FCNR Deposits: An Insight

India is a land of enormous choices and opportunities, especially when it comes to finance and investments. Whether you are an NRI or a resident of India, you have several financial investment options. Foreign Currency Non-Resident (FCNR) deposits have been among the most favorite investment options for Indian NRIs in the recent past. What makes an FCNR deposit account so popular is that it allows you to keep money in your desired currency that too tax-free. For a better understanding of the FCNR deposit account and its advantages, let's dive into the nuances of the same:-

What is an FCNR (B) Account?

One of the most bankable investment options for Non-resident Indians is the Foreign Currency Non-Resident -FCNR Account.

FCNR Account is another variation of fixed deposit account that you, if you're an NRI, can open in India in the currency of your current resident country. This FCNR Account facilitates you to earn a fixed rate of interest until maturity. But, you may wonder what might happen if your residential status changes to that of an Indian resident subsequently? Well, the answer is simple. Much to your delight, in case of residency change to Indian, you can continue to hold your already existing FCNR deposit account until maturity but at a contracted interest rate.

Why invest in an FCNR (B) deposit?

Of the many benefits, the biggest advantage of holding an FCNR (B) Account is that risks of exchange rate changes get mitigated since there is no change in the type of currency. For example, if you open an FCNR (B) Account and deposit USD 50,000, you will be able to withdraw the same, along with the earned interest, without conversation. If you want to save money on taxes as well as get competitive interest rates on your deposit, an FCNR account is the ideal choice for you in India. Since the funds are freely repatriable so that rules out the loss due to currency conversion rates. Even if you wish to discontinue in between, RBI allows premature withdrawal. The procedure and charges vary from bank to bank.

Pros and Cons of FCNR

Pros -

• The FCNR accounts get maintained in foreign currency. Therefore, they have protection against the risks of forex fluctuations. The amount and interest levied upon it are converted into the currency in which the account gets retained.
• Income tax exempts the interest which one earns through an FCNR deposits account.
• Various prominent currencies such as Pound, Sterling, US Dollar, Yen, and Euro are used while dominating FCNR accounts.
• Interest and deposits are both repatriable in India.
• The period for which an FCNR account is offered ranges between one year to three years.
• The Reserve Bank of India sets a ceiling upon interest rates that can get charged upon FCNR accounts, and banks offering FCNR accounts have to set their interest rates within the ceiling.
• After the close of the first year, the interest estimated on the amount in the FCNR accounts gets payable, and subsequently, it gets compounded on a half-yearly basis.
• NRI can use the proceeds received on maturity of their FCNR deposits to repay currency loans outside India. There are instances where banks may also provide loans to business entities against the collateral of FCNR accounts.

Cons –

• FCNR deposits in a weak bank are disadvantageous as the bank may not be able to pay back upon maturity. A concern for FCNR deposit account holders may be the belief of various experts that deposit insurance is almost non – existence in India.
• Another problematic factor can be that in the event of a meltdown bank may not be able to expatriate a refund.
• No refunds are payable in the event of FCNR transactions that get withdrawn within a year.
• Account-holders are the only individuals allowed to take foreign currency loans against FCNR account holders in India.
• FCNR deposits are never offered for the term, savings, and recurring accounts.
• After maturity of the account, the NRI investor can renew the FCNR account only within 14 days. If the investor does not adhere to the same in the specified time, then the bank fixes the interest rate upon renewal.
• The interest amount received by an NRI from FCNR deposits is considered tax-free in India. However, it could be taxable in the country of residence of that investor. Also, Non-Resident Indians are recommended to consult tax experts to understand the implications of investing in such schemes in India.

Types of FCNR Accounts- A and B!

Well, you might ask why have we mentioned FCNR (B) everywhere and what is the difference between FCNR (A) account and FCNR (B) account? The major contrast between the two types of FCNR accounts is that FCNR (A) was replaced by the (B) version in 1993. You can deposit your earnings from any corner of the world through the latter and enjoy competitive tax-free interest on them with full repartitability.

What's better than having a tax-saving investment option? With Gotaxfile, you can open an FCNR deposit anytime and from anywhere at your convenience.

How to open an FCNR account?

Opening an FCNR account can be a cakewalk if done right. The basic procedure includes deciding upon an appropriate bank and contacting them through internet banking or visiting their nearest branch. Keep in mind that it should be freely convertible foreign currencies. Another point to be noted is that different banks and currencies have different FCNR interest rates.

How to transfer your funds to the FCNR account?

The fund's transfer is never an issue in FCNR accounts. You can easily transfer money into your FCNR account from your NRE (Non-Resident External) accounts in India and any foreign Currency Account outside India. In the case of transfer of funds from an NRE account in India, the foreign currency equivalent of the amount to be transferred gets calculated at prevailing exchange rates. The amount is then deposited in the FCNR account. However, one must consider that RBI does not allow funding of FCNR accounts from any third-party account.

Documents Necessary to Open an FCNR (B) Account:

Opening an FCNR (B) account in India will require several documents and form filling for various functions. Some of the important ones comprise:

1. Copy of passport
2. Applicant's recent passport size photograph
3. Copy of PAN card
4. Indian address proof (optional)
5. Overseas address proof
6. Proof of residency status (PIO/OCI)
7. Also, remember the FCNR (A) account got replaced by FCNR (B) accounts in 1993 and hence requires a different set of forms for different works.

RELATED FORMS

Account opening form
Account closure form
Request form for an additional savings account/fixed deposit account

GENERAL FORMS

In case you want to add or remove a nominee or make any other changes in your FCNR account, there are different forms for that:-

• Mandate Holder Applications
• Add a mandate in My Account
• Update new mandate in My Account
• Cancel mandate from My Account
• Nominee Applications
• Add a nominee
• Update nominee information
• Cancel nomination in My Account
• No nominee declaration

These were some of the forms, applications, and documents that you may need in the process of opening an FCNR account in India.

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Gotaxfile offers excellent facilities and services in the fields of finance, accounting, and taxation. We have an extremely experienced, skilled, and trained team of professionals. They would assist you greatly in all matters relating to various kinds of bank accounts and loan transactions and the underlying taxation rules. NRIs can avail of specialized consultancy for their distinct finance and investment requirements as well. Our team stays abreast of all recent developments, guidelines, and policies. Thus, relying upon u for such important matters would be a wise decision. Hire our services today!