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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  • However, only Indian currency can be withdrawn as NRO Accounts are kept in Indian currency and are not freely repatriable.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.

Source : TH

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