India provides some of the highest rates of interest compared to any other country. Many NRIs prefer investing in Indian banks, but they are afraid of the exchange rate. They might lose money due to the difference in the currency price while investing and while withdrawing.
To counter this, India banks have a provision that enables NRIs to invest in Indian banks in their currency, which are FCNR accounts (Fixed deposits for NRIs in India). NRIs can make FCNR accounts, and the money can be deposited in their currency.
What Are FCNR Account?
FCNR is a type of bank account issued by the NRIs or people of Indian origin to maintain a bank account with deposits in their currency and even earn interest on them. The main benefit to NRIs in FCNR is that they can maintain their foreign deposits investments without worrying about the exchange rate.
The deposits under FCNR are fixed deposits as the invested money can be withdrawn only after a fixed time and involves almost all procedures involved in making a fixed deposit.
Currency That Can Be Deposited in FCNR Deposit Account
- US Dollar
- British Pound
- Japanese Yen
- Australian Dollar
- Canadian Dollar
Difference Between FCNR, NRO, And NRE Accounts
Salient Features Of FCNR Account
1. FCNR accounts can be opened by -Non-Resident Indian, Person Of Indian Origin
2. FCNR term deposit matures ranging from 1 to 3 years
3. You can make an FCNR account by transferring deposits from NRO or NRE account.
4. You can easily repatriate money deposited or the interest you have earned to your original place.
5. Nomination can also be done where you can nominate any NRI, Indian origin, or Indian resident.
6. Penalty may be charged to you if you withdraw deposits prematurely.
7. Recurring Deposits cannot be made.
8. Interest is tax-free
9. An overdraft facility is also available.
Eligibility For FCNR Account
For Non-Resident Indians
Any Indian citizen staying outside India:-
- For Job or business
- Has the intention to stay outside the country for an uncertain period of time
- Is in a foreign country for work-related temporary assignments given by the government or public sector.
For Person Of Indian Origin
Anyone can be taken under PIO if
- If he/she has held an Indian passport at a particular time
- If either his parents or grandparents were Indian
- If his wife or husband is Indian
Documents Required For Opening FCNR Account
For opening FCNR(b) account, you need to attach an application form, which should be properly looked at and checked by your banker or embassy of India or public notary, and this must be submitted with documents mentioned below:-
- Xerox of Passport
- Xerox of Visa
- Xerox of latest bank statement
- Address proof of current residence
Loan Facility Against FCNR Account
An NRI can get a loan against the FCNR account, but he cannot use it for re-lending, agricultural purpose, plantation, or investing in real estate. However, FCNR loans can be used to invest in mutual funds and stocks.
It can be availed in any of the foreign currency mentioned above or even in Rs. The current upper limit to the loan is 10 million, though this can be paid in any form suiting the borrower.
The borrower can request money only up to 95% of the total money deposited by him. The loan will be given to the FNCR account owner, and only under a few circumstances can it be given to another person.
Purpose Of Loan
The loan lending will change according to the type of loan you choose, Rupee, or Foreign currency loan.
When you take a rupee loan, the loan can be available to purchase a house, expand your business, or in any emergency. However, the loan cannot be availed for agricultural or investment in real estate. Foreign currency loans can be taken for an investment in foreign according to the guidelines of that country.
Interest On The Loans
Most of the banks charge about 1 to 2 percentage greater than the current deposit rates. However, this rate may differ depending upon your loan size. And the remaining period of tenure is considered as the loan tenure.
Interest Calculation Of FCNR Deposits
The interest rate depends upon the currency used and the maturity term period you opted for, and the interest changes accordingly.
For example, the interest rate for an American dollar can be around 3-4% for a 1 year maturity period. Still, the Australian dollar may charge a 7-8% interest rate for the same amount of time.
Interest calculation is compounded half-yearly (180 days) and then for the remaining days in the year. The interest is credited every year as per RBI guidelines.
Taxation On FCNR Deposits
FCNR earned interest is not taxable for an NRI; however, if the person qualifies as an ordinary resident or the residing country may have guidelines, the person may have to pay taxes.
