Indian Economy
COVID-19 Hits NRI Deposits
- 24 Mar 2020
- 2 min read
Why in News
Major private sector banks are refusing foreign currency deposits by Non Resident Indians (NRIs) over fears that transmission of COVID-19 could occur via foreign currency notes.
NRI Deposits
- A ‘Non-Resident Indian (NRI)’ is an Indian citizen resident outside India for the purpose of employment, etc.
- NRIs have been parking funds in Indian banks largely due to the wide interest rate differential between their country of residence and country of origin, enjoying the rate advantage.
- They have the option of parking money in:
Foreign Currency Non-Resident Accounts
- These accept any permitted foreign currency.
- FCNR Accounts are Term Deposit Accounts and not Saving Accounts.
- The currency risk (change in price of one currency in relation to another) is borne by the bank.
- They are fully repatriable (ability to move money abroad).
Non Resident External-Rupee (NRE) Accounts
- The NRE account is an Indian rupee-denominated account, offering complete security.
- These accounts can be in the form of savings, current, recurring, or fixed deposits.
- The currency risk is on the depositor.
- They are fully repatriable.
Non-Resident Ordinary (NRO) Account
- It is for NRIs to manage their deposits or income earned in India such as dividends, pension, rent, etc.
- This account allows NRIs to receive funds in either Indian or foreign currency.
- However, only Indian currency can be withdrawn as NRO Accounts are kept in Indian currency and are not freely repatriable.
- There are no currency risks involved.
- Taxation on NRI deposits
- Interest earned on NRE and FCNR accounts is tax-free in India.
- The tax rate for interest income from NRO accounts is 30%. However, NRIs living in countries with which India has a Double Taxation Avoidance Agreement (DTAA) can avail of lower tax rates.
