What Is an NRI Account? Types and Tax Rules Explained

A Non-Resident Indian (NRI) account serves as a crucial financial tool for individuals of Indian origin who reside outside India. According to India’s Foreign Exchange Management Act (FEMA), an NRI is generally defined as a person residing outside India for purposes such as employment, carrying on business or a vocation outside India, or any other circumstances indicating an intention to stay outside India for an uncertain period. This definition focuses on the intent of residing abroad rather than just the duration of stay, distinguishing it from the income tax definition which often relies on the number of days spent in India.

These specialized accounts facilitate the management of finances in India, enabling NRIs to conduct banking transactions while complying with Indian foreign exchange regulations. They provide a regulated framework for NRIs to hold and manage their earnings, whether sourced from within India or their country of residence. The primary purpose of these accounts is to allow individuals to maintain financial connections with India, accommodating various needs from supporting family to making investments.

Types of Non-Resident Indian Accounts

Non-Resident Indians have access to three main types of bank accounts in India: the Non-Resident External (NRE) Account, the Non-Resident Ordinary (NRO) Account, and the Foreign Currency Non-Resident (FCNR) Account. Each is designed for different financial needs and income sources.

Non-Resident External (NRE) Account

The NRE Account is for depositing foreign earnings in Indian Rupees. Funds transferred from abroad are converted to Indian Rupees. Both the principal and interest earned are fully repatriable, meaning they can be freely transferred back to a foreign country without any restrictions. Interest income on NRE accounts is exempt from income tax in India. These accounts are typically funded through foreign remittances and can be opened as savings, current, recurring deposit, or fixed deposit accounts. NRE accounts can be held individually or jointly with other NRIs, Persons of Indian Origin (PIOs), or Overseas Citizens of India (OCIs). They are ideal for NRIs sending overseas earnings to India for savings, investments, or family support.

Non-Resident Ordinary (NRO) Account

The NRO Account manages income generated within India, such as rent, dividends, pension, or proceeds from asset sales. Foreign currency can also be deposited, but it will be converted to Indian Rupees. Funds in an NRO account have limited repatriability; a maximum of USD 1 million per financial year can be repatriated, including principal and interest, after applicable taxes. Interest earned on NRO accounts is taxable in India. NRO accounts can be opened as savings, current, fixed, or recurring deposit accounts. They permit joint holding with another NRI or a resident Indian on a “former or survivor” basis. An NRO account is suitable for NRIs managing Indian-sourced income for local expenses or investments.

Foreign Currency Non-Resident (FCNR) Account

The FCNR Account allows NRIs to hold fixed deposits in specified foreign currencies like US Dollars, Euros, or Great Britain Pounds. This account protects against currency fluctuation risks as funds are maintained in the foreign currency. FCNR accounts are fully repatriable. Interest earned on FCNR accounts is exempt from income tax in India. These accounts are for NRIs who wish to maintain foreign currency earnings in India without immediate conversion to Indian Rupees, often benefiting from higher interest rates compared to NRE accounts.

Taxation of Non-Resident Indian Accounts

Taxation of interest income varies among NRI account types. Interest earned on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts is exempt from income tax in India.

NRO Account Interest Taxation

Interest accrued on Non-Resident Ordinary (NRO) accounts is subject to income tax in India. Banks typically deduct Tax Deducted at Source (TDS) on this interest income. The standard TDS rate on NRO account interest is 30%.

Double Taxation Avoidance Agreements (DTAAs)

NRIs can reduce their tax liability through Double Taxation Avoidance Agreements (DTAAs). India has DTAAs with many countries, allowing NRIs to avoid paying tax on the same income twice. To benefit from a DTAA, such as a concessional TDS rate on NRO account interest, NRIs typically submit specific documents to their bank. These include a self-attested copy of their Permanent Account Number (PAN) card, a Tax Residency Certificate (TRC) issued by the tax authorities of their country of residence, and a self-declaration in Form 10F. The TRC confirms tax residency outside India, and Form 10F is required for DTAA claims.

Other Tax Considerations

Income from the sale of property held by an NRI in India is subject to TDS, with rates varying by holding period. While NRE and FCNR accounts offer tax-exempt interest in India, this income may still be taxable in the NRI’s country of residence, depending on that country’s tax laws and whether it taxes global income.

Opening a Non-Resident Indian Account

To open an NRI account, an individual must meet the definition of an NRI as per FEMA regulations. This typically means being an Indian citizen or a Person of Indian Origin (PIO) residing outside India for employment, business, or with an intention to stay abroad indefinitely.

Required Documents

The documentation verifies identity, address, and NRI status. Key documents include:

• A valid passport, including relevant pages showing personal details and signature.
• Proof of NRI status, such as a valid visa, work permit, or residence permit from the country of residence. For individuals of Indian origin, a PIO or Overseas Citizen of India (OCI) card, or proof of Indian origin, may be required.
• Proof of address for both overseas and, if applicable, Indian residences. Common overseas proofs include utility bills, a rental agreement, or a government-issued national identity card. For an Indian address, documents like a driving license, voter’s identity card, or Aadhaar card are accepted.
• A Permanent Account Number (PAN) card, or Form 60 if a PAN is unavailable.
• Recent passport-sized photographs.

All photocopies of documents usually need to be self-attested and may require attestation by authorized officials.

Application Process

The application process can be initiated through various channels. Many banks offer online portals for submitting forms and uploading scanned documents. Applications can also be made by visiting a bank branch in India, applying through an overseas branch or representative office of an Indian bank, or by mailing physical documents. After submission, the bank conducts a verification process. Processing times vary but typically take a few working days, after which the account is activated.

Managing Account Status Changes

Changes in an individual’s residential status require converting bank accounts to comply with Indian banking regulations.

Resident to NRI

When a resident Indian becomes a Non-Resident Indian, they must inform their bank and submit proof of NRI status, such as passport and visa copies. Existing resident savings or current accounts must be converted to Non-Resident Ordinary (NRO) accounts. This conversion is essential because, under FEMA regulations, NRIs are generally prohibited from holding regular resident savings accounts. The bank will reclassify the account, updating its type and status. During this process, the NRI may also open a new Non-Resident External (NRE) account for future foreign remittances.

NRI to Resident

When an NRI returns to India permanently and becomes a resident, their NRI accounts must be converted to resident accounts. This requires informing the bank about the change in residential status and providing updated Know Your Customer (KYC) documents, including proof of Indian address and a PAN card. NRE, NRO, and FCNR accounts are then converted into Resident Rupee Accounts, such as a Resident Savings Account or Resident Fixed Deposit. The conversion process usually entails filling out specific conversion forms provided by the bank. While some banks may offer online initiation of this process, physical submission of documents or in-person verification might still be required. It is advisable to initiate this conversion promptly, ideally within three months of returning to India, to ensure compliance.