This article is written by Varun Sharma.

Introduction

Having a bank account has become the basic need in today’s time. The government is trying hard to push the Digital India agenda. It is providing many incentives to the people who are opting to open bank accounts under its schemes. This is a clear enough indicator of the importance that a bank account has in the 21st century. This importance is felt even more when the person is a Non-Resident Indian (NRI). An NRI has a need to operate bank accounts in his expat country as well as in India so that he can send and receive money to and from India. It becomes important for anyone who is living or who is planning to settle abroad to understand how an NRI can open and operate a bank account in India and what options does he have when it comes to opening a bank account. In this article, we’ll discuss who is an NRI, the types of bank accounts that they can open and what steps are required to be followed by them.

Who is an NRI

A Non-Resident Indian or NRI is an Indian who is currently living in a foreign country. Although this is the most generalised and accepted definition, it is not legal definition of who an NRI is. The definition of NRI is given under the Foreign Exchange Management Act, (1999) as well as under the Income Tax Act, 1961. Both the definitions differ from each other.

Definition of NRI under the FEMA, 1999

FEMA does not use the term ‘NRI’ anywhere in the act. Instead of using ‘NRI’, it uses the term ‘Person Residing Outside India’ (PROI). The PROI as a person who goes outside India or stays abroad for the purpose of getting employment, carrying out business or gaining education. The act requires that the intention of the person going outside must be such that it becomes uncertain of when he will return to India.

The Person Residing Outside India has been defined by the act as “a person resident outside India who is either a citizen of India or a person of Indian Origin.” The Reserve Bank of India has recently included students who go abroad for studies in this category as well.

Definition of NRI under the Income Tax Act, 1961

Section 6 of the Income Tax Act defines who is a resident of India. So by using negative approach, the section also defines who is not an Indian resident. As per the section, a person who has not spent:

1. At least 182 days in that year, or

II At least 365 days during the four of the preceding years And at least 60 days in that year;

is not a resident of India. This implies that such person is an NRI under this Act.

Types of Accounts that NRIs can open in India

The bank accounts that can be opened by NRIs in India are different from the ones that are operated by the common resident of the country. The Reserve Bank of India has specially authorised banks to open bank accounts for NRIs in India. An NRI can open different types of bank accounts in India. They have been discussed below:

I. Ordinary Non-Resident Rupee Accounts

Also known as NRO accounts, this account is a type of current or savings account that helps an NRI manage the income that he has earned from sources that originate within the boundaries of India. This type of account can be used by an NRI to deposit income such as house rents, dividends and other income. He can manage this account while living abroad. This account can also be used for converting the existing savings of a person into foreign currency. When a resident of India leaves for a foreign country to take up employment, his Indian bank account is designated as an NRO account.

The banks are given a free pass in deciding the interest rates that will be payable on the principal amount in a NRO account. But this rate cannot be kept higher than what is allowed on the deposits made in domestic accounts.

II. Non-Resident (External) Rupee Accounts

Also known as NRE accounts, these accounts are the rupee denominated and they can be in the form of current account, saving account, RD account or FD account. These accounts are opened by the NRIs by remitting funds. They can assign the operating powers of their account to someone who is a resident of India as well.

The money remitted into an NRE account can be freely used as the money is brought in India through legal means. But this free use is subjected to the legitimacy of the purpose i.e. the money cannot be used for any illegal purposes. Once the holder of an NRE account returns to India and becomes the resident in India, their NRE account is again designated as Resident Rupee account. But this happens only when their stay exceeds 182 days.

Banks have the freedom to determine the interest that will be payable on the principal amount deposited in these accounts but it cannot be more than interest that is being offered on the deposits made in the domestic accounts.

III. Foreign Currency (Non-Resident) Accounts (Banks)

Also known as FCNR (B) accounts, these accounts are not rupee denominated. Instead, they are opened by transferring American Dollars, Australian Dollars, Japanese Yen, Canadian Dollars, British Sterling Pounds and European Union Euro. These accounts are not allowed to operate in perpetuity. Instead, a fixed term is assigned for operating these accounts. These time periods are as follows:

1. Equal to or more than 1 year but less than 2 year
2. Equal to or more than 2 year but less than 3 year

iii. Equal to or more than 3 year but less than 4 year

1. Equal to or more than 4 year but less than 5 year
2. Five years

Money kept in the FCNR (B) account can be used in making payment towards Indian exports or investing funds in India.

IV. Non-Resident (Non-Repatriable) Rupee Deposit Accounts

Also known as NRNR accounts, these accounts can be opened by transferring the foreign currency funds from a foreign country which is freely convertible. They can also be opened by transferring money from the non-resident (external) rupee accounts or the foreign currency (non-resident) accounts. These type of accounts can be opened by two non-residents as joint holders of the account. It is important to note that residents of Bangladesh and Pakistan are not considered for this type of accounts.

The time period of holding money in such joint accounts can be anywhere between 6 months to 3 years, which can be further renewed by the holders of the account. The principal amount deposited in these accounts cannot be restored back but the interest earned on such principle can be.

TABLE 1

Serial No.	Type of Bank Account	Tax on Interest Income	Opening Denomination
1.	Ordinary Non-Resident Rupee Accounts [NRO]	Not Exempted from Taxes	Rupee Denominated
2.	Non-Resident (External) Rupee Accounts [NRE]	Exempt from Taxes	Rupee Denominated
3.	Foreign Currency (Non-Resident) Accounts [FCNR(B)]	Exempt from Taxes	Foreign Currency Denominated
4.	Non-Resident (Non-Repatriable) Rupee Deposit Accounts [NRNR]	Exempt from Taxes	Rupee as well as Foreign Denominated
5.	Non-Resident (Special) Rupee Account	Exempt from Taxes	Rupee Denominated

V. Non-Resident (Special) Rupee Accounts with Indian Banks

Providing greater freedoms to the large number of the NRI population living abroad, the government has taken steps to simplify the procedure of operating bank accounts in India. The NRIs are now permitted to open bank accounts in India which will be same as those which have been opened by the common residents in the country. These are the Non-Resident (Special) Rupee accounts which will be subjected to the same rules and regulation as a normal bank. Even the process of opening such account is same as opening a regular resident account.

Documents required by NRIs for opening Bank Account

The account opening for an NRI, since it is a different type of bank account than normal resident bank account, requires some additional documents together with the common ones. To get an opened by any of the Indian banks, an NRI is required to possess the following documents:

1. Photos

Every bank asks for the photographs of the person who is applying for a bank account. The number of photos required may differ according to the need of the bank. The photograph of a person establishes his identity with the bank.

2. Proof of Residence

This is also a common requirement by the banks at the time of account opening. Since the applicant is a foreigner, he will be required to give the proof of his residence in the foreign country. For this purpose, he can submit any of the documents that are accepted by the bank. Different bank may ask for different documents as proof of residence.

3. Photocopy of Visa and Passport

This is an NRI specific requirement by the banks. The banks requires the NRI applicant to submit photocopies of their visa as well as passport. This helps the bank in securing an identity proof of the applicant as well as running security checks with the government.

The applicant is required to get all these documents attested by the Indian Embassy situated in their country or any other agency that is designated by the bank for this purpose.

Conclusion

As the Indian economy grow and gets more embedded into the globalised circuit, more and more citizens will look for gainful employment overseas. The efforts of the government in simplifying the process of opening a bank account for NRIs is a welcoming step that is taken after considering the bigger picture.