GyanDesk

NRI Banking

1. What is an NRI?

  • NRI (Non-Resident Indian): An Indian citizen who lives outside India for work, business, education, or indefinitely.
  • PIO (Person of Indian Origin): A foreign citizen with Indian ancestry (older term; check current rules for exact legal use).
  • Memory hook: NRI = Not Residing in India, but Banking in India.

2. The FEMA Framework (1999)

  • FEMA = Foreign Exchange Management Act (regulates foreign exchange and cross-border transactions).
  • Purpose: Smooth trade & payments, manage forex, and promote transparent foreign investment.
  • Key Idea (Golden Rule): Current account transactions are generally allowed; capital account transactions are restricted unless permitted.

Who’s involved

  • RBI: Main regulator for foreign exchange rules.
  • Central Government: Frames policy.
  • Authorised Persons (APs): Banks and money-changers who can deal in foreign exchange.
  • ED (Enforcement Directorate): Enforces FEMA compliance.

Important exam sections (easy list): S2 (definitions), S5 (Current A/c), S6 (Capital A/c), S10 (APs), S13 & S15 (penalties & compounding).
Penalty tip: Penalties may be up to 3× the transaction amount or ₹2,00,000 + ₹5,000/day for continuing violations.

3. NRI Bank Accounts

FeatureNRE (Non-Resident External)NRO (Non-Resident Ordinary)FCNR (B) (Foreign Currency NR)
CurrencyINRINRForeign (USD, GBP, EUR, etc.)
PurposePark foreign income in INRManage India-sourced income (rent, dividends)Save in foreign currency
TaxTax-free (interest)Taxable (TDS applies)Tax-free (interest)
RepatriationFully repatriableLimited (commonly up to $1 million/yr with documentation)Fully repatriable
Joint holdingWith NRI / resident (former-survivor rule applies)With resident or NRIWith NRI only
Best useSavings & repatriation in INRReceiving rent/dividends & rupee expensesProtect against INR fluctuation

Mnemonic: NRE = Rupees tax-Free, NRO = Rupees with tax, FCNR = Foreign shielded.

4. Core NRI Banking Services

  • Remittances: RTGS, NEFT, IMPS, SWIFT transfers.
  • Accounts: NRE, NRO, FCNR, and resident accounts (if returning).
  • Loans: Home loans, personal loans, loans against property and deposits.
  • Investments: Fixed deposits, mutual funds, stocks (via PIS), government securities.
  • Online access: 24×7 net banking and mobile banking.
  • NRI desks: Banks provide specialised NRI service desks and relationship managers.

5. Investment Options for NRIs

A) Stocks & Mutual Funds

  • Require NRE/NRO + Demat + Trading account and PIS (Portfolio Investment Scheme) for equity.
  • Tax: STCG 15% (equities), LTCG 10% beyond ₹1 lakh.
  • Repatriation: From NRE = full; NRO = limited.

B) Real Estate

  • Allowed: Residential and commercial property.
  • Not allowed: Agricultural land, plantation, and farmhouses (generally restricted).
  • Tax: Rent taxed at 30% (TDS) for non-resident landlords; capital gains follow normal tax rules (LTCG with indexation or special rates).
  • Repatriation: Up to $1 million/year (subject to conditions).

C) Fixed Income

  • NRE FD: INR, tax-free interest, fully repatriable.
  • NRO FD: INR, interest taxable; repatriation limited.
  • FCNR (B): Foreign currency FDs; tax-free and protect against INR depreciation.

D) NPS (National Pension System)

  • NRIs aged 18–70 can participate (subject to rules).
  • Tax perks: Deductions under Section 80C/80CCD as applicable.
  • Exit rules: part lump sum, part annuity.

E) PPF (Public Provident Fund)

  • NRIs can continue existing PPF accounts till maturity.
  • New PPF accounts are not allowed for NRIs after they attain NRI status.

F) Other Options

  • Bonds, government securities, corporate deposits, and select debt instruments.

6. Taxation

ItemTax Treatment
NRE / FCNR interestTax-free
NRO interestTaxable (TDS)
Stocks / Mutual FundsEquity STCG = 15% ; Equity LTCG = 10% over ₹1 lakh; Debt funds taxed differently
Rent from Indian property30% TDS (NRIs)
Use DTAA (Double Taxation Avoidance Agreements) to claim relief in many cases.

7. Remittances & Forex

  • LRS (Liberalized Remittance Scheme): Resident individuals can remit up to $2,50,000 per financial year for study, travel, investment, etc. (NRIs have separate rules).
  • Exchange services: Currency conversion, travel cards, and international wire transfers.
  • Tip: Use NRE for inward foreign remittances you want to repatriate later in INR.

8. NRI Business and Trade

  • FDI: NRIs can invest in Indian companies per FEMA and FDI rules.
  • Trade accounts: Exports/imports can be handled via NRE/NRO accounts and authorised dealers.
  • Co-lending / NBFCs: NRIs can invest via eligible routes in financial instruments and firms.

