FCNR accounts are deposits in Indian banks that can be kept by Non-resident Indians in Foreign Currency.
There are a lot of NRIs who wish to have investments in India for various reasons. They may wish to live in India in their old age, they barely earn any rate of interest in developed countries on their deposits or they feel that India is one of the fastest growing and a stable economy.
What are FCNR accounts?
A Foreign Currency Non-resident (FCNR) bank (B) account, also sometimes known as FCNR (B), is a term deposit account that allows you to transfer your foreign income to India in the same currency as your resident country. This helps to effectively hedge against currency risk.
Let’s see what currency risk means:
Say an investor deposits USD 100 (exchange rate = Rs. 70 /USD) in the FCNR (B) account in Bank A, earning an interest rate of 3% for 12 months. Bank A further invest this amount after converting to INR i.e Rs. 7200 @ 4.5%.
Now say the exchange rate appreciates to Rs. 60. In this case the bank needs to pay only Rs. 6180 to the investor (60*103), in the form of USD 103. In this case the bank stands to earn a profit. The profit of the bank equals to Rs. 1344 (Rs. 7200*104.5% less 6180).
However, if the currency rate depreciates to Rs. 80, then the Bank has to bring Rs. 8240 to pay the investor USD 103. This causes the bank to bear a loss of Rs. 716 (Rs. 8240 less Rs. 7200*104.5%).
As per RBI guidelines, any Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can open an FCNR account in India. On a change in residential status, FCNR (B) deposits may be allowed to continue at the contracted rate till maturity of the same.
What are the features of an FCNR account?
· These are foreign currency denominated accounts
· They are term deposits with minimum tenure of 1 year and maximum tenure of 5 years.
· Interest earned on FCNR accounts is non-taxable in India
· Interest and Principal are both freely repatriable to the Resident country.
· It is possible to avail both rupee and foreign currency loan on FCNR deposits.
In How many currencies can the FCNR (B) deposits be accepted?
FCNR (B) deposits can be accepted in the following currencies:
1. USD – US Dollars
2. GBP – Sterling Pound
3. JPY – Japanese Yen
4. EUR – Euro
5. CAD – Canadian Dollar
6. AUD – Australian Dollar
7. CHF – Swiss Franc
8. SGD – Singapore Dollar
9. DKK – Danish Krone
10. HKD – Hong Kong Dollar
How can one open an FCNR account?
You can open an FCNR account by transferring money from your existing Non-Resident External (NRE) account. An NRE account is a bank account held by an NRI from which he can transfer funds to India and also outside India. It is a rupee denominated account unlike FCNR (B) deposits.
Is the interest earned on FCNR accounts taxable?
No the interest earned on FCNR accounts is exempt from Taxation in India.
What is an FCNR loan?
An FCNR loan is a loan in foreign currency that is availed by NRIs or Indian companies against an FCNR deposit at select Indian banks according to RBI guidelines.
It is possible to utilize your FCNR (B) deposits and raise funds against them both in Indian and Foreign currencies. These loans are available to both corporate and non-corporate clients.
These loans can be applied for anywhere in the world, however banks have different policies for repayment of these loans. It is always best to check with the respective banks before availing these loans.
What is outward remittance beneficiary for FCNR (B) accounts?
An outward remittance is a transfer of money in foreign exchange by a resident in India or an NRI to a beneficiary situated within or outside the country for a purpose as approved by FEMA ( Foreign Exchnage Management Act). You may send money abroad to a beneficiary for various purposes including education, employment abroad, emigration, maintenance of close relatives, foreign travel, medical treatments, donations etc.
Money can be sent abroad through the following modes:
· Wire Transfer
· Foreign Currency Demand Draft
What is the difference between a NRE, NRO and FCNR account?
NRO and NRE accounts are both rupee-denominated accounts. FCNR accounts are denominated in Foreign Currency. You can open only term deposits with FCNR accounts. Through the NRE/NRO account you can open a savings, current, Recurring and Fixed Deposits account. NRE and FCNR accounts are tax free including the interest earned on them. NRO accounts are fully taxable as they are used for Indian income. Also funds in the NRE and FCNR accounts are freely repatriable. Only the interest earned on NRO accounts is repatriable after paying taxes on the same.
How can you transfer your funds to FCNR accounts?
You can transfer funds to your FCNR account through any of the following channels:
· Directly from your overseas bank account through a Wire transfer or personal cheques
· From another NRE or FCNR account
· Proceeds from Travelers cheques when you are visiting India. You would need a currency declaration form if the amount exceeds USD 5000 or equivalent.
Which banks offer FCNR accounts?
There are a number of banks that offer FCNR deposits for NRIs and PIOs. However it is necessary to ensure that such deposits are kept with a reputable bank so that the same are available whenever you wish to withdraw the same.
Some the top banks offering FCNR accounts are:
· HDFC Bank
· ICICI Bank
· State Bank of India (SBI)
· YES Bank
· Axis Bank
· Punjab National Bank
Which documents are required for opening an FCNR account?
· Valid passport copy
· Proof of NRI/PIO status
· Overseas and Indian Address
· Indian PAN card copy
· Passport sized colored photographs
· A filled in account opening form
· The above mentioned documents need to be attested by the Indian Embassy or a public notary or equivalent authority in the country of residence of the NRI.