NRE / NRO / FCNR Account Advisory

Under FEMA Notification No. FEMA 5(R)/2016-RB (Foreign Exchange Management (Deposit) Regulations 2016), FCNR(B) accounts may be maintained in any permitted currency — RBI currently permits USD, GBP, Euro, JPY, Australian Dollar, Canadian Dollar, Swiss Franc, and Swedish Kroner. FCNR(B) accounts are term deposits only (no savings or current facility) with a minimum tenure of one year and a maximum of five years per RBI's Master Direction on Interest Rate on Deposits (updated periodically). Premature withdrawal of FCNR(B) deposits before one year attracts no interest payment at all; for premature withdrawal after one year, the interest is paid at the rate applicable for the period the deposit has remained with the bank minus a 1% penalty as prescribed by RBI. The deposits are maintained in the foreign currency and repaid in the same currency, fully insulated from INR exchange rate risk.

Interest on NRO fixed deposits is taxable in India as 'Income from Other Sources' under Section 56(1) of the Income Tax Act 1961, and banks must deduct TDS at 30% plus applicable surcharge and health and education cess under Section 195 of the Income Tax Act 1961 on every credit or payment of interest. However, if the NRI is a tax resident of a country with which India has a Double Taxation Avoidance Agreement (DTAA), the TDS rate on interest may be reduced — for example, under Article 11 of the India-USA DTAA, the rate is capped at 15%; under Article 11 of the India-UAE DTAA, it is capped at 12.5%. To claim the reduced DTAA rate, the NRI must submit a Tax Residency Certificate (TRC) obtained from the tax authority of their country of residence and a self-declaration in Form 10F per Section 90(5) of the Income Tax Act 1961 read with Rule 21AB of the Income Tax Rules 1962. The NRI must still file an Indian income tax return if total Indian income (including NRO interest) exceeds the basic exemption limit.

When an NRI returns to India permanently and becomes a resident under Section 6 of the Income Tax Act 1961, they are required under FEMA Notification No. FEMA 5(R)/2016-RB to redesignate their NRE and NRO accounts as resident rupee accounts or convert them to RFC (Resident Foreign Currency) accounts within a reasonable time — RBI advises immediate redesignation upon change of status. An RFC account may be maintained in USD, GBP, or Euro, and funds from NRE/FCNR(B) accounts may be transferred to RFC accounts without any limit. The interest on RFC accounts is taxable in India for resident account holders under Section 5 of the Income Tax Act 1961 — there is no exemption equivalent to Section 10(4)(ii). Failure to redesignate accounts after becoming a resident can constitute a FEMA violation under Section 13 of the FEMA 1999, exposing the individual to a penalty of up to three times the amount in the account.

Yes — under FEMA Notification No. FEMA 5(R)/2016-RB (Foreign Exchange Management (Deposit) Regulations 2016), authorised dealer banks in India may grant loans in India (in INR) against FCNR(B) deposits to the account holder or to third parties, without any upper ceiling on the loan amount. The loan proceeds in INR may be used for business purposes, personal purposes, or direct investment in India — but cannot be used for relending, investment in chit funds, or speculative activities. The bank takes a lien on the FCNR(B) deposit as security. Interest on such a loan is charged at the bank's lending rate; there is no FEMA restriction on the interest rate, but the exchange risk between the FCNR(B) currency and INR is borne by the borrower. Additionally, authorised dealers outside India may also grant foreign currency loans against FCNR(B) deposits, subject to RBI conditions specified in the Master Direction on Loans and Advances.

There is no upper limit on inward remittances to NRE accounts — an NRI may remit any amount from their overseas earnings to an NRE account in India, and all such remittances are fully repatriable under FEMA Notification No. FEMA 5(R)/2016-RB. The funds can be sourced from legitimate overseas income, proceeds of foreign investments, or transfers from another NRE or FCNR(B) account. However, the source of funds may be scrutinised by the recipient bank under the Prevention of Money Laundering Act 2002 (PMLA) and the RBI's Know Your Customer (KYC) Master Direction — large or unusual remittances may require documentary evidence of the fund source. In the country of remittance, the individual must comply with that country's outward remittance limits (for example, UAE, USA, and UK each have their own reporting requirements for large international transfers). There is no Indian RBI limit on how much can be brought into an NRE account in a year.