Investing in India can be very risky for a non-resident because of the volatility in the exchange rates. With constant fluctuation in the rates of Indian rupee, it may not be beneficial for a non-resident to maintain accounts in India in Indian Rupees.
A Foreign currency account provides a secure option for non-residents to earn income in India without the risk of currency fluctuation. Some of these foreign currency accounts are:
1. Foreign currency non-resident (FCNR) account:
This is a foreign currency account where NRIs can deposit their foreign funds and earn interest income. It is like a fixed deposit account.
2. Resident foreign currency (RFC) account:
This foreign currency account is for returning NRIs who have permanently settled in India. It allows them to convert foreign exchange into Indian Rupees when they want.
What is FCNR account?
1. This foreign currency account is a fixed deposit account. It can be opened by:
• Depositing foreign currency or travellers cheques
• Transferring funds from abroad in freely convertible foreign exchange
• Directly remitting funds to the bank via wire transfer
• Transferring the amount from other FCNR accounts in other banks
2. Funds in an FCNR account can be in 6 international currencies:
• US Dollar (USD)
• British Pound (GBP)
• Euro (EUR)
• Japanese Yen (JPY)
• Australian Dollar (AUD)
• Canadian Dollar (CAD)
3. The funds in an FCNR account can be locked in for a particular period of time. Interest rates differ based on the time period for which they are invested. The minimum deposit tenure is 1 year.
4. The minimum initial deposit for FCNR account for various currencies is:
• USD = $1000
• GBP = £ 2,500
• EUR = € 2,500
• JPY = ¥ 7,50,000
• AUD = A$ 1,000
• CAD = C$ 1,000
5. Funds from an FCNR account can be repatriated on maturity, or it can be transferred to an NRE account. There are no limits on repatriation of funds.
6. The interest earned on FCNR deposits is tax free in India. However, it may be taxable in the country where the NRI is residing.
7. An FCNR account can be opened jointly with other NRIs. It is not possible to open an FCNR account with resident Indians.
8. Funds from an FCNR account can be used to open an NRO/NRE account.
9. It is possible to obtain a loan on the FCNR account balance. This loan can either be in Indian Rupees or in foreign currency. The loan can be obtained for any purpose other than:
• Real estate investment
10. It is possible to withdraw money from an FCNR account before the deposit matures. Some banks may not pay interest if the deposit is withdrawn before completion of 1 year.