NRI Banking

1️⃣ NRI Basics

NRI (Non-Resident Indian):
Indian citizen residing abroad for job, business, education, or indefinite stay.
PIO (Person of Indian Origin): Foreign citizen with Indian roots.

Scope:
Banking services tailored for NRIs — remittances, accounts, loans, and investments in India.

Memory Hook:
NRI = “Not Residing in India, but Banking in India”

2️⃣ FEMA Framework (1999)

Objective:

  1. Smooth international trade & payments
  2. Manage Forex reserves
  3. Promote investment transparency

Golden Rule 🔑

  • Current A/c: ✅ Allowed unless restricted (e.g., travel, education, gifts).
  • Capital A/c: ❌ Restricted unless permitted (e.g., property investment, shareholding).

Key Players:

  • RBI: Main regulator.
  • Central Govt: Frames policy.
  • Authorised Persons (AP): Banks, money changers.
  • ED: Enforces compliance.

Important Sections for Prelims

  • S2: Definitions
  • S3-S4: Forex restrictions
  • S5: Current A/c = Free unless restricted
  • S6: Capital A/c = Restricted unless allowed
  • S10: Authorised persons
  • S13: Penalties
  • S15: Compounding offences

Penalty Tip: 3x the amount or ₹2,00,000 + ₹5,000/day for continuing violations.

3️⃣ NRI Accounts

FeatureNRENROFCNR
CurrencyINRINRForeign (USD, GBP, EUR, etc.)
PurposePark foreign earningsManage Indian incomeSave in foreign currency
Tax❌ Tax-Free✅ Taxable (30% TDS)❌ Tax-Free
Repatriation✅ Full🔸 Limited (up to $1M/yr)✅ Full
Joint HoldingWith NRI / Resident (former-survivor)With Resident or NRIWith NRI only

Mnemonic:
“NRE = Rupees tax-Free, NRO = Rupees with tax, FCNR = Foreign shielded”

4️⃣ Core NRI Banking Services

  • Remittances: RTGS, NEFT, SWIFT
  • Loans: Home, personal, business loans
  • Investments: FDs, mutual funds, shares
  • Online Access: Net/Mobile banking

5️⃣ NRI Investment Options

a) Stocks & Mutual Funds

  • Need NRE/NRO + Demat + Trading A/c
  • PIS (Portfolio Investment Scheme) for secondary market
  • Tax:
    • STCG: 15%
    • LTCG: 10% (>₹1 lakh)
  • Repatriation:
    • NRE → Full;
    • NRO → Limited.

b) Real Estate

  • Allowed: Residential, Commercial
  • Not Allowed: Agricultural land, plantation, farmhouses
  • Tax:
    • Rent → 30% TDS
    • STCG → Slab rate
    • LTCG → 20% with indexation
  • Repatriation: Up to $1M/year.

c) Fixed Income

  • NRE FD: Tax-free, INR, fully repatriable.
  • NRO FD: Taxable, repatriation limited.
  • FCNR (B): Foreign currency FD, tax-free, protected from currency fluctuation.

d) NPS (National Pension System)

  • Open to NRIs (18–70 years)
  • Tax perks:
    • ₹1.5L under 80C
    • ₹50k extra under 80CCD(1B).
  • Exit: 60% lump sum (tax-free), 40% annuity.

e) PPF (Public Provident Fund)

  • Continue existing accounts until maturity.
  • No new accounts for NRIs.

f) Other Options

  • Bonds/Debentures
  • Government Securities
  • Corporate Deposits

6️⃣ Taxation Snapshot

AccountTax Status
NRE / FCNRTax-free
NRO30% TDS (use DTAA for relief)
Mutual Funds / StocksSTCG 15%, LTCG 10% (>₹1 lakh)
Rent (Real Estate)30% TDS

7️⃣ Remittances & Forex

  • LRS (Liberalized Remittance Scheme): Up to $2,50,000 per financial year for investments, education, travel, etc.
  • Exchange Services: Currency conversion, travel cards, wire transfers.

8️⃣ NRI Business & Trade

  • FDI: Direct investments in Indian firms (regulated by FEMA).
  • Trade: Export-import operations via NRE/NRO accounts.

