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NRI deposits have become a prominent aspect of India’s financial landscape, serving as a key component of the country’s economic growth and stability. These deposits, contributed by Non-Resident Indians, hold immense significance in bolstering India’s Foreign Exchange Reserves and facilitating investments in various sectors.
Read about: FERA and FEMA
Types of NRI Accounts in India
The Foreign Currency Non-Resident (FCNR) scheme was introduced by the Indian government to facilitate the transfer of funds by Non-Resident Indians (NRIs) into Indian banks. Unlike NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts that manage funds in Indian rupees, FCNR accounts enable NRIs to hold and transact in foreign currencies, providing greater flexibility.
Initially, FCNR allowed deposits in six specified currencies. However, in 2011, the Reserve Bank of India expanded the scheme, allowing banks to accept deposits for FCNR accounts in any freely convertible currency, such as the Swedish Krona and Swiss Franc, among others.
Transfers from NRE accounts to FCNR accounts are possible. Individuals can open an FCNR account using traveller’s cheques or foreign currency notes during their visit to India. The term of deposit can range from one to five years.
Interest rates for FCNR accounts vary across banks, terms, and currencies. It is important to note that the interest earned on FCNR accounts is tax-free in India, and both the principal amount and interest can be repatriated. The Reserve Bank of India permits joint accounts with other NRIs or resident relatives, with the resident relative having the authority to operate the account through a power of attorney holder.
Individuals can open an FCNR account from a foreign country by applying to the bank and submitting the required documents. It is essential to ensure that the funds deposited into the FCNR account are sourced solely from overseas, with the facility to transfer money directly from the individual’s overseas bank account.
Read about: Capital Account Convertibility
Difference Between NRE, NRO and FCNR Account
Here is a table that highlights the differences between NRE, NRO, and FCNR accounts:
|NRE Account||NRO Account||FCNR Account|
|Currency||Indian Rupees (INR)||Indian Rupees (INR)||Foreign Currencies|
|Repatriability||Both principle and interest are repatriable||Only interest is repatriable||Both principal and interest are repatriable|
|Taxation||Tax-free on both principal and Interest||Taxable in India||Tax-free in India|
|Purpose||For holding income earned abroad||For managing income earned in India||For holding foreign currencies|
|Sources of Funds||External sources only||Both foreign and Indian income||External sources only|
|Joint Account||Allowed with NRIs and residents||Allowed with NRIs and residents||Allowed with NRIs or Indian residents as relatives|
|Bank Account Type||Savings, Current, or Fixed Deposit||Savings, Current, or Fixed Deposit||Fixed Deposit|
Read about: Foreign Contribution Regulation Act
NRI Deposits vs Remittances
|Nature||Funds deposited by Non-Resident Indians in Indian banks||Transfer of money from Non-Resident Indians|
|Purpose||Savings or investments in Indian financial institutions||Personal, family, or business transactions|
|Source||Funds sourced from the Non-Resident Indian’s earnings abroad||Funds sourced from the Non-Resident Indian’s earning abroad|
|Repatriability||Both principal and interest may be repatriable depending on the account type and regulations||Entire amount is typically repatriable|
|Taxation||Interest earned may be taxable in India||Generally not subject to tax in India|
|Channels||Deposited directly into NRE/NRO/FCNR accounts||Transferred through banks, money transfer operators, online platforms etc.|
|Monitoring||Regulated by the Reserve Bank of India (RBI)||Monitored by RBI and other regulatory bodies|
|Use and Access||Can be utilized for Indian investments or expenses||Can be used for various purposes by beneficiaries in India|
|Economic Impact||Contributes to the availability of funds for lending and investment in the Indian economy||Boosts foreign exchange reserves and supports consumption and investment activities in receiving country|
Read about: Foreign Direct Investment
NRI Deposits UPSC
Understanding NRI deposits is important for UPSC aspirants as it is a significant topic that falls under the UPSC Syllabus, particularly in the economics and finance domains. Having knowledge about NRI deposits enables candidates to comprehend the impact of remittances on the Indian economy, the role of NRIs in financial institutions, and the regulations governing these deposits. Additionally, familiarity with NRI deposits can help candidates analyze economic policies, international finance, and balance of payments. Such topics can be covered in UPSC Online Coaching and UPSC Mock Test.
Read about: NEER and REER