NRI Deposits, Difference Between NRE, NRO and FCNR Account

NRI Deposits refer to funds deposited by Non-Resident Indians (NRIs) in Indian financial institutions. Know all about FCNR Deposits and Difference Between NRE, NRO and FCNR Accounts of NRI in India.

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NRI Deposits

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

	NRI Deposits	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

NRI Deposits FAQs

What are NRI deposits?

NRI deposits are funds deposited by Non-Resident Indians in Indian financial institutions.

What is NRI deposits in BOP?

NRI deposits in BOP (Balance of Payments) refer to the inflow of funds from NRIs, which is considered as a component of capital account in the balance of payments.

Do NRI have to pay tax on FD?

NRI FDs (Fixed Deposits) may be subject to tax in India based on applicable tax laws and regulations.

How much money can be deposited in NRI account?

The maximum amount that can be deposited in an NRI account varies depending on the type of account and regulations set by the Reserve Bank of India (RBI).