Understanding The Meaning Of NRI
Table of Contents
Non-Resident Indian is a person who is a citizen of India or a Person of Indian Origin and not a resident of India. Section 6 determines the status of an individual as an NRI or not. According to Section 6 of the Income Tax Act, an individual is said to be an NRO if they are not a resident of India. An individual is deemed to a resident of India if they satisfy any of the following conditions:
- If they were in India for a period of 182 days or more during the previous financial year; or
- If they were in India for a period of 60 days or more during the previous financial year and 365 days or more during the four years that are immediately preceding the previous year.
- Therefore, if an individual does not satisfy the above conditions, then they are considered a Non-Resident Indian.
- Furthermore, individuals who leave India for employment are immediately declared as NRI.
Meaning Of An NRI Account
An NRI account is an account that a Non-Resident Indian (NRI) or Person of Indian Origin (PIO) can open with a financial institution like a bank. The purpose of this account is saving or investing the income that NRIs earn abroad or are earning in India. An NRI account can be a current account, savings account, or deposits account. These accounts are governed or regulated by RBI FEMA Regulation and Income Tax Act of India.
For taxation purposes, at any point in time, an individual can have only one resident status. The individual can either be an NRI or a resident. Hence at any point in time, one can hold either an NRI bank account or resident bank account. They cannot have both accounts at once. In case the resident status of an individual changes, they will have to change their bank account as well.
There are three types of NRI bank accounts, namely, NRE account, NRO account and FCNR account. NRE accounts are for saving or depositing earnings from abroad in India in Indian denomination. NRO account is for saving and managing Indian earnings in India in Indian denomination. At the same time, FCNR account is for depositing or saving foreign currency earnings in any of the nine currencies allowed by RBI.
Types of NRI Accounts in India
- Non-Resident Ordinary (NRO) Savings Account/ Fixed Deposit Account
- Non-Resident External (NRE) Savings Account/ Fixed Deposit Account
- Foreign Currency Non -Resident (FCNR) Fixed Deposit Account
Who Should Open An NRI Account?
Individuals who have been residing outside India for at least 120 days in a year and spend less than 365 days in India in the four previous years can open the NRI savings account.
Individuals who leave India for employment are immediately declared as NRI and can open an NRI savings account.
Eligibility For Opening An NRI Account
Following is the eligibility criteria to open an NRI account:
- NRI (Non Resident Indian)
- An Indian citizen residing outside India for any of the following purposes:
- Studies, employment, business or vocation
- Officials deputed abroad by the Government of India or public sector undertakings.
- Individuals posted in the United Nations organization
- Indian nationals who may be Mariners or working in foreign registered airlines or oil rigs
- Person of Indian origin (PIO) or Overseas Citizen of India (OCI)
- An individual with a Foreign passport (other than Bangladeshi and Pakistani) who has held an Indian passport at any point in time
- Parent or grandparent was a Citizen of India by virtue of the Constitution of India or Indian Citizen Act, 1955.
- Is a spouse of an Indian Citizen or PIO.
Documents Required To Open An NRI Account
Following are the documents required for opening an NRI account in India:
- Valid Passport
- Pan Card or Form 60 in the absence of PAN Card
- Proof of NRI status – valid work visa, valid work permit, and valid Overseas Resident Card
- Passport size photographs
- Initial payment cheque or draft
- Address proof
A copy of all the above documents has to be attested by any of the following:
- Authorized personnel of overseas branches of commercial banks registered in India.
- Authorized personnel of banks with whom Indian banks have a relationship
- Overseas Notary Public
- Court Magistrate
- Judge
- Indian Embassy where the NRI resides
Benefits Of Opening An NRI Account in India
Following are the advantages of NRI accounts:
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Investments in India
NRI accounts facilitate investments in India. NRIs who want to diversify their investment portfolio can do so by investing in India. And NRI accounts help them by purchase and sale of stocks, mutual funds and other assets.
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Taxation
Opening an NRE or an FCNR account allows investors to earn additional income in the form of interest, which is completely tax-free. Hence income from NRE account, NRE fixed deposits and FCNR deposits is exempt from tax. Interest from NRO accounts is taxable. But NRIs can avail of tax benefit under the Double Taxation Avoidance Agreement (DTAA) in certain countries.
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Repatriation
Income from Indian investments made through NRE and FCNR accounts is also fully repatriable. Both the principal and interest amount are repatriable without limits in case of NRE and FCNR accounts. In the case of NRO accounts, the amount is repatriable with certain limits.
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Low Minimum Balance
Most banks have reduced the minimum balance requirement for these accounts to as low as INR 10,000. Hence NRIs need not worry about maintaining a high minimum balance in these accounts.
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Deposits In More Than One Currency
NRIs can retain their deposits in the currency of their resident country which is allowed by RBI through FCNR deposits. Hence the risk of the exchange rate is minimized with this type of NRI account.
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Convenience
Banks allow NRIs to open an NRI bank account without having to visit the branch physically. NRIs can open an account with any authorized bank online. Moreover, they can operate the account from anywhere in the world with the help of internet banking facilities. They can even transact using international debit cards offered by these banks. FCNR deposits can be withdrawn only upon maturity. However, one can opt for premature withdrawal. Moreover, banks also give loans against fixed deposits or FCNR deposits.
Disadvantages Of Opening An NRI Account in India
Following are the disadvantages of NRI account in India:
-
Low Liquidity
Individuals who want to safeguard their deposits against exchange rate fluctuations can do so with an FCNR account. However, the tenure of a fixed deposit account ranges from one to five years.
-
Foreign Exchange Rate Risk
Deposits made in foreign currency are subject to conversion into Indian rupees. Therefore, these deposits may fluctuate in value with the change in exchange rates. Hence, there are chances of incurring losses during repatriation.
Conclusion
NRI bank accounts can also be categorized based on trading and investing purposes. They are the Portfolio Investment Scheme (PIS) and Non-Portfolio Investment Scheme (Non-PIS) accounts. NRI investors who want to trade in the secondary market in India can do so under RBIs Portfolio Investment Scheme (PIS). For investors, who want to sell shares of an IPO or the shares they purchased when they were residents can do so through Non-PIS accounts. They can also invest in mutual funds through Non-PIS accounts.
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