India remains one of the fastest growing economies in the world. The trend of Indians returning from abroad to work here has picked up pace with the recovery in the country’s economy. Those who are planning to return and settle in India and wish to build a focused investment portfolio, there’s no better time. Non Resident Indians (NRI) often has various questions relating to their hard-earned wealth earned overseas. Following are some of the basic questions which are asked by the returning NRI:
- Taxability of different accounts maintained by NRI?
- What will happen to their investments overseas?
- Do not they need to convert their NRO, NRE and FCNR accounts to Indian rupee account?
- Whether they can hold foreign currency after returning to India?
- What will happen if they decide to move back outside India, etc
Through this article, we attempt to analyse and answer to these queries.
Taxability of different accounts of non-residents Indians:
| Income in Accounts | Non resident | Resident but not ordinarily resident (RNOR) | Resident and Ordinarily resident (ROR) |
| Resident Foreign Currency Account (RFC) | Non taxable | Interest income is exempt from tax as long as you are RNOR. | Taxable |
| NonResident (External) Rupee Account (NRE) | Non taxable | Same as in the case of RFC | Taxable |
| Foreign Currency Non Resident (Bank) Account (FCNR) | Non taxable | Same as in the case of RFC | Taxable |
| NonResident (Ordinary) Rupee Account (NRO) | Taxable | Taxable | Taxable |
| Overseas Investments/Assets of returning NRI. |
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Conversion of NRO, NRE and FCNR accounts to Indian rupee account |
NRI’s are allowed to continue to hold their deposits in NRE/ FCNR account till maturity. After maturity, the accounts will be converted to RFC account at their discretion. |
| Acquire fresh foreign currency assets |
The returning NRI can use funds in RFC account to acquire assets abroad. |
RFC accounts (Resident Foreign Currency Account)
The RFC account is an ideal option for NRI’s to park their funds in India in foreign currency with minimum restriction on its utilisation and remittance abroad anytime in future.
What are RFC account?
RFC accounts (Resident Foreign Currency) are bank accounts that can be maintained by resident Indians in foreign currency. These accounts are especially useful for Non Resident Indians (NRI) who return to India and would like to bring back foreign currency from their overseas bank accounts.
Who can open RFC account?
NRI’s can open an RFC account if they return to India permanently after residing abroad for a continuous period of one year or more. In order to calculate this continuous period, any short trips to India for personal visits would be ignored. No permission is required to open RFC account.
Benefits of RFC Account
1. The account can be maintained in any freely convertible foreign currency such as USD, JPY, Euro, GBP, AUD, CAD, etc.
2. Existing FCNR or NRE accounts can be converted to RFC account as per the discretion of the account holder.
3. RFC account can be maintained in the form of saving account, term deposit or current account.
4. The entire amount of foreign exchange brought to India at the time of their return to India for permanent settlement can be deposited in RFC account. However, the foreign exchange brought to India in the form of foreign currency notes/bank notes/travellers cheques should be declared to Customs at the time of arrival on the Currency Declaration Form.
5. Permitted credits in RFC Account:
a. The income from overseas assets in the form of dividends, interest, etc.
b. Sale proceeds of such assets including shares, bank account, immovable property and investments held by the individual outside India, repatriated to India.
c. The amount of pension received from abroad.
d. Foreign exchange received by him as superannuation/ other monetary benefits from overseas employer
e. Foreign exchange realised on conversion of the assets referred to in Sec 6(4) of FEMA
f. Gift/ inheritance received from a person referred to in Sec 6(4) of FEMA
g. Foreign exchange received as earnings of LIC claims/ maturity/ surrendered value settled in forex from an Indian insurance company
h. Funds kept in foreign bank account in foreign currency, which has been earned through the conduct of some business.
6. Permitted withdrawals or debits from RFC accounts:
a. The funds from RFC Account can be withdrawn freely for local payments in rupees.
b. Funds in RFC accounts can be remitted abroad for any bona fide purpose of the account holder or his dependents including exchange required for travel and other personal purposes and investments.
c. The balance maintained in an RFC account can be utilized for making investments or for remitting money abroad.
d. RFC account balance can also be used for making payments and investments in India.
e. Returning Indian desiring to go abroad again for employment , business or vocation can transfer his funds in RFC account to NRE/FCNR account
f. No restrictions on utilisation in/ outside India.
g. Balance in RFC account (Principal & Interest) is fully repatriable.
h. Both principal and interest are payable in foreign currency. Hence, there is no exchange risk.
Dr. SATISH VADWA
February 23, 2017Dear vinay ji,
Its very nice of you to send me this information and congratulations to you for making it simple.
I would like to ask you once we become resident and we have RFC account and we have property in UK and after selling one can reinvest in UK itself
but
we would like to bring back sterling pound back to India so CAN WE DEPOSIT THEM TO RFC ACCOUNT WHEN WE ARE ALREADY RESIDENT
OR
RBI will say these funds from overseas have come after you become resident should go to indian rupees account
Hope to hear your comments,