NRI Account – Types, Advantages, and Disadvantages

A lot of non-residents Indians hold a bank account in India to park their earnings safely. Read on to know more about the types of NRI accounts available in India and its pros and cons. 

An individual can open an NRI (non-resident Indian) bank account only if they have been staying in a foreign country for at least 182 days in a financial year. However, if the individual leaves the country to seek employment overseas, they are immediately given the NRI status. 

The NRI (non-resident Indian) have distinct banking needs than the resident Indians. Today, many banks in India offer three types of NRI bank accounts for the NRIs – NRE account, NRO account, and FCNR account. Each of these accounts has distinct features and pros and cons. 

NRE Account

One of the most popular types of NRI account, the Non-resident External account, is ideal for maintaining your earnings in a foreign country in Indian Rupees. The account mandates that the deposits in the foreign currency be converted in Rupees according to the applicable exchange rate at the time of deposit. One of the significant features of this account is that the interest earned from the deposits is tax-free. The amount (principal and the interest) is freely repatriable to your overseas bank account. 

NRO Account

A Non-resident Ordinary account can be opened and maintained by any Indian citizen who leaves the country to find work abroad. The funds in the NRO account can only be deposited in INR, and the money should be earned in India only. So, NRIs, who have a source of income in India like property rent, returns from investments, can deposit the same safely in the NRO account. The NRO account can be maintained as a savings account, current account, or term-deposits.

FCNR Account

Foreign Currency Non-resident Account allows the NRI to maintain deposits in specific foreign currencies. Thus, it helps the NRIs avoid the risk of loss due to fluctuations in the exchange rate. The interest earned from the deposits in this foreign currency account is exempted from tax. 

Advantages of NRI Account

• One of the most significant benefits of having an NRI account is that you can transfer funds to your investment account or pay the premium for a life insurance policy from your NRO or NRE account. 
• If you have an NRE account or an FCNR account, the interest earned from the deposits is exempted from tax as per the Income Tax Act, 1961. 

• If you park your funds in term-deposits like the NRE FD account or FCNR account, you can get higher returns as such accounts have no underlying ties to market fluctuations. 

• Most banks in India allow the NRE and NRO account holders to hold a joint account. For NRE account holders, both the parties must be NRIs. For NRO account holders, an NRI can open a joint account with either a resident Indian or an NRI. 

• For foreign currency accounts, the deposits can be held in foreign currency without converting it to INR. This facility allows the account holders to mitigate the risk of fluctuations in the exchange rate and thus get higher deposit value. 

Disadvantages of NRI Account

• If you wish to open an FCNR account to maintain your earnings in foreign currency, you only have the option to open a fixed deposit account with maturity tenure ranging from one to five years. This means it has low liquidity, and you cannot withdraw or use them till the end of the deposit term. 

• The deposits made in an NRE account must necessarily be made in INR, which means you must convert the foreign currency earnings to INR. Hence such deposits are exposed to exchange rate fluctuations, which can lead to a reduction in the deposit value. 

Now that you are aware of the different types of NRI accounts, its features, benefits, and drawbacks, make sure that you choose the right kind of account to suit your specific needs.