A Comprehensive Guide on FCNR Accounts for NRIs

Are you a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) looking for a way to manage your foreign earnings in India? This guide on FCNR (B) accounts will share more information on these specialized bank accounts that offer a secure and lucrative option to grow your foreign currency savings while enjoying tax benefits.

What are FCNR (B) Accounts?

FCNR (B) accounts, or Foreign Currency Non-Resident (B) deposits, are fixed deposits in India designed specifically for NRIs and PIOs. You can hold your funds in currencies like USD, EUR, GBP, etc. The account can be opened jointly with other NRIs, and the deposit can be made in several ways, such as online transfer, wire transfer, foreign currency cheque, and foreign currency draft. The account holder can also avail of the overdraft on their NRO savings/current account against their FCNR fixed deposit and the nomination facility. The account can be maintained for at least one year and a maximum of five years. Please note that Recurring Deposits will not be accepted under the FCNR (B) Scheme.

What are the benefits of having an FCNR (B)?

FCNR (B) accounts are designed to offer a secure and advantageous way for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) to manage their foreign earnings in India.

• Protection against rupee fluctuations is achieved by holding funds in a stable foreign currency of the account holder’s choice. This ensures that exchange rate changes do not impact savings.
• Interest income is allowed to accrue on the deposit, and this income is exempt from Indian taxes. FCNR (B) accounts are structured to offer competitive interest rates, making them an attractive investment option. Please note that while FCNR interest income is tax-free in India, it might be taxable in your country of residence. Tax laws vary significantly from country to country. It’s crucial to consult with a tax advisor familiar with the tax regulations of your resident country to determine if the interest income earned on your FCNR account is taxable there and what reporting requirements might exist. Maintaining accurate records of interest income earned from FCNR accounts and related transactions is crucial for tax reporting purposes in the residential country.
• Full repatriation of the principal amount and the interest earned is facilitated, allowing account holders to transfer funds to overseas accounts whenever needed.
• Some banks may offer loan facilities to NRIs and PIOs, providing them with additional financial flexibility. These loans, comprising various fund-based and non-fund-based facilities, are restricted from being repatriated outside India and are meant for use within India as specified by regulations. When loans are extended to a third party, the non-resident depositor pledging their deposits should not receive any direct or indirect foreign exchange consideration. Repayment for loans sanctioned to the account holder can be made by adjusting the deposits, inward remittances from outside India via banking channels, or balances in the NRO account. Premature withdrawal of deposits is not allowed when loans against such deposits are obtained. Authorized Dealers have the authority to permit their branches or representatives located outside India to extend loans to non-resident depositors or third parties upon the depositor’s request, provided it is for legitimate purposes and against the security of funds held in NRE/FCNR (B) accounts in India. This is subject to standard margin requirements. The term “loan” includes a wide range of both fund-based and non-fund-based facilities.
• The designation of a beneficiary to inherit the account balance is also permitted, ensuring that the account holder’s legacy is taken care of in the event of their passing. Interest payment on term deposits follows specific guidelines for a deceased depositor or one of multiple joint depositors. If the deposit matures, interest is paid at the contracted rate. If claimed before maturity, interest is calculated without penalty at the applicable rate for the duration it remained with the bank. If the depositor passes away before maturity, interest is paid at the contracted rate until maturity and then at a simple interest rate effective on the maturity date for the period beyond maturity. Interest is paid at the maturity date rate if the depositor passes away after maturity. Splitting the deposit upon request doesn’t incur penalties if the deposit’s duration and total amount remain unchanged. For resident claimants, maturity proceeds may be converted to Indian rupees, with subsequent interest paid at domestic deposit rates.

Eligibility:

• NRIs and PIOs: This account is exclusively for NRIs, including Indian citizens residing abroad and PIOs.
• Joint Accounts: You can open a joint FCNR (B) account with another NRI / PIO or a resident relative on a ‘former or survivor’ basis.

