When a person becomes an NRI he/she cannot continue with the usual bank deposits which were being used earlier. There are some special accounts for NRIs and Persons of Indian origin (PIOs). Now there arises a question as to why do people prefer to park their surplus funds in India instead of the countries they are living in. The main reason for this is that interest rates in India are higher as compared to the developed countries like USA, UK etc. There are many banks providing international banking services to the NRIs. Some of the services are Savings accounts, Investments in Mutual Funds, Insurance or Portfolio Management Services etc. Following are the types of bank accounts that can be opened by NRIs / PIOs:

• Non-resident External (NRE)
• Non-resident Ordinary (NRO)
• Foreign currency Non-resident (FCNR)

Non-Resident (External) Rupee Account Scheme [NRE Account]

• An NRE (Non-Resident External) Account is an account maintained in ₹ where you invest your foreign income earned outside India.
• It is freely repatriable (Legally Indian rupees can be transferred back to foreign currency, that is money can be converted to any foreign currency)
• NRIs(other than Individuals of Bangladesh/Pakistan nationality) and PIOs can open this account
• This type of account can be in the form of Savings, Current, Recurring, or Fixed Deposit
• The period of fixed deposit ranges from one to three years
• Income earned in the accounts is exempt from income tax and balances exempt from wealth tax
• An NRE account can be held jointly by more than one non-resident Indians/PIOs. Maybe held jointly with residents
• NRE account is converted into a regular resident account if the non-resident Indian who holds the NRE account comes back to India and becomes a resident of India
• Authorized Dealers may allow their branches/ correspondents outside India to grant loans against the security of funds in NRE account subject to usual norms

Non-Resident Ordinary Rupee Account Scheme [NRO Account]

• An NRO (Non-Resident Ordinary) is a rupee-denominated account where you can maintain and manage your income earned in India such as rent, dividends, pension etc.
• An NRO account can only contain money received from within India.
• When a resident Indian becomes a person resident outside India, his existing resident account can be designated as NRO account.
• Can be held jointly in the names of two or more NRIs/ PIOs. Maybe held jointly with residents
• This type of account can be in the form of Savings, Current, Recurring, or Fixed Deposit
• Interest earned on this form of account is taxable. Interest on NRO saving account and NRO fixed deposit are subject to tax at the rate of 30.9%.
• Not repatriable (Money cannot be converted to any foreign currency.)
• The principal amount is not freely repatriable, however, interest earned on NRO deposits can be repatriated. In case of repatriation of principal, subject to compliance with RBI regulations and payment of all taxes an amount up to USD 1 million can be repatriated.
• Transfer of funds is allowed between NRO accounts. NRO to NRE is allowed with conditions.
• NRO accounts may be designated as resident accounts on the return of the account holder to India
• Loans are not granted against the NRO account

NRE Account	NRO Account
Freely repatriable	Restricted repatriability
Tax-free in India	Interest earned is Taxable in India
Only foreign income can be deposited	Foreign income, as well as income earned in India, can be deposited
Transfer of funds is allowed between NRE Accounts and also from NRE to NRO accounts	Transfer of funds is allowed between NRO Accounts. NRO to NRE is allowed with conditions.

 

Foreign Currency (Non-Resident) Account (Banks) Scheme [FCNR (B) Account]

• This is a Fixed Deposit in foreign currency and not a savings account.
• Interest is payable in the same currency of the deposit. Both principal and interest earned can be freely repatriated
• It is freely repatriable (Legally Indian rupees can be transferred back to foreign currency, that is money can be converted to any foreign currency)
• NRIs(other than Individuals of Bangladesh/Pakistan nationality) and PIOs can open this account
• An NRE account can be held jointly by more than one non-resident Indians/PIOs. Maybe held jointly with residents
• Any permitted currency i.e. a foreign currency which is freely convertible
• This type of account can only be in the form of Term deposit for terms not less than 1 year and not more than 5 years
• Premature withdrawal is permitted before completion of the selected term and is subjected to a penalty. Moreover, no interest is payable if the deposit is closed within a year
• Income earned in the accounts is exempt from income tax and balances exempt from wealth tax
• On change in residential status, FCNR (B) deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by the account holder
• Loans may be granted in rupees against the security of FCNR Account subject to usual norms except for the purpose of lending or carrying on agricultural or plantation activity or for investment in real estate.