9. Rights & Restrictions

  • Voting: NRIs can vote in Indian general elections (via postal ballot in many cases); check latest rules.
  • Joint accounts: Allowed with NRIs and certain resident relatives (former-survivor/nominee rules apply).
  • Property: NRIs can buy most property types, but agricultural land and plantations have restrictions.

10. Legal & Compliance

  • Governing laws: FEMA, Companies Act, Income-tax Act, and related RBI/NRA circulars.
  • Documentation: Valid passport, visa/work permit, overseas address proof, PAN, and KYC documents.
  • Inheritance & succession: Indian succession laws apply to property in India (probate, succession certificates may be required).

11. Bank Support for NRIs

  • Dedicated NRI desks and relationship managers.
  • Specialised loan products (e.g., NRI home loans).
  • 24×7 online banking, multicurrency accounts, trade services, and tax filing support.

12. Challenges for NRIs

  • Currency risk (INR fluctuations).
  • Regulatory complexity (FEMA, tax rules, DTAA variations).
  • Documentation and compliance (proofs, repatriation limits).
  • Taxation differences across countries.

13. Quick Mnemonics & Memory Aids

  • FEMA: Free for Current, Managed for Capital (Current account freer; Capital account monitored).
  • Accounts: NRE = Free (tax-free and repatriable), NRO = Restricted (taxed & limited repatriation), FCNR = Foreign safe.
  • Investments: Stocks, Property, Deposits, NPS, PPF → “SP DNP” (or just remember: Stocks, Property, Deposits, NPS, PPF).

14. Short Checklist Before an NRI Transaction

  1. Is your account (NRE/NRO/FCNR) correct for the transaction?
  2. Will you repatriate the funds later? Choose NRE/FCNR if yes.
  3. Does the investment require PIS/Demat? (Equity)
  4. Are there tax (TDS) implications? (NRO, rent, capital gains)
  5. Do you have correct KYC & FEMA documents?
  6. Are there repatriation limits (e.g., property sale up to $1m)?

Multiple Choice Questions

1. What is the primary purpose of an NRE account?
A) To deposit income earned in India
B) To deposit income earned abroad
C) To store foreign currency in physical form
D) To hold funds that cannot be repatriated

B) To deposit income earned abroad

2. Which of the following accounts is taxable in India?
A) NRE Account
B) NRO Account
C) FCNR Account
D) All of the above

B) NRO Account

3. Under FEMA, who qualifies as an NRI?
A) Any Indian citizen residing outside India for work or business
B) Only Indian citizens residing abroad permanently
C) Foreign nationals working in India
D) Persons with a Green Card

A) Any Indian citizen residing outside India for work or business

4. What is the maximum remittance limit for NRIs under the Liberalized Remittance Scheme (LRS)?
A) USD 100,000
B) USD 200,000
C) USD 250,000
D) USD 500,000

C) USD 250,000

5. What is the repatriation limit for NRO accounts per financial year?
A) USD 50,000
B) USD 1,00,000
C) USD 1,000,000
D) No limit

C) USD 1,000,000

6. Which of the following accounts can be maintained in foreign currency?
A) NRE Account
B) NRO Account
C) FCNR Account
D) All of the above

C) FCNR Account

7. Which tax benefit is applicable to NRE accounts?
A) Full exemption from tax on principal and interest
B) Tax on interest only
C) Tax deduction at source (TDS) applies
D) Wealth tax applies

A) Full exemption from tax on principal and interest

8. Which of the following investments can NRIs make in India?
A) Purchase agricultural land
B) Invest in Indian mutual funds
C) Open recurring deposit accounts in foreign banks
D) Purchase prohibited government bonds

B) Invest in Indian mutual funds

9. What is the minimum tenure for an FCNR account?
A) 1 year
B) 3 months
C) 6 months
D) 5 years

A) 1 year

10. Which of the following services can a joint holder (resident relative) perform on an NRI’s account?
A) Deposit and withdraw funds freely
B) Operate as Power of Attorney (PoA) holder for specified tasks
C) Open new NRI accounts
D) Close the account without consent

B) Operate as Power of Attorney (PoA) holder for specified tasks

11. What is the main regulatory framework governing NRI accounts and transactions?
A) Companies Act, 2013
B) Reserve Bank of India Act, 1934
C) Foreign Exchange Management Act, 1999 (FEMA)
D) Income Tax Act, 1961

C) Foreign Exchange Management Act, 1999 (FEMA)

12. Interest earned on which account is tax-free in India?
A) NRO Account
B) Savings Account
C) NRE Account
D) Fixed Deposit in Resident Account

C) NRE Account

13. What type of joint account can an NRI open with a resident relative?
A) Joint ownership account
B) Former or survivor basis account
C) Business joint account
D) Corporate account

B) Former or survivor basis account

14. Which of the following is NOT a permissible debit in an NRO account?
A) Payment of local taxes
B) Repatriation of funds abroad beyond USD 1 million
C) Local utility bill payments
D) Investments in Indian companies

B) Repatriation of funds abroad beyond USD 1 million

15. What is the TDS rate applicable for interest earned on NRO accounts?
A) 10%
B) 20%
C) 30%
D) No TDS applies

C) 30%