All you want to know about Foreign Currency Non Resident (FCNR) Account

Long-term and consistent depreciation in the Indian rupee results in foreign currency denominated investment products, which generally give higher returns in Indian rupee terms over the years. Apart from real estate and Indian equity investments in India, the Foreign Currency Non-Resident (FCNR) account also provides a safe and liquid investment opportunity to NRIs. Let us discuss the various features of FCNR account.

Basic Account Features

FCNR account can be opened only as a Fixed Deposit and is freely convertible in Indian Rupees only in “Permitted Foreign Currencies”. These include various foreign currencies such as Pound Sterling, US Dollar, Canadian Dollar, Australian Dollar, Euro and Japanese Yen etc. These accounts can be opened for a period between one year and five years. In case of premature withdrawal, you will have to pay a penalty in the form of reduction in the interest rate which you will get. However, if the deposit under FCNR is terminated before the completion of one year, no interest is payable.

Loan against FCNR deposit can be taken for personal or business needs but not for on-lending or for agricultural land acquisition or any real estate business. However you can use the money to get a flat or house for your own residence in India.

Who opened FCNR account and how?

Any individual who is an Indian citizen and is a non-resident under FEMA can open an FCNR account. In addition, non-Indian citizens and Persons of Indian Origin are also allowed to open FCNR accounts. Both these categories of persons are collectively referred to as NRIs under FEMA. FCNR account can be opened in singular or joint name but in case of joint account, the joint holder also needs to be an NRI. Your relatives are allowed as joint account holders on “ex or survivor basis”. Like other bank accounts, you can appoint a nominee for your FCNR account and the nominee does not need to be an NRI. FCNR account can be opened with money transferred in foreign currency through banking channel outside India or through check drawn from your NRE account or any other FCNR account or on any bank account maintained in foreign currency. It can also be opened during travel to India by tendering a traveler’s check or foreign currency.

You are not required to be physically present in India to open an FCNR account. NRIs can open this account in a foreign branch, but they need to submit some basic documents like copy of passport, proof of foreign address etc.

interest rate and exchange rate

The interest rate for FCNR account varies for each currency. The interest rate on FCNR account is generally lower than the rate of deposits for Indian residents. However, the rate of interest on FCNR accounts is usually higher than the interest rate offered in their country of residence. Since these accounts are opened in foreign currency, there is no risk due to change in currency of deposit and exchange rate of Indian currency. Since exchange rate risk is eliminated and the interest rate offered by their home countries is higher, these deposits provide better risk free investment opportunities to NRIs. The interest credited to the FCNR account and the principal amount in the FCNR account is fully repatriable and can be freely remitted outside India without the permission of the Reserve Bank of India. Interest can also be credited to your NRE or NRO account.

FCNR. taxation of interest on

Interest on FCNR account is exempt from tax in India but may be taxable in your country of residence depending on your residential status in your country of residence. Even if you become a resident under FEMA, when you come back to India for good, the interest on the FCNR account will be waived off till the maturity of the FCNR account. This is in contrast to the interest on NRE account which remains tax free as long as you are not a non-resident under FEMA and becomes taxable immediately on becoming a resident under FEMA.

Balwant Jain is a Tax and Investment Specialist and can be contacted here jainbalwant@gmail.com and @jainbalwant on Twitter.

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