FCNR (B) deposits: What NRIs need to know?

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FCNR (B) deposits: What NRIs need to know?
The individuals who qualify as NRIs include Indian residents who have permanently settled in a foreign nation on account of employment or studies. Also, students moving abroad for pursuing higher studies are also grouped under NRI individuals. 

FCNR (B) deposit account similar to a usual bank FD account provides nomination facility and the nominee for the account can be a resident Indian. Also, FCNR (B) can be closed prematurely however to be entitled to earn interest the deposit should remain with the bank for a minimum of 1year. Premature redemption of the account also results in the levy of 1% penalty charges on the interest rate.

Some other salient feature of FCNR (B) a/c

1. Account allowed to be opened in different currencies: NRIs are allowed to open the FCNR (B) deposit account in 10 different convertible currencies, including Australian dollar, Canadian dollar, Deutsche Mark Euro, Japanese Yen, Pound Sterling, US dollar and some others. Bank also allow tender of foreign currency notes or traveler cheques by NRI individuals during their visit to India which are then credited to the account.

2. Repatriation : The principal amount invested in the term deposit FCNR (B) account is fully repatriable along with the interest amount earned in foreign currencies.

3. No loss due to exchange rate fluctuation: Though FCNR (B) a/c is opened by the NRI individual's overseas earnings in different currency, funds accumulated do not have to bear the loss on account of currency rate fluctuation as both the principal and interest amount is payable in foreign currency.

4. Tax Exemption : Interest earned on FCNR (B) account is not taxable as per the Indian Income Tax. NRI is also exempted from wealth tax payment in respect of holding the FCNR deposit account in India.

5. Loans : Subject to certain rules, loans are available either in rupee or the currency of deposit to NRI individuals against the collateral security of their FCNR(b) account. Foreign branches of the Indian banks also disburse loan in foreign currency against FCNR deposits.

FCNR (B) deposits being one of the channels of foreign exchange for the Indian economy is promoted time and again. The central bank in view of the economic scenario revises the interest rate on FCNR (B) deposits from time to time. Only lately, RBI allowed hike in interest rate on FCNR (B) deposits with maturity term between 3 years and 5 years to LIBOR/SWAP plus 400 basis points, from the 300 basis points earlier.


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