The Foreign Exchange Management Act (FEMA), administered by the Reserve Bank of India (RBI), governs the opening and maintenance of bank accounts by a Person Resident Outside India (PROI), which includes Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCI).

There are specific types of accounts that NRIs/PIOs/OCIs can open in India. The main categories of accounts for such individuals are:

1. Types of Accounts for NRIs/PIOs/OCIs in India

a. NRE (Non-Resident External) Account

• Purpose: An NRE account is primarily meant for the transfer of foreign earnings into India and is typically used by NRIs for managing income earned outside India.
• Currency: The account is held in Indian Rupees (INR), but it is funded with foreign currency.
• Repatriability: The principal and interest are fully repatriable, meaning that the funds (both the initial deposit and interest) can be transferred abroad without any restrictions.
• Taxation:
  • Interest earned on NRE accounts is exempt from Indian income tax.
  • Principal and interest are free from wealth tax.
• Who can open: Only NRIs/PIOs/OCIs can open an NRE account.
• Types of NRE Accounts:
  • NRE Savings Account
  • NRE Current Account
  • NRE Fixed Deposit (FD) Account

b. NRO (Non-Resident Ordinary) Account

• Purpose: The NRO account is primarily meant for managing income earned in India, such as rental income, dividends, and income from investments.
• Currency: The account is held in Indian Rupees (INR), and it is funded with Indian Rupees or converted foreign currency.
• Repatriability:
  • The principal amount in an NRO account is non-repatriable unless it is transferred to an NRE account.
  • The interest is repatriable, but there are certain limits and conditions under RBI regulations.
• Taxation:
  • Interest earned on NRO accounts is taxable in India at a rate of 30% (plus applicable surcharge and cess) under the Income Tax Act.
  • TDS (Tax Deducted at Source) is deducted on interest earnings.
  • Principal and interest in NRO accounts are also subject to wealth tax in India.
• Who can open: NRIs and PIOs who are earning income in India or need to maintain income generated in India.

c. FCNR (Foreign Currency Non-Resident) Account

• Purpose: The FCNR account is meant for holding deposits in foreign currencies. NRIs can park their earnings in the same currency in which they earned it, protecting them from exchange rate fluctuations.
• Currency: It is held in a foreign currency (e.g., USD, GBP, EUR, JPY, etc.).
• Repatriability: Both principal and interest are fully repatriable without any restrictions.
• Taxation:
  • Interest earned on FCNR accounts is exempt from Indian income tax.
  • Principal and interest are free from wealth tax.
• Who can open: Only NRIs and PIOs can open FCNR accounts.
• Types of FCNR Accounts:
  • FCNR Savings Account
  • FCNR Fixed Deposit Account

d. Resident Foreign Currency (RFC) Account

• Purpose: The RFC account is available for persons who have returned to India after staying abroad for more than 1 year.
• Currency: This account can hold foreign currency.
• Repatriability: The funds can be repatriated to the foreign country of residence, subject to certain limits.
• Taxation: Similar to NRE and FCNR accounts, interest earned on RFC accounts is exempt from Indian income tax.
• Who can open: Available for individuals who were previously Non-Residents but have become Residents again after staying outside India for more than 1 year.

2. Key Features of NRI Bank Accounts

a. NRE Account

• Funding: Foreign currency transferred from abroad, which is converted to INR.
• Repatriability: Both the principal and interest can be repatriated freely to the foreign country.
• Taxation: Interest earned is tax-free in India.
• Primary Use: For transferring and managing foreign earnings and savings.

b. NRO Account

• Funding: Income generated within India, such as rent, dividends, and other Indian income sources.
• Repatriability: The principal is not repatriable, but interest can be repatriated up to USD 1 million per financial year.
• Taxation: Interest earned is taxable in India.

c. FCNR Account

• Funding: Foreign currency from abroad.
• Repatriability: Full repatriability of both the principal and interest to the country of residence.
• Taxation: Interest is tax-free in India.

d. RFC Account

• Funding: Foreign currency deposits made by a person who has become a resident of India.
• Repatriability: Can be repatriated subject to RBI guidelines.
• Taxation: Interest is tax-free in India.

3. Regulatory Framework: FEMA and RBI Guidelines

• FEMA (Foreign Exchange Management Act) governs the maintenance of foreign currency accounts by NRIs/PIOs. It is essential to comply with FEMA’s provisions while opening and maintaining such accounts.
• RBI Guidelines ensure that the transactions in these accounts are compliant with Foreign Exchange regulations, especially the repatriation rules.

4. Taxation on NRI Accounts in India

• TDS (Tax Deducted at Source): NRIs are subject to TDS on interest earned from NRO accounts. The rate of TDS on NRO accounts is typically 30% (plus surcharge and cess) on the interest earned. TDS on NRE and FCNR accounts is not applicable.
• Income Tax: Interest earned on NRO accounts is subject to income tax, but interest on NRE and FCNR accounts is exempt from tax in India.
• Filing Income Tax Returns: NRIs must file their income tax returns in India if they earn income in India, including income from interest on NRO accounts.

5. Repatriation of Funds

• Repatriation from NRE/FCNR Accounts: The funds from both NRE and FCNR accounts can be freely repatriated abroad.
• Repatriation from NRO Accounts: The principal is non-repatriable, but the interest is repatriable. A maximum of USD 1 million can be repatriated per year under RBI guidelines.
• Documents Required for Repatriation: NRIs must provide proof of tax payments, bank account details, and any other documents as required by the bank for repatriating funds.

6. Power of Attorney (POA) for NRIs

• An NRI can give a Power of Attorney (POA) to a relative or representative in India to operate the account on their behalf for specific purposes (such as signing documents or managing investments).

Conclusion

• NRIs, PIOs, and OCIs can open different types of bank accounts in India, including NRE, NRO, FCNR, and RFC accounts, each with its own features, repatriability rules, and tax treatment.
• NRE and FCNR accounts offer full repatriability and tax exemptions on interest earned, whereas NRO accounts are primarily for managing Indian income and are subject to taxation.
• Repatriation of funds from India is subject to specific RBI guidelines and limits, ensuring compliance with FEMA.
• TDS is applicable on interest earned on NRO accounts, but NRE and FCNR accounts enjoy tax exemptions.

For detailed guidance on opening specific types of accounts, tax planning, or compliance with FEMA and RBI regulations, it’s advisable to consult with a financial advisor or tax expert familiar with NRI banking and taxation laws.