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NRI Bank Accounts: FCNR, NRE & NRO Explained with example - UPSC Notes

NRI Bank Accounts: Imagine Rahul, an Indian citizen, moves to the USA for work. Since he now lives outside India, he is considered an NRI .
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Imagine Rahul, an Indian citizen, moves to the USA for work. Since he now lives outside India, he is considered an NRI (Non-Resident Indian). He wants to maintain some bank accounts in India for different purposes. Rahul still has financial connections with India. He:

  1. Earns money in the USA and wants to send some to India.
  2. Owns a house in India and earns rent from it.
  3. Wants to keep some money in India in US Dollars (instead of Indian Rupees).

To manage his money, he learns about the 3 types of accounts that an NRI can open in India:

Here are his options:

  1. FCNR (Foreign Currency Non-Resident) Account

    • Rahul has some US Dollars (USD) and wants to keep them safe in India without converting them to Indian Rupees.
    • He opens an FCNR account in USD as a fixed deposit.
    • The best part? No tax in India, and he can withdraw both interest and principal freely anywhere in the world.

    • Example: Imagine Rahul deposits $10,000 in an FCNR account. If the bank gives him 4% interest per year, he earns $400 per year. He can take out all the money ($10,000 + interest) whenever he wants, without paying any tax in India.

  2. NRE (Non-Resident External) Account

    • Rahul earns in the USA and wants to send money to India in Rupees.
    • He opens an NRE account, which allows him to deposit his foreign earnings in INR.
    • He can use it for savings or fixed deposits. No tax in India, and he can transfer the money back abroad anytime.
    • Example: Rahul earns $1,000 per month and sends it to his NRE account in India. The bank converts it into ₹83,000 (assuming $1 = ₹83). His parents can withdraw this money in India, and Rahul can also take it back to the USA later if needed.

  3. NRO (Non-Resident Ordinary) Account

    • Rahul owns a house in India and earns rent from it.
    • Since this income is from India, he cannot deposit it in an NRE account.
    • He opens an NRO account for such Indian income.
    • However, the money in this account is taxable in India, and sending it abroad has some restrictions.
    • Example: Rahul earns ₹30,000 rent from his apartment every month. This goes into his NRO account. If he earns ₹3,000 interest on this account, he has to pay tax on this interest amount in India.

Quick Recap: What Should Rahul Do?

✅ If he wants to save in foreign currency, he will open FCNR.
✅ If he wants to send his salary from the USA to India, he will use NRE.
✅ If he earns rent in India, he must use NRO.

Summary:

  • FCNR → For foreign currency deposits, no tax, fully repatriable.
  • NRE → For foreign earnings in INR, no tax, fully repatriable.
  • NRO → For income earned in India, taxable, repatriation is restricted.

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