Interest Rates on Deposits accepted under FCNR (B) Scheme:

The Reserve Bank of India (RBI) sets the boundaries for interest rates offered on India’s FCNR (B) deposits. These rates depend on how long you plan to keep your deposit (maturity) and are based on either LIBOR or swap rates plus a margin.

For instance, since March 1, 2014, deposits held for 1 to 3 years earn interest at LIBOR/Swap plus 200 basis points, while those held for 3 to 5 years earn a higher rate of LIBOR/Swap plus 300 basis points. These rates have changed over time.

How Banks Determine Your Interest Rate:

• Banks need approval from their board of directors to set specific rates within the RBI’s limits.
• Interest is calculated based on a 360-day year, with payments typically made every six months. You may even be able to earn compound interest.
• Rates are rounded to two decimal places for uniformity.
• You’ll still receive interest if your deposit matures on a non-business day.
• Banks can sometimes renew slightly overdue deposits for a short period (up to 14 days) at the prevailing interest rate.
• The process for handling interest payments for deceased account holders is outlined in detail (not covered here).
• NRIs returning to India can keep their FCNR (B) deposits until maturity. They can convert them to other accounts at that time.
• Banks cannot offer additional interest to bank staff or senior citizens on these deposits.
• Withdrawing your deposit before maturity may result in penalties, including the bank recovering swap costs. Converting your deposit to another currency before maturity also comes with penalties.

Important things to know before You Open an Account:

• Minimum Deposit: The minimum deposit amount varies depending on the bank and the chosen currency.
• Term Deposit: FCNR (B) accounts are fixed deposits, so your funds will be locked in for the chosen tenure.
• Premature Withdrawal: It may incur penalties and lower interest rates while allowed.
• Home Country Taxes: Interest earned on FCNR (B) accounts is tax-free in India, but it might be taxable in your country of residence. Consult your tax advisor for clarity.
• Permissible debits to the FCNR account are local disbursements, remittances outside India, transfers to other NRE/ FCNR(B) accounts and investments in India.
• Permissible credits to the FCNR account include inward remittances from outside India, interest earned on the account, interest on investments, transfers from other NRE/FCNR(B) accounts, and maturity proceeds from investments made from the account or through inward remittances and dividends or interest received in foreign currency. These transactions increase the funds within the FCNR (B) account, facilitating financial transactions for the account holder.

Opening an FCNR (B) Account:

• Documents Required: Valid passport, proof of address, proof of NRI or PIO status, and other KYC documents as mandated by the bank.
• Process: The process can often be done online through the bank’s Internet banking portal (bank-specific).
• Funds Transfer: Transfer funds into your FCNR (B) account via wire transfers, foreign currency cheques, and foreign currency drafts.

FCNR (B) vs. Other NRI Accounts:

• Multiple Currencies: FCNR (B) accounts allow holding deposits in various foreign currencies, providing flexibility and potential benefits from currency movements.
• Tax Advantages: Interest earned and deposits held in FCNR (B) accounts are exempt from Indian Income Tax and Wealth Tax.
• Transaction Flexibility: FCNR (B) accounts allow debits similar to NRE accounts, enabling remittances, local disbursements, investments in India, and transfers to other NRE or FCNR (B) accounts.
• Full Repatriation: Funds held in FCNR (B) accounts can be transferred freely to any overseas account.
• Loans against deposits: FCNR (B) accounts can be opened as joint accounts and may offer loan facilities against deposits (subject to bank policy).

Conclusion:

FCNR (B) accounts offer a secure and tax-efficient way for NRIs and PIOs to manage their foreign earnings in India. With the flexibility of choosing currencies, competitive interest rates, and full repatriation benefits, FCNR (B) accounts are a valuable tool for NRIs and PIOs seeking to safeguard their savings and earn stable returns.

If you have any queries on FCNR (B) accounts or would like to get more information on these accounts, their taxation policy and their benefit to you, consult a financial advisor specializing in NRI services.

We would like to hear more about your experience with FCNR (B) accounts. Reach out to us at [email protected]