NRI Account & Banking Advisory

Under Schedule 1 of FEMA Notification No. FEMA 5(R)/2016-RB (Foreign Exchange Management (Deposit) Regulations 2016), an NRE (Non-Resident External) account holds foreign earnings converted to INR — the principal and interest are fully repatriable without limit and interest is exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act 1961. An NRO (Non-Resident Ordinary) account holds India-sourced income (rents, dividends, pensions) — repatriation is permitted up to USD 1 million per financial year under the Liberalised Remittance Scheme analogue for NRIs per RBI Master Direction on Deposits (updated 2024), but TDS is deducted at 30% plus surcharge and cess on interest under Section 195 of the Income Tax Act 1961. An FCNR(B) (Foreign Currency Non-Resident Bank) account holds foreign currency deposits (USD, GBP, EUR, JPY, AUD, CAD) for fixed tenures of 1–5 years — principal and interest are fully repatriable, and interest is also exempt under Section 10(4)(ii) of the Income Tax Act 1961. The choice of account type depends on the source of funds and the repatriation intent.

An NRI can repatriate up to USD 1 million per financial year (April–March) from their NRO account under the RBI Master Direction on Non-Resident Ordinary Rupee (NRO) Account, without RBI approval — amounts above USD 1 million require prior RBI approval. To remit funds from an NRO account, the NRI's bank requires: a Form 15CA (undertaking by the remitter) and Form 15CB (CA certificate) as mandated under Rule 37BB of the Income Tax Rules 1962, confirming that applicable taxes have been paid or provided for. The Form 15CB must be obtained from a Chartered Accountant certifying the nature of the remittance, the applicable DTAA provisions (if any), and the TDS deducted. For current income items like rent or interest, only Form 15CA Part D may be sufficient if the amount is below ₹5 lakh, but the bank will specify its own documentation requirement in line with RBI instructions.

Interest earned on NRE savings and NRE fixed deposit accounts is exempt from income tax in India under Section 10(4)(ii) of the Income Tax Act 1961, provided the account holder qualifies as a non-resident under Section 6 of the Income Tax Act 1961 during the relevant assessment year. This exemption also covers FCNR(B) account interest under the same provision. Even though the income is exempt, it must be disclosed in the income tax return under the 'Exempt Income' schedule — failure to disclose exempt income can result in scrutiny notices under Section 143(2) of the Income Tax Act 1961. Once an NRI returns to India and becomes a resident, the NRE/FCNR accounts may be converted to RFC (Resident Foreign Currency) accounts, and interest earned post-return to residency is taxable in India for residents under Section 5 of the Income Tax Act 1961.

Under FEMA Notification No. FEMA 5(R)/2016-RB (Foreign Exchange Management (Deposit) Regulations 2016), an NRE account can be held jointly with another NRI, or with a resident Indian close relative (as defined under Section 2(77) of the Companies Act 2013) but only on a 'former or survivor' basis — not on a 'joint or either or survivor' basis where the resident can operate the account independently. This means the resident family member can operate the account only in the event of the NRI account holder's death, not during the NRI's lifetime. An NRO account, by contrast, can be held jointly with resident Indians on 'either or survivor' basis. Joint holding of NRE accounts with residents on unrestricted operation terms is a common compliance violation and can attract penalty under Section 13 of the FEMA 1999, which prescribes a penalty of up to three times the amount involved.

Sale proceeds of immovable property in India must be credited to the seller's NRO account, not the NRE account — this is prescribed under Rule 4 of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 read with FEMA Notification No. FEMA 5(R)/2016-RB. Repatriation of the sale proceeds abroad is permitted up to USD 1 million per financial year from the NRO account after payment of applicable capital gains tax (short-term or long-term under Sections 48 and 112A of the Income Tax Act 1961) and submission of Form 15CA and Form 15CB to the authorised dealer bank. For properties acquired before 2003 using funds remitted from abroad, special repatriation provisions under the RBI's 'Repatriation of Assets' circular apply. The repatriation is further restricted to the original cost of acquisition plus improvement costs — any amount above the original foreign currency investment cannot be repatriated as capital; it must be treated as current income repatriation within the USD 1 million ceiling.