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Deposits in India by an NRI ( Non-Resident Indian)

  1. Introduction- Deposits in India by an NRI

  2. Non-Resident (External) Account Scheme

  3. NRE account to RFC account

  4. Foreign Currency (Non-Resident) Account (Banks) Scheme, i.e. FCNR (B)

  5. Non-Resident Ordinary Rupee(NRO) Account Scheme

  6. Non-Resident (Non-Repatriable) Rupee (NRNR) Deposit Scheme

  7. Non-Resident (Special) Rupee (NRSR) Account Scheme

  8. Acceptance of deposit by a company in India from NRIs on repatriation basis

  9. Acceptance Of Deposits By Indian Proprietorship Concernlfirm Or A Company From Nris On Non- Repatriation Basis

  10. Full convertibility of deposit scheme — Non-Resident Indians

  11. NRNR, NRSR Accounts To Be Discontinued On Maturity

1. Introduction- Deposits in India by an NRI

This is another important chapter of great practical significance for the NRIs. Most of the NRIs are conversant With NRE and FCNR deposits in India. Likewise, deposits in NRO account and NRSR account are also well known. Under the FEMA, detailed Regulations have now been notified by the Reserve Bank of India known as “Foreign Exchange Management (Deposit) Regulations, 2000” vide RBI Notification No. FEMA 5/2000-RB dated 3.5.2000. These regulations have also been come into force from 1.6.2000. They have been amended w.e.f. 3-10-2003 when the general permission to OCBs was withdrawn. The detailed provisions regarding different types of accounts like FCNR(B) account, NRE account, NRO account, NRNR account, NRSR account, etc. are explained in the following paragraphs. Regulation No.4 of these Regulations contains permission for opening rupee/foreign currency deposits accounts by certain persons, namely, rupee/foreign currency accounts by foreign diplomatic missions and diplomatic personnel or their family members with an authorised dealer, subject to conditions contained in the Regulations and (b) Deposits with an authorised dealer in rupees by a person resident in Nepal and Bhutan, and (c) Deposits with authorised dealers by the U.N.O. and its subsidiary/affiliate bodies in India, or its officials in India. Regulation No.5 provides rules for deposit accounts opened with an authorised dealer by an NRI under various schemes, like the Nonresident (External) Account Scheme, which is explained in detail in topic 2 below and the FCNR(B) Scheme discussed in topic 3 below. Likewise, details regarding other types of accounts are given in different topics of this chapter.

NRI Tax Planning & Tax Saving

2. Non-Resident (External) Account Scheme

Regulation No.5 provides for deposit accounts opened with authorised dealers by an NRI under various schemes. These schemes have been detailed in various Schedules to these Regulations. Thus, Schedule 1 contains the details regarding the Non-resident (External) Account Scheme. The terms and conditions subject to which NRE accounts of NRIs can be maintained by authorised dealers or authorised banks have been specified in this Schedule. Generally, there is no change in the earlier NRE Account Scheme contained in Part B of Chapter 13 of ECM of RBI except that the limit for permitting overdraft in the account has been raised from Rs.20,000 to Rs.50,O00. For the purpose of reporting to Reserve Bank authorised dealers/banks may follow the instructions contained in paragraph 13B.25 of ECM (Exchange Control Manual).

As per the Finance Act, 2005 interest on monies standing to the credit of an individual in a Non-Resident (External Account) would continue to be Exempt even after 31.03.2005. Likewise, the interest payable by a scheduled bank to a Non-resident or to a person who is not ordinarily resident on deposits in foreign currency as approved by the Reserve Bank of India would continue to be exempt on or after

1.4.2005. (For the latest regulations, please refer to the Exchange Control Manual).

3. NRE account to RFC account

When the residential status of the account holder is changed from an NRI to a resident person, then para No. 7 of Schedule 1 provides that NRE accounts should be designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts (if the account holder is eligible for maintaining RFC account) at the option of the account holder immediately upon the return of the account holder to India for taking up employment or carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India. For detailed provisions regarding RFC account by a returning NRI, reference may be made to Chapter 17 of this book.

4. Foreign Currency (Non-Resident) Account (Banks) Scheme, i.e. FCNR (B)

The terms and conditions subject to which authorised dealers may open and maintain foreign currency accounts of NRIs under FCNR(B) schemes are specified in Schedule 2 to these Regulations as amended w.e.f. 3-10-2003. Generally, there is no change in the existing Part (B) scheme contained in Part B of Chapter 14 of ECM. As regards submission of data of inflows or outflows and outstanding deposits under the Scheme, the authorised dealers have to follow the procedure contained in paragraph 1 4B.10 of ECM, that is the Exchange Control Manual as advised by the RB! vide its Circular No.11 of 16.5.2000.

5. Non-Resident Ordinary Rupee(NRO) Account Scheme

The terms and conditions subject to which authorised dealers may open and maintain NRO accounts have been specified in Schedule 3 to these Regulations. These are similar to those contained in Part A—Section I of Chapter 13 of ECM, except that the ceiling on permitting overdraft in such accounts has been dispensed with. The authorised dealers may permit overdraft in such accounts as per their discretion and commercial judgement. For the rate of interest, inquiry from the bank concerned should be made.

6. Non-Resident (Non-Repatriable) Rupee (NRNR) Deposit Scheme

The terms and conditions subject to which NRNR account can be opened by authorised dealers in the name of any non-resident are specified in Schedule 4 which are similar to those contained in Part C of Chapter 13 of ECM. Such accounts can be opened by any nonresident in India.

