Banking Accounts in India

Many Non resident Indians (NRIs) are confused with the types of banking accounts in India and permitted transactions. I have summarized the rules in Question and Answer format as under.

Any person resident outside India may open Non resident Ordinary (NRO) account with authorized bank for the purpose of putting through bona fide transactions in rupees.
However, Opening of accounts by individuals/ entities of Pakistan nationality/ ownership and entities of Bangladesh ownership requires approval of Reserve Bank.
Opening of accounts by individual/s of Bangladesh nationality may be allowed by subject to holding a valid visa and valid residential permit issued by FRO/FRRO concerned.

NRI can open NRO and NRE accounts in any form: savings, current, recurring or fixed deposit account etc. FCNR (B) account can be opened only in the form of term deposit.

NRO account can be held jointly with residents on ‘former or survivor’ basis.
NRE and Foreign currency Non Resident (FCNR (B)) accounts can be held with resident relative(s) on ‘former or survivor’ basis. However, the said resident relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the account holder.
No. Application from a resident nominee for remittance of funds outside India for meeting the liabilities, if any, of the deceased account holder or for similar other purposes, should be forwarded to the Reserve Bank for consideration.
Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax.
NRO accounts may be designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.
The funds held in FCNR (B) and NRE Accounts are fully repatriable. Funds held in NRO account are repatriable upto USD 1 million per financial year. However, current income is freely repatriable after payment of applicable taxes in India.

Liberalized remittance Scheme:

Resident individuals can make investments outside India in/for the following:
  • acquisition and holding shares of both listed and unlisted overseas
  • Debt instruments
  • Acquisition of ESOPs (the Scheme is in addition to acquisition of ESOPs linked to ADR / GDR and acquisition of qualification shares)
  • Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes.
  • Setting up Wholly Owned Subsidiaries and Joint Ventures outside India.

The remittance facility under the Scheme is not available for the following:
  • Remittance for any purpose specifically prohibited such as lootery winings,cultural tours etcRemittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
  • Capital account remittances, directly or indirectly, to countries identified by the FATF as “non- cooperative countries and territories”.
  • Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
  • Remittance for trading in foreign exchange abroad.
  • Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.

A person resident in India on account of
  • employment or deputation of a specified duration irrespective of length thereof or
  • for a specific job or assignments, the maximum duration of which is 3 years
  • who is a citizen of a foreign State other than Pakistan or is a Indian citizen who is on deputation to the office/branch of a foreign company/ subsidiary/joint venture in India of such foreign company can make remittance upto his net salary.

The resident individual can retain and reinvest the income earned from portfolio investments made under the Scheme.
However, a resident individual who has made overseas direct investment in the Joint Venture or Wholly Owned Subsidiary outside India, within the LRS limit, then he/she shall have to comply with the terms and conditions as prescribed under [Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2004.

Bank cannot extend any kind of funded and non-funded facilities to resident individuals to facilitate capital account remittances under LRS.

In a sole proprietorship business, there is no legal distinction between the individual and the sole proprietor and as such the sole proprietor can remit USD up to the permissible limit under LRS. However, if a sole proprietor remits under LRS, individual in his own capacity cannot remit another USD 250,000.

A resident individual is permitted to make a rupee loan to a NRI/PIO who is a close relative of the resident individual (‘relative’ as defined in Section 2(77) of the Companies Act, 2013) by way of crossed cheque/ electronic transfer subject to the following conditions:
  • The loan is free of interest
  • The minimum maturity of the loan is one year.
  • The loan amount should be within the overall LRS limit of USD 2,50,000, per financial year.
  • The loan shall be utilized for meeting the borrower’s personal requirements or for his own business purposes in India.
  • The loan shall not be utilized for any of the activities mentioned below in which investment by persons resident outside India is prohibited:
    the business of chit fund

    • the business of chit fund
    • Nidhi Company
    • agricultural or plantation activities or in real estate business, or construction of farmhouses
    • trading in Transferable Development Rights (TDRs).
  • The loan amount should be credited to the NRO a/c of the NRI..
  • The loan amount shall not be remitted outside India.
  • Repayment of loan shall be made by way of inward remittances through normal banking channels or by debit to NRO/NRE /FCNR account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.