What is a Foreign Currency Account for NRIs? 4 Things You Should Know

To make it easier for NRIs to manage their foreign earnings, banks in India now offer different types of foreign currency accounts. Unlike standard NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts maintained in INR, some NRI bank accounts can be fully managed in popular foreign currencies such as USD, GBP, and EUR.

NRIs who do not wish to convert their foreign earnings into INR can consider opening such foreign currency accounts. Here are 4 important things every NRI should know about an Indian foreign currency bank account-

1. What are the Different Types of Foreign Currency Accounts Available in India?

For individuals, two of the most popular choices are FCNR (Foreign Currency Non-Resident) and RFC (Resident Foreign Currency) accounts. FCNR is a dedicated term deposit account that can be opened in popular foreign currencies. The deposits are in foreign currencies, and the interest income is also in the same foreign currency.

RFC, on the other hand, can be a savings, current, or term deposit account. While RFC savings and term deposit accounts are interest-bearing, you do not earn any interest in an RFC current account.

2. Who Should Open an FCNR and RFC Account?

If you are an NRI currently residing in a foreign country and do not wish to convert your foreign earnings into INR before opening an FD account in India, an FCNR account is a smart choice. Most banks allow you to open an FCNR account in USD, EUR, and GBP. However, the interest rate would vary based on the currency and tenure you select.

If you’ve recently moved to India and have foreign funds, you can deposit the same into an RFC account. Most banks allow RFC deposits in USD and GBP. Just like FCNR, the interest rate can vary based on the currency you deposit into this account.

3. How Can You Withdraw Funds from a Foreign Currency Account?

If you are planning to open an FCNR deposit account, the proceeds on maturity can be transferred to an NRE bank account in India. You also have the option to freely repatriate the interest and principal amount to your current country of residence without paying any taxes. However, you might have to pay taxes as per the taxation laws of your current country.

With an RFC account, you can make cash withdrawals in INR by submitting a written application to the bank. The deposit amount from this foreign currency account will be converted into INR as per the prevailing exchange rate. The same can also be done for transferring funds from an RFC account to another Rupee-denominated account.

4. What are the Tax Implications of Foreign Currency Bank Accounts?

With an FCNR account, you don’t have to pay any taxes on the interest generated on the deposit. However, you might be taxed as per the taxation laws of your current country of residence.

With an RFC account, the interest will be taxable in India. But if your current residence status in India is that of an RNOR (Resident But Not Ordinarily Indian), you can avoid paying taxes. You can inform your bank about your RNOR status before your RFC account's maturity so that the bank does not deduct TDS from your NRI bank account.

Foreign Currency Bank Account in India: A Smart Choice for NRIs

FCNR and RFC bank accounts are an excellent choice for NRIs who do not wish to convert their foreign earnings into INR. Both the accounts come with a host of facilities to make it easier for non-residents to manage their foreign funds.

You can get in touch with a reputed bank in India to know more about the benefits of these accounts and pick one that best matches your requirements.

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