Banking Choices for Non Resident Indians
Over the last decade, the banking sector in India has completely changed. With just about every international bank having a strong presence in India, there is stiff competition among banks in India to provide the best services to NRI customers. When it comes to NRI banking choices, there are several kinds of accounts and several banks you can approach. There are several types of NRI bank accounts that offer you different benefits. Your NRI banking choices in India should be made keeping in mind your specific requirements. Once you have the basics, NRI banking will become a piece of cake.
Is Your Money Safe in India?
One of the first concerns that any NRI would have is whether their money would be safe in case of liquidation of the bank. Residents of USA, Canada, and some European countries can take bank deposit insurance for granted. However, this need not be the case in India. India’s Deposit Insurance and Credit Guarantee Cooperation (DICGC) is the body that covers such losses. Unlike countries like Canada, where the maximum limit covered under such insurance is USD 1 million, in India, the maximum limit covered is around INR 1 lakh, which comes to around USD2500 per account. Thus, before making investments in India, make sure that your account is covered by insurance. Make sure you don’t simply sign up simply due to higher interest rates offered.
Types Of Banks in India
There are four types of banks in India that you can choose from. These include
- Public Sector Banks
- Private Sector Banks
- Co-operative Banks
- Foreign Banks
Types Of NRI Accounts
There are several options for an NRI or OCI or PIO to consider before banking in India. Apart from the regular accounts offered to Indian citizens, there are special types of bank accounts in India that are created exclusively keeping the NRIs in mind. Here is a brief on each of the types of NRI bank accounts available in India
This is the Non-Resident Ordinary account. In this type of account, there is a maximum limit to the amount that you can repatriate freely each year. Subject to payment of all due taxes, an NRO account holder can repatriate a maximum of USD 1 million in a year. In addition, interest earned as well as a principal in your NRO account is liable to be taxed in India. This account can be held by an NRI jointly with a resident of India as well.
This is the Non-Resident External account. In this type of account, there is no limit to the amount you will be allowed to repatriate each year. The interest or principal in this account is tax-free in India. There will be no tax deducted at the source for such accounts. You can only hold an NRE account jointly with another NRI. An ordinary resident of India cannot have an NRE account.
This is the Foreign Currency Non-Resident account. In this account, you can deposit the amount and it will help you avoid the fluctuations in foreign exchange rate values. The principal and interest earned on this kind of account is tax-free in India. You can jointly open this account with a resident Indian as well.
Difference Between NRO and NRE Accounts
There is no limit on the amount you can repatriate through your NRE account, whereas there is a limit on the amount you can repatriate through the NRO account. No income tax is deductible for the principal and interest in your NRE account. On the other hand, the interest and principal on the NRO account could be taxed in India. An NRE account cannot jointly be held with a resident of India. The other account holder also has to be an NRI/PIO/OCI. An NRO account can be opened jointly with a resident of India.
Difference Between NRE and FCNR Accounts
The main difference is that an FCNR account will protect you against foreign exchange rate changes, whereas the value of your NRE account is subject to the changes in the exchange rate. An FCNR account is a term deposit. An NRE account can be a savings, current or fixed deposit account. In an FCNR account, you can deposit the amount in any foreign currency, and it will be denominated in that currency itself. An NRE account accepts deposits in foreign currency but will only denominate the currency value in INR.FCNR accounts are for a fixed term ranging from 1 to 5 years. In the event that the NRI returns to India before its maturity, then it will still be held as an FCNR account until the date of maturity.
Now that you have an idea about the banking choices for NRIs and the types of accounts for NRIs, you will have a much easier time deciding where to put all your hard-earned money in India.