The Foreign Currency Non Resident Deposit (or the FCNR-B), is an exclusive deposit for Non Resident Indians, that is maintained in select currencies of choice. For those NRIs sending money across to India, the possibility of foreign exchange risk exists, by way of conversions done at the time of investment and again at the time of repatriation. To beat such risks, the FCNR deposit is an ideal option, earning the depositor a decent interest too. Here is a quick sneak peek into how the FCNR deposit works.
FCNR at a Glance
Eligibility– Any Non Resident Indian(NRI) and Person of Indian Origin (PIO) is eligible to open and maintain a FCNR deposit, provided the source of funds is from abroad or from another NRE account/FCNR deposit.
Permissible currencies– FCNR deposits could be maintained in:
- US Dollar
- British Pounds
- Japanese Yen
- Canadian Dollars
- Australian Dollar
Remittances in other currencies would have to be converted into any one of these six currencies before the deposit is opened.
Interest income– The FCNR deposit earns a regular rate of interest. The interest rate is paid out on the basis of 365 days as per the Reserve Bank of India guidelines. For deposits of up to a year, the interest is calculated at the applicable rate, without any compounding. For deposits of more than a year, the interest is calculated at intervals of 180 days, and thereafter for the remaining days. The interest paid out in an FCNR deposit will be in the currency of the deposit.
Duration of deposit- The duration of FCNR deposits range from one year to a maximum of up to five years.
Tax aspect– The interest earned on the deposit is not subject to tax. Also the principal amount of the deposit will not come under the purview of Wealth Tax.
Repatriation of funds– The principal and the interest earned on a FCNR deposit is fully repatriable abroad.
Opening a FCNR Deposit
To open a FCNR deposit, most banks prescribe the following set of documents:
- Completed application form for the deposit as per banks requirement.
- Passport and Visa
- Initial Remittance
- Other commonly asked enclosures are cheque drawn on bank account abroad, latest overseas bank statement in original, copy of telephone / electricity bill, and cancelled paid cheque of your overseas bank A/c, copy of proof of drawing income / employee ID / labour card.
Joint Account Holder and POA Holder
FCNR deposits could be opened along with a joint account holder. However, joint account holders must be a NRI or a PIO, and complete similar account opening documentation.
Power of Attorney (POA) could be given in favour of a resident or a non resident. Resident power of attorney holders are restricted to only withdrawals for local payments, or make investments in India. Resident POA holders are not permitted to repatriate the deposit outside, other than to the account holder. He is not permitted to make payment as a gift to a resident on behalf of the account holder, or transfer funds from the account to another NRE account.
FCNR Premature Withdrawal
FCNR deposits could be prematurely withdrawn. A penal interest of around 1% is generally levied in such a case. For deposits less than 6 months, no interest would be paid and a penalty may be applicable as per directives from the apex bank and RBI guidelines that prevail on these terms. Deposits closed prematurely for the purpose of further renewal to avail of any increase in interest rates, for a period more than the unexpired period and renewed under the same currency, no penal interest is charged.
Overdraft on FCNR Deposit
Banks offer an overdraft or loan against FCNR deposits if so required. Generally up to a maximum of 85% of the deposit is sanctioned. RBI guidelines however restrict the maximum loan amount to Rs. 20 Lakhs. Such loans cannot be used for the purpose of re-lending, for agricultural and plantation activities or for investment in real estate business. They could be used for specific investments in India on non-repatriable basis and for purchase of a house subject to conditions.
FCNR Deposit and Change in Residential Status
When FCNR account holders return to India for good, the deposits may be allowed to continue till maturity. However, except for the applicable interest rate, these deposits are treated as resident accounts, effective from the account holder’s date of return to India. On maturity of the deposit, these deposits would be converted into either a Resident Foreign Currency Account or a regular Resident Rupee deposit.