Immigrated to Canada? You need to know about apt NRE banking account.

Most Indians who have immigrated to Canada or some other countries have tendency to keep some money or transfer some money back home. I am a first generation immigrant and I have seen many second generation immigrants too have some roots left in home country and have some investments or other reasons to transfer money back home. For this, one has to open an NRI deposit account. Indian Government traditionally, has been offering lots of facilities for such deposits as this money contributes significantly to Indian foreign exchange reserves. This account can be opened by a NRI only. Therefore, for record, it is important to understand definition of NRI as per Indian laws. An NRI is an Indian citizen who stays abroad for employment/ carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad.

Before you open an NRI account, it is important to understand various types of account options available. Following broad options are available for opening of accounts.

1. Non Resident Ordinary (NRO) Rupee Account
2. Non Resident External (NRE) Rupee Account
3. Foreign Currency Non Resident Account Bank Scheme (FCNRB Account)

First a brief about NRO accounts. it is a ‘non-repatriable’ rupee account that a NRI citizen open in India. This account can be opened with a bank for bona fide rupee transactions. Maintaining this account requires an undertaking to the bank that all debits/ credits pertaining to investments shall be in accordance with Reserve Bank of India (RBI) guidelines. Though this account can be in the form of current, savings, recurring accounts or fixed deposits, generally people prefer to keep this in an Fixed deposit form as it helps them to earn higher interest, unless an NRI requires frequent transactions involving transfer of funds.

This account is most suitable for those who have Indian resident relatives here, such as parents, who need to draw money regularly for any reason. This account can be opened jointly with them and they can operate with a power of attorney Draw back, if you may call it so, any balance in this account can not be remitted outside India without prior RBI approval. So if you think, you would ever need money back, try opening other option.

Getting such permission may not involve much time and balances coming out of sale of assets such as sale of fixed assets or property within an overall limit of USD 1 million per calendar year can be remitted without any prior approval. If you have any income yielding property here such as rentals income or dividends, this too can be transferred outside but don’t forget to consult your consultant for tax implications of such transfer.

Loan against this account are also available with certain restrictions as regards to end use of such loans and in case the NRI is again getting Indian resident status, such account has to be converted to Indian rupee account.

Next are NRE accounts. This account too can be maintained in Current, Savings, recurring or fixed deposits mode but as against NRO account, money in this account can be freely transferred outside India. For opening this account, an NRI undertakes that he would inform the banks when he becomes resident Indian again. This account has to be solely operated by NRI himself and not jointly with any Indian resident. However, such power of attorney to any Indian resident can be given for outwards remittances to NRI or for making investments.

Why should you Open an NRI account:
First and foremost is love for the homeland and desire to retain or acquire some property back home, that forces most people to have NRI accounts. In most cases, NRIs have some relative to sustain who needs money and for them such account is necessary. Indian Government too encourages receipt of such money and is liberal in giving some benefits such as;
- Term deposit with tenure higher than one year carry higher rate of interest than those available to resident Indian and such interest is exempt from tax in India. The balance available in such accounts is free from wealth tax.
- Entire credit balance in the NRE account including interest earned thereon is freely transferable outside India.
- Some financial investments as Purchase and sale of units of mutual funds, central and state government securities and national saving certificate can be made without approval of RBI.

These NRE accounts are maintained in Indian rupees, and are subject to any fluctuations in foreign exchange rates. Now days with rupee strengthening, it can cause some loss in case of repatriating the money back abroad. In case you have large balances in NRI accounts, you may consider hedging the exchange risk.

Another widely popular option is FCNRB accounts, which allows only opening of term deposits accounts fro term ranging from one to three years. It can only be opened under some designated currencies as Pound Sterling, US Dollar, Deutsche Mark, Japanese Yen, Euro, etc. This account can also be opened by transfer of funds through any existing NRE account. In this option, a depositor has option to take a fully covered swap with the bank against the desired designated currency.

As in NRE account, there is no restriction on repatriation of the sum in this account and any premature withdrawal from this account attracts reduction on interest rate by 1% on the prevailing rate for the said period during which balance was maintained. If such holding is for period less than six months, no interest is payable.

Under all these options, nomination facility is available, however in cases of NRE/ FCNRB RBI permission could be required in some circumstances involving repatriation. No approval would be required for utilization with in India.

About the author: Author, R S Chawla is a Chartered Accountant in India, and webmaster of www.b2blounge.com.