When a person comes back to India, it is his responsibility to inform the bank that his residential status has been changed. When this happens, and the bank updates it, the citizen has to pay taxes on him’s interest in FCNR deposits. An NRI cannot avail of its benefits once his residential status is changed. Apart from the interest earned, the principal amount is also exempted from any taxes.
What Are Norm If The Status Changes To Resident Indian?
When you are an NRI, you earn interest, and this interest you earn is tax-free. So when your resident status changes from NRI to resident Indian, your account continues earning interest, but you have to pay the taxes according to India’s slab rates.
An NRI staying for more than 120 days and having an annual income of more than 15 lakhs per year will no longer be considered as an NRI. However, an NRI having an income of fewer than 15 lakhs will continue staying as an NRI even if he does stay in the country for more than 181 days.
What Makes FCNR Account More Attractive?
One of the most beneficial things about FCNR(b) accounts is that you do not have to worry about currency fluctuations. The money you invested is completely safe, and you can get the same amount without getting penalized for the exchange rate fluctuations.
You can also invest in the resident currency, which means you can put your money in the country you currently reside in and even withdraw in the same currency.
Premature Withdrawal Of FCNR Deposits From FCNR Bank
A person can withdraw his money in case of any emergency, and even banks can give them. Every bank has its own set of regulations that apply in the case of pre-mature withdrawal.
For example, HDFC and Yes bank do not interest if the withdrawal is made within a year of deposits. And some banks like Axis bank even charge a penalty in such circumstances. If a person transfers or converts his FCNR deposits to NRE deposits, the bank may incur a penalty on the account holder. Finally, it is not allowed for a deposit to withdraw if he has taken a loan against the deposits prematurely.
Manner Of Payment Of Interest
The customer receives the interest every year. Interest calculation is compounded half-yearly, i.e., for 180 days and then for the remaining days in the year. The interest is credited every year as per RBI guidelines.
Deposits with a term period of up to 1 year are calculated according to the current rate and not compound interest. If the deposit is being reinvested, banks have to pay interest on the intersecting weekend or government holiday.
In cases where the bank, on the customer’s request, splits the term deposits into two or more parts, then it should not be considered a case of premature withdraw, and he should not be penalized.
Why Choose FCNR FD?
- Higher rate of Interest on deposits
- No exchange rate risk
- When you are unsure which currency, Indian or Foreign, you need to invest your money in/ or use.
How Can You Transfer Funds In Your FCNR Account?
- You can directly transfer funds via wire transfer or cheques.
- From another NRE and FCNR accounts.
- Can be transferred through traveler’s cheques.
Maximum And Minimum Tenure Of FCNR FD
FCNR funds can be deposited for as long as 5 years and as low as a year. But the prematurely withdrawing may cause no interest or even a penalty depending on the bank’s policy.
The term deposits are to be accepted only under such maturity by the banks:-
i. More than a year but less than 2 years.
ii. More than two years but less than three years.
iii. More than three years but less than four years.
iv. More than four years but less than five years.
v. Five years only.
Banks Offering FCNR Accounts
Many banks offer FCNR(b) accounts, but you should always take care that the place where you invest is reputed, To avoid losing your hard-earned money.
Here are some of the top brands offering FCNR:
- State Bank of India (SBI)
- ICICI Bank
- Axis Bank
- HDFC Bank
- IDBI Bank
- Punjab National Bank
- YES, Bank.
How Can You Open FCNR(b) Account?
It is unnecessary to transfer funds from your NRO/ NRE accounts to start an FCNR bank account. Many options are using which you can invest in FCNR accounts.
Three ways are using which you can open an FCNR account.
- Sending remittance from overseas
- Internet banking if you have NRO or NRE account
- Sending request to the bank directly
Can You Open A Joint Account?
Yes, you can surely open a joint account with your family or colleagues in your residing country.
You can even open a joint account with your family residing in India.
