn interest applicable for a period of one year if the deposit has completed a period of 365 days.

For deposits up to one year, interest at the applicable rate will be paid without any compounding effect. In respect of deposits for more than one year, interest can be paid at intervals of 180 days each and thereafter for remaining actual number of days. However, depositor will have the option to receive the interest on maturity with compounding effect in case of deposits of over one year.

No bank should:

(i) accept or renew a deposit over five years;

(ii) discriminate in the matter of rate of interest paid on the deposits, between one deposit and another accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank, except on the size group basis. The permission to offer varying rates of interest based on size of the deposits will be subject to the following conditions:

(a) Banks should, at their discretion, decide the currency-wise minimum quantum on which differential rates of interest may be offered. For term deposits below the prescribed quantum with the same maturity, the same rate should apply.

(b) The differential rates of interest so offered should be subject to the overall ceiling prescribed.

(c) Interest rates paid by the bank should be as per the schedule and not subject to negotiation between the depositor and the bank.

(iii) pay brokerage, commission or incentives on deposits mobilized under FCNR(B) Scheme in any form to any individual, firm, company, association, institution or any other person.

(iv) employ/ engage any individual, firm, company, association, institution or any other person for collection of deposit or for selling any other deposit linked products on payment of remuneration or fees or commission in any form or manner.

(v) accept interest-free deposit or pay compensation indirectly.

Other aspects of deposit accounts

(a) A person who wants to open a deposit account has to fill up and sign the prescribed account opening application form and furnish:

– acceptable proof of his/her identity and residential address,

– his/her photographs, and

– initial deposit not less than the prescribed minimum balance prescribed by the bank.

(b) If a depositor does not take repayment on the date of maturity , the interest ceases to run from that date. The banks allow interest as per Reserve Bank of India directives for the overdue period, provided the deposit is renewed for a further period. However, where the bank wrongly refuses to repay the deposit after maturity,the depositor may claim reasonable interest from the date of maturity to the date of payment.

(c) All aspects regarding renewal of overdue deposits may be decided by individual banks subject to their Board laying down a transparent policy in this regard and the customers being notified of the terms and conditions of renewal including interest rates , at the time of acceptance of deposits.