What is FCNR Account? Fixed Deposits for NRI’s in India

Mobility of Human Resource is the current trend in the corporate world. Many Indians who go abroad for employment opportunities are referred to as Non Resident Indians (NRI’s) or as Persons of Indian Origin (PIO’s) depending on their Residential Status.

Many such Indians residing abroad prefer to invest their surplus funds in India as the Interest earned in India is better than other western countries.

However, some investors fear that by Investing in India, they are exposed to Foreign Exchange Risk as they would have to convert their Investment in Indian Currency at the time of Investment and then again into Foreign Currency at the time of withdrawal. The Foreign Exchange Rates at the time of Investment and at the time of repatriation may differ thereby exposing them to Foreign Exchange Risk.

To ensure that NRI’s and PIO’s are not exposed to such Foreign Exchange Risk, the Indian Govt has allowed NRI’s to invest in India in Foreign Currency itself in FCNR Accounts, as compared to NRO/NRE Accounts wherein Investment can be made only in Indian Rupees

What is FCNR Account?

FCNR Account stands for Foreign Currency Non Resident Bank Account wherein a Non-Resident Individual of Indian Nationality or Indian Origin can maintain a Fixed Deposit in Foreign Currency and earn regular interest on the same. The following foreign currencies are permissible:-

1. US Dollar
2. British Pound
3. Euro
4. Japanese Yen
5. Australian Dollar
6. Canadian Dollar

As the NRI can maintain his account in the foreign currency, the risk for fluctuations in Currency Conversion is eliminated and the investor can earn a fixed rate of interest on his FCNR deposits which is usually more than the country in which the NRI is residing.

Features of FCNR Account

• Can be opened only by NRI’s or by Person of Indian Origin (PIO)
• Can be opened only in the Foreign Currencies specified above and thus the currency fluctuation risk is eliminated
• Regular interest is paid on the FCNR Account
• Deposits with a maturity of more than 1 year and less than 5 years can only be opened
• These accounts can be opened jointly with other NRI’s as well as with Resident Indians
• Nomination Facility is available and any NRI/PIO/Indian Resident can be made a nominee
• Conversion to another designated currency is permitted at a cost to the account holder.
• Recurring Deposits are not accepted under this scheme
• Loan Facility against FCNR Account can also be availed of. However, the Loans cannot be used for the purpose of re-lending, carrying on agricultural/plantation activities or for investment in Real Estate Business.

A major advantage of FCNR Account is that the Interest earned on these deposits is not taxable in India and nor is the principal deposited in these accounts taxable under the Wealth Tax.

Documents required for opening FCNR Account

Completed application form signed and attested by your Banker/Embassy of India/Public Notary must be submitted to the bank where the account is being opened accompanied with the following documents: -

1. Copy of passport
2. Copy of visa
3. Latest overseas bank statement in original, latest overses telephone/electricity bill as original

Premature withdrawal of Fixed Deposits

RBI has extended the facility of premature withdrawal from FCNR Account for the NRI’s/PIO’s and a penal interest is levied on the same. The Penal Interest charged is different by different banks and is usually 1%.

However, if the deposit is closed before the maturity for the purpose of renewal, to avail the benefit of an increase in the Interest Rates, for a period more than the unexpired period and renewed under the same scheme and in the same currency, no penal interest is payable

Manner of Payment of Interest

1. The Interest on the FCNR Account is payable on the basis of 360 days to an year as per the guidelines laid out by RBI
2. The Interest on FCNR Account should be calculated and paid in the manner indicated below:-
   • For deposits up to one year, at the applicable rate without any compounding effect
   • In respect of deposits for more than 1 year, at intervals of 180 days each and thereafter for the remaining actual number of days. However, the depositor will have the option to receive the interest on maturity with the compounding effect

FCNR Account after change in Residential Status

• NRI deposits such as the FCNR can continue till the maturity date at the contracted rate of interest even after the account holder’s resident status changes to resident Indian.
• On maturity, these accounts are converted to either an RFC account or the Resident Rupee Deposit account.