9️⃣ Rights & Restrictions

  • Voting: Only in General Elections (via postal ballot).
  • Joint Accounts: With NRI or close resident relative (former-survivor rule).

🔟 Legal & Compliance

  • FEMA & Companies Act: Govern transactions.
  • Inheritance Laws: Apply as per Indian succession acts.

1️⃣1️⃣ Bank Support

  • Dedicated NRI desks
  • Specialized loans and investments
  • 24×7 online banking support

1️⃣2️⃣ Challenges

  • Currency fluctuations 🌊
  • Regulatory complexity ⚖️
  • Documentation hassles 📑

Quick Mnemonics

  • FEMA: “Free for Current, Managed for Capital”
  • Accounts: “NRE = Free, NRO = Restricted, FCNR = Foreign Safe”
  • Investments: “Stocks, Property, Deposits, NPS, PPF”

Multiple Choice Questions

1. What is the primary purpose of an NRE account?
A) To deposit income earned in India
B) To deposit income earned abroad
C) To store foreign currency in physical form
D) To hold funds that cannot be repatriated

B) To deposit income earned abroad

2. Which of the following accounts is taxable in India?
A) NRE Account
B) NRO Account
C) FCNR Account
D) All of the above

B) NRO Account

3. Under FEMA, who qualifies as an NRI?
A) Any Indian citizen residing outside India for work or business
B) Only Indian citizens residing abroad permanently
C) Foreign nationals working in India
D) Persons with a Green Card

A) Any Indian citizen residing outside India for work or business

4. What is the maximum remittance limit for NRIs under the Liberalized Remittance Scheme (LRS)?
A) USD 100,000
B) USD 200,000
C) USD 250,000
D) USD 500,000

C) USD 250,000

5. What is the repatriation limit for NRO accounts per financial year?
A) USD 50,000
B) USD 1,00,000
C) USD 1,000,000
D) No limit

C) USD 1,000,000

6. Which of the following accounts can be maintained in foreign currency?
A) NRE Account
B) NRO Account
C) FCNR Account
D) All of the above

C) FCNR Account

7. Which tax benefit is applicable to NRE accounts?
A) Full exemption from tax on principal and interest
B) Tax on interest only
C) Tax deduction at source (TDS) applies
D) Wealth tax applies

A) Full exemption from tax on principal and interest

8. Which of the following investments can NRIs make in India?
A) Purchase agricultural land
B) Invest in Indian mutual funds
C) Open recurring deposit accounts in foreign banks
D) Purchase prohibited government bonds

B) Invest in Indian mutual funds

9. What is the minimum tenure for an FCNR account?
A) 1 year
B) 3 months
C) 6 months
D) 5 years

A) 1 year

10. Which of the following services can a joint holder (resident relative) perform on an NRI’s account?
A) Deposit and withdraw funds freely
B) Operate as Power of Attorney (PoA) holder for specified tasks
C) Open new NRI accounts
D) Close the account without consent

B) Operate as Power of Attorney (PoA) holder for specified tasks

11. What is the main regulatory framework governing NRI accounts and transactions?
A) Companies Act, 2013
B) Reserve Bank of India Act, 1934
C) Foreign Exchange Management Act, 1999 (FEMA)
D) Income Tax Act, 1961

C) Foreign Exchange Management Act, 1999 (FEMA)

12. Interest earned on which account is tax-free in India?
A) NRO Account
B) Savings Account
C) NRE Account
D) Fixed Deposit in Resident Account

C) NRE Account

13. What type of joint account can an NRI open with a resident relative?
A) Joint ownership account
B) Former or survivor basis account
C) Business joint account
D) Corporate account

B) Former or survivor basis account

14. Which of the following is NOT a permissible debit in an NRO account?
A) Payment of local taxes
B) Repatriation of funds abroad beyond USD 1 million
C) Local utility bill payments
D) Investments in Indian companies

B) Repatriation of funds abroad beyond USD 1 million

15. What is the TDS rate applicable for interest earned on NRO accounts?
A) 10%
B) 20%
C) 30%
D) No TDS applies

C) 30%