Banking Article, Banking Finance 2021, Banking Finance July 2021

NRI Simplified

Who is an NRI: An Indian citizen who is not RESIDENT in India is called as Non-Resident Indian (NRI). Now, the question arises as to what is the rule for being Resident in India or Not Resident in India.

It is defined in two acts i.e., Income Tax Act 1961 & Foreign Exchange Management Act (FEMA) 1999.

  • Income Tax Act 1961:

You are a Resident if you satisfy ANY of the following two conditions:

  1. a) You are in India for 182 days in the financial year, OR
  2. b) You are in India for 365 days in 4 preceding financial years AND 60 daysin the financial year. There are a few exceptions to it.
  • Foreign Exchange Management Act (FEMA) 1999.

You are a Non-Resident Indian (NRI) if you satisfy ANY of the following two conditions:

  1. An Indian Citizen who resides in India for less than one 182 days during the preceding financial year, OR
  2. Who has gone out of India or who stays outside India for the purpose of employment, for carrying on business or vocation outside India, or for any other purpose indicating his intention to stay outside India for an uncertain period.

Income tax liability for an NRI:

  • Any income that is ‘earned’ in India is taxable for you in India.
  • Income earned outside of India is not taxable in India.

We have discussed about Resident and Non-Resident Indian.Now, let us understand about three more terms related to this topic i.e., RNOR, PIO and OCI Cardholders.


The person will be considered as RNOR in a year – if any one of the two conditions is satisfied for a Resident.

  1. If you have been an NRI in 9 out of 10 financial years preceding the concerned financial year.


  1. You have been in India for a period of 729 days or less during the 7 financial years preceding the concerned financial year.

Benefits for being a RNOR: Income that you earn outside India while you may have returned back to India, will NOT be taxed in India. Therefore, like an NRI, any income that is earned in India is taxable for you in India and your income earned outside of India is not taxable in India.


A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying any following conditions: –

  1. If the person held an Indian passport at any time, or
  2. The person or either of his/her parents or any of his/her grandparents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955, or
  3. A spouse of an Indian citizen or of the person mentioned in above point a) or b), is also treated as a PIO.

PIOs are extended the same facilities for bank account maintenance in India as NRIs and are also, for such purposes, called by the generic name as NRIs.


Overseas Citizenship of India (OCI) was introduced by The Citizenship (Amendment) Act, 2005, is a form of permanent residency available to PIO and their spouses which allows them to live and work in India indefinitely. OCI status is not citizenship and does not grant the right to vote in Indian elections or hold public office. The Indian government can revoke OCI status in a wide variety of circumstances.

OCI status is not available to anyone who has ever been a Pakistani or Bangladeshi citizen, or who is a child, grandchild, or great-grandchild of such a person.

Accounts for NRIs that should be opened for maximizing benefits:

Though banks may offer customized accounts as well to lure NRI customers but here we will discuss 3 standardized accounts that are available for NRIs with almost all the Indian Banks. We will look into the main points relating to these accounts here and remaining points are as per the tabular form. These accounts are as follows :-

  1. Non-Resident (External) Rupee Account Scheme -NRE Account

As the name suggest ‘External’, this account is meant for any foreign inward remittance received from external of India i.e., outside of India is to be credited in this account. No income tax is levied on the interest earned in this account.

  1. Non-Resident Ordinary Rupee Account Scheme – NRO Account

Here if we go by the word present in account name ‘Ordinary’ we can infer the meaning that, Ordinary income or Income earned in India is to be credited in this account. Any interest earned in this account attracts Income tax. So, all care must be taken while receiving foreign inward remittance that must be credited to NRE account not in the NRO account.

  1. Foreign Currency (Non-Resident) Account (Banks) Scheme – FCNR (B) Account

Name of this account says everything i.e., this account is allowed to open in all permitted foreign currencies. As this account is maintained in foreign currency, conversion from foreign currency to INR or vice versa does not take place. So, this account is best suited to save the commission/charges/expenses incurred on account of conversion to INR and then again to foreign currency at the time of outward remittance. And also, no income tax is levied on the interest earned in this account.

Main Features of all the 3 accounts

Particulars NRE Account FCNR (B) Account NRO Account
Who can open an account NRIs and PIOs

Individual/entities of Pakistan and Bangladesh shall require prior approval of the Reserve Bank of India.

Any person resident outside India for putting through bonafide transactions in rupees.

Individual/entities of Pakistan and Bangladesh shall require prior approval of the Reserve Bank of India.

Joint account May be held jointly in the names of two or more NRIs/ PIOs.

NRIs/ PIOs can hold jointly with a resident relative on ‘former or survivor’ basis.

May be held jointly in the names of two or more NRIs/ PIOs.

May be held jointly with residents on ‘former or survivor’ basis.

Currency Indian Rupees Any permitted currency i.e. a foreign currency which is freely convertible Indian Rupees
Type of Account Savings, Current, Recurring, Fixed Deposit Term Deposit only Savings, Current, Recurring, Fixed Deposit
Period for fixed deposits From one to three years, However, banks are allowed to accept NRE deposits above three years. Some banks offer upto 10 years also. For terms not less than 1 year and not more than 5 years As applicable to resident accounts.
Permissible Credits Credits permitted to this account are inward remittance from outside India, interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds of investments (if such investments were made from this account or through inward remittance).


Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts are permissible credits to NRO account.

Rupee gift/ loan made by a resident to a NRI/ PIO relative within the limits prescribed under the Liberalised Remittance Scheme (LRS) may be credited to the latter’s NRO account.

Permissible Debits


Permissible debits are local disbursements, remittance outside India, transfer to other NRE/ FCNR(B) accounts and investments in India.


The account can be debited for the purpose of local payments, transfers to other NRO accounts or remittance of current income abroad.

Apart from these, balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to conditions.

Funds can also be transferred to NRE account within this USD 1 million facility.

Repatriablity Fully Repatriable. Not repatriable except for all current income.

Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 (one) million per financial year (April-March) along with their other eligible assets.

Taxability Income earned in the accounts is exempt from income tax and balances exempt from wealth tax Taxable
Loans in India Authorised Dealer can sanction loans in India to the account holder/ third parties without any limit, subject to usual margin requirements. These loans cannot be repatriated outside India and can be used in India only for the purposes specified in the regulations.


Loans against the deposits can be granted in India to the account holder or third-party subject to usual norms and margin requirement. The loan amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate.



DTAA is an agreement between two countries to facilitate the person to avoid double tax on the same declared asset in two different countries. Under the current DTAA provisions an NRI customer can enjoy reduced rate of tax on interest earned in NRO rupee deposits in India. Main document that is required to take benefit under this agreement is Tax Residency Certificate(TRC) along with some other documents.

Documents required for NRI accounts:

  • Application form
  • Passport copies of different pages in passport.
  • Proof to show intention of living in abroad for uncertain period e.g., Employment letter, work permits, student visa, residence visa or any other documents.
  • Though above documents are standard documents. Banks may ask for more documents as well depending upon case to case basis.

Win-win situation for all the stakeholders:

NRI accounts, if used appropriately,provides a win-win situation for NRIs, Banks and country as a whole.

NRIs gets higher rate of interest, exemption from Income tax, stability of their funds, benefits of diversification etc. are among various other benefits.Benefits for banks include higher CASA and Term deposits, more fee-based income, low servicing cost etc.For country as a whole, NRIs are one of the main generators of foreign exchange.

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