Even nomination facility is available with FCNR accounts, where the owner can send money to the nominee. This is an effective way to transfer funds, but you have to nominate the people earlier. However, many CA’s suggest transferring funds first to the NRE account and then to the person you wish to send
Adding Or Removing Joint Account Holders
According to RBI’s guidelines, the banks may allow the account holders to add or remove the account holder’s names at any point in time. However, under any circumstances, the duration and the amount of the account should not change.
Repatriable Restriction On FCNR Banking
Repatriation refers to transferring your FCNR deposits to a personal bank account present in foreign or transferring your FCNR deposits into your NRO account.
There are no restrictions put up on the repatriation of funds. The customer can avail of this feature either by internet banking or directly through the bank itself.
You need to furnish the bank with the supporting documents to avail of this.
Payment Of Interest On Overdue FCNR Account
RBI has instructed all the banks to pay the overdue interest amount within 2 weeks of the maturity period. The bank’s interest rate will be applied, and the interest will be compounded annually on your deposits.
If the time period of 14 days exceeds and the customer places the deposit as a fresh new FCNR(b) term deposit, then the overdue period will also have an interest rate levied, completely fixed by the bank.
And the bank can also withdraw the interest paid by them to the depositor if the customer prematurely withdraws the deposit.
What Banks Cannot Do?
- Take a deposit with tenure of more than 5 years or less than 1 year.
- Pay commission or incentives under the FCNR section to any company, individual, etc
- Accept an interest-free deposit.
- The bank should not directly pay compensation to anyone.
Advantages Of FCNR Accounts
1. It is protected against exchange rate change.
2. No tax has to be paid on the interest earned.
3. More than 2 NRIs can hold one joint account.
4. The FCNR deposits can be made in some major currencies.
5. The principle and interest are fully repatriable.
6. FCNR can be held for 1 to 5 years
7. Interest is payable after a year, but it is compounded half-yearly.
8. A large number of loans can be provided under FCNR.
Disadvantages Of FCNR
1. A weak bank may be unable to pay back the amount with its interest.
2. A credit guarantee is available only up to Rs 100,000, which is quite low.
3. No interest is paid if the deposited amount is withdrawn within a year.
4. Loans in foreign currency can be taken only by the owner of the account.
5. You can only create term deposit accounts and none of the savings, recurring, and current accounts.
6. You may even have to bear a penalty in case of premature withdrawing.
7. In case your residence status changes to Indian, you may have to pay taxes on the interest earned.
8. Your country of residence may ask you to pay taxes on interest earned.
9. There are charges levied if you wish to change your FCNR account to an NRO or NRE type of account.
1. How often will I receive interest on my FCNR account?
The interest is compounded half-yearly and is paid after every year.
2. Can I get a loan against fixed deposits?
Yes, you can receive a loan of up to 100 lakhs against your deposit.
3. What are the types of bank accounts NRI can make in India?
NRI can make NRO, NRE, and FCNR account
4. How much tax has to be paid on the interest earned?
The interest earned is tax-free.
5. What I the maximum and minimum tenure for deposits?
Deposits can be kept for 1 to 5 years.
6. Can I change the amount and tenure at any time?
No, You cannot change the amount and tenure of your deposits. However, you can change the account holders in the midterm.
7. Who can open the FCNR account?
Any NRI or IPO can open an FCNR account.
8. I had withdrawn the money from the FCNR account with a year; how much Interest will I be paid?
If you withdraw money within a year, you do not receive any interest in the money deposited.
9. Is the nomination facility available?
Yes, you can nominate any NRI or PIO.
10. Is Japanese currency accepted under FCNR?
Yes, may currency, including Japanese Yen, is accepted in FCNR.
FCNR(b) was launched in the year 1993 after withdrawing FCNR(a). These accounts have been proved as a boon for many NRIs, and IPOs are the Indian banks that provide a higher rate of interest and better security.
FCNR(b) account has helped maintain NRI maintain their deposits in the same currency as their residence and even withdraw any time in the same currency as deposited.