7. Non-Resident (Special) Rupee (NRSR) Account Scheme

The terms and conditions subject to which authorised dealers can open and maintain NRSR account in the name of any NRIIPIO are specified in Schedule 5 to these Regulations. These are same as contained in Part A—Section II of Chapter 13 of ECM. In terms of the provisions of Schedule 5, NRSR accounts will also be allowed to be opened and maintained by banks authorised to maintain accounts of non-residents, subject to the provisions of this Schedule.

8. Acceptance of deposit by a company in India from NRIs on repatriation basis

A company incorporated in India including NBFC registered with Reserve Bank has been granted general permission to accept deposits from NRIs on repatriation basis subject to terms and conditions specified in Schedule 6 to these regulations. General permission has also been granted for repayment of deposits by the company which has accepted deposits under the Scheme by inward remittance or by credit to NRE/FCNR account maintained with an authorised dealer of the bank in India subject to the conditions specified in paragraph (x) of this Schedule.

9. Acceptance Of Deposits By Indian Proprietorship Concernlfirm Or A Company From Nris On Non- Repatriation Basis

General permission has been granted to Indian proprietorship concern’ firm or a company (including Non-Banking Finance Company) registered with Reserve Bank to accept deposits from NRIs on non- repatriation basis subject to the terms and conditions specified in Schedule 7. The terms and conditions are similar to those stipulated in paragraph 10C.10(i) of ECM and erstwhile Notification No.FERA 196/99-RB dated 30th March, 1999.

Various other Rules and Regulations, for example, regarding acceptance of deposits from NRIs by issue of a commercial paper, etc. have been given in Regulation No.8 and Regulation No.9. It has also been made clear that any deposit between a person resident in India and a person outside India which is not covered by the provisions of FEMA or the aforesaid Regulations would require approval of the Reserve Bank.

10. Full convertibility of deposit scheme — Non-Resident Indians

With a view to providing full convertibility of deposit schemes for non-resident Indians and rationalizing the existing non-resident deposit schemes, RBI vide its circular No. 28 AP (DIR Series) dated 4 March 2002 had decided to discontinue NRNR Account and NRSR Account schemes with effect from 1 April 2002. Accordingly, with effect from 1 April 2002:

  1. Authorised dealers/authorized banks shall not accept any fresh deposits or open any fresh account, by way of renewal or otherwise, under the above two scherties.

  2. The existing accounts under NRNR account scheme may be continued only upto the date of maturity. The maturity proceeds of the deposits under NRNR Account Scheme shall be credited to the account-holder’s Non-Resident (External) Rupee Account (NRE account), after giving notice to the account-holder that the maturity proceeds shall be credited to his NRE accounts. The account- holders may choose to credit the maturity proceeds to his NRE saving bank account or current account or open a fresh NRE term deposit account. The authorized dealers or authorized banks may also permit the account-holder, on his request to credit the maturity proceeds to NRO account. In case no reply is received from the account-holder, the maturity proceeds of deposits under NRNR account Scheme may be credited to his NRE account.

  3. The existing term deposits under the NRSR account scheme may be continued till the maturity and the maturity proceeds shall be credited to the Non-Resident (Ordinary) Rupee Account (NRO account) of the account-holder.

  4. The existing NRSR account, other than term deposit, shall not be continued after 30 September 2002, and may, at the option of the account-holder, be closed or balance thereof be credited to his NRO account on or before that date. For this purpose, a notice to the account-holders may be given and in case no reply is received, the said NRSR account may be closed and the balance transferred to the NRO account of the account-holder.

While the facilities currently available to the account-holders for premature withdrawal continue, in the event of premature closure of the term deposits, under both the schemes, the option of reinvesting the proceeds will, however, be restricted to the NRO account of the account-holder.

11. NRNR, NRSR Accounts To Be Discontinued On Maturity

The Reserve Bank of India (RBI) had decided to discontinue rupee schemes of non-Resident Non-Repatriable account (NRNR) and Non-resident (Special) account (NRSR) with effect from 1 April 2002 in extension of its earlier circular to bring these schemes under full convertibility.

RBI had issued a notification on 4 March 2002, allowing full convertibility of deposit schemes of NRJs like NRNR and NRSR accounts with effect from 1 April 2002. Accordingly, banks were asked not to accept fresh deposits or open any fresh account, by way of renewal or otherwise, under these two schemes. The decision to discontinue was intended to rationalise the existing non-resident deposit schemes, RBI said in the notification. The existing accounts under NRNR and NRSR would be allowed to continue only up to the date of maturity. However, other than term-deposits under NRSR account should not be continued after 30 September 2002.
The maturity proceeds of the deposits under NRNR should be credited to the account-holder’s Non-Resident (External) account (NRE), after giving notice to the account-holder, RBI told banks. Thus, the existing term deposits will carry interest at the contracted rate till date of maturity.

However, the account-holder may choose to credit the maturity proceeds to his NRE savings account or current account or open a fresh NRE term deposit account, and banks can also permit the account- holder to credit them to Non-Resident (Ordinary) account (NRO).

NRNR account-holders have the option to directly credit maturity proceeds to NRE account, but not to Foreign Currency (Non-Resident) Accounts (Banks) scheme (FCNR-B).

The proceeds of NRNR deposits can be credited to NRE account only on maturity, and, in case of premature withdrawal, they should be credited only to NRO account.

For the latest relaxations, please make a reference to the Reserve Bank of India.

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