Different types of Bank Accounts for NRI’s

Indians who live abroad, officially known as non-resident Indians (NRIs) or persons of Indian origin (PIOs) are citizens of India but live outside India. According to a report by the Ministry of External Affairs, there are 1.3 crore NRIs and 1.8 crore PIOs who were living outside India.


NRI is indirectly defined in Income Tax Act 1961. In section 6 of the Act, conditions for resident Indians are laid down and all those who do not fall under these conditions would be a non-resident Indian. The Foreign Exchange Management Act also defines non-resident Indians and resident Indians in a similar manner. The first condition states that a resident Indian is a citizen of India who stays in India for atleast 182 days in a financial year, which starts from 1st April of the current year and ends on 31st March of the next year. The next condition states that a resident Indian is a citizen who has stayed in India for at least 365 days during 4 years preceding that year and at least 60 days in the current year. Those that do not fall under these conditions are considered as non-resident Indians.

Foreign Exchange Management Act,1999

The Foreign Exchange Management Act (FEMA) is an Act of the Parliament of India which sets guidelines for the free flow of foreign exchange in India. There are a few FEMA rules which affects banking procedures for NRIs.

  1.  Maintenance of a bank account :

Non-resident Indians should maintain a separate bank account which is not the same as the accounts maintained by resident Indians.

  1. Non-resident external account

A non-resident external (NRE) account is a savings account which stores the foreign money in Indian rupees based on the current exchange rate. The money deposited in an NRE account is completely tax free. You can earn up to 3% interest rate per annum on the savings account and up to 4.35% per annum on the NRE deposits.

  • Non-resident Ordinary account

A non-resident ordinary (NRO) account is different from NRE because NRO allows earnings in India while NRE allows to deposit foreign earnings in Indian rupees. NRO is useful to deposit earnings from dividends, equity returns, pensions, rentals etc. You can earn up to 3% interest rate per annum on the savings account and up to 5.5% interest rate per annum on NRO deposits.

  • Foreign Currency Non-Resident (FCNR) accounts

An FCNR account holder can maintain his/her deposit in various currencies including USD, GBP, AUD, CAD, SGD and HKD. The tenure of deposit range between 1 to 5 years and the income earned from the deposit as interest will not be taxable.

  •  Financial Investment Options

Post Office schemes like small savings schemes and Public Provident Fund (PPF) schemes cannot be applied to NRIs. An existing PPF can be continued until it expires but an NRI cannot start a new PPF account.

  •  Acquisition and Transfer of Immovable Properties.

All NRIs and PIOs, except those in some specific countries can purchase land in India as long as they are not agricultural land, plantations or farm homes.

  •  Income for Students

According to the Liberalized Remittance Scheme (LRS), NRI students can get a maximum of 10 lakh USD per year from their NRE and NRO accounts, or from profits accumulated from their properties or estates. NRI students can also receive a maximum of 2.5 lakh USD per year from their close relations.

There are more than 1 crore NRIs living outside of India. They have to follow the rules and regulations and pay the taxes of the country they are living in. Hence, some considerations are given to NRIs while taxing their hard earned money. Each NRI transfer from foreign banks to Indian banks increases the foreign exchange and foreign currency inflow. This increases the purchasing power of the people which drives the consumption market and pushes the demand and supply forward. 

Aishwarya Says:

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