The fluctuations in the currency are causing difficulties for NRIs since they have deposited their money in foreign lands. Exchange rate volatility between the Indian Rupee and other major foreign currencies may cause depreciation in savings, thereby lowering the real gains. FCNR deposit makes it possible for NRIS to make savings in foreign currencies, thus avoiding any risk of foreign currency conversion and tax-free gains.
Knowing more about the workings of the FCNR deposit accounts will help you in making wise decisions regarding your money management.
What is an FCNR Deposit?
FCNR deposit is a Fixed Deposit scheme for NRIS which permits NRIs to deposit money earned abroad into term deposit accounts denominated in foreign currency, thereby avoiding the process of foreign currency conversions at the time of making deposits. Some commercial banks provide NRIs with FCNR deposits in five major currencies: US Dollars, British Pounds, Euros, Australian Dollars, and Singapore Dollars.
While deposits made into an NRE account will be converted to rupees upon depositing, those made into an FCNR account will retain their denomination until they mature.
Why FCNR Deposits Suit NRIs?
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No Foreign Exchange Risk
Your foreign currency deposit gets converted into Indian rupees at the current exchange rate while opening an NRE account. On maturity, if the Indian rupee becomes stronger against your foreign currency deposit, your foreign currency amount after repatriation will be lower than the initial deposit in spite of earning interest in Indian rupees.
There is no such risk involved in FCNR deposits. As the deposit amount remains in the foreign currency, you get your deposited foreign currency amount along with accrued interest, irrespective of any fluctuation in the Indian rupee. FCNR deposits are thus considered more profitable for people intending to repatriate foreign currency and having an aversion to exchange rate risks.
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Tax Advantages According to Indian Law
Principal amount and interest received from the FCNR deposit accounts enjoy tax exemption in India. There is no requirement to pay tax, whether in regard to your deposit amount or accrued interest. Your wealth tax will also remain exempt for such deposits, making these deposits more attractive. Taxability under your local law, however, needs to be determined by considering your domestic tax rules.
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Tenure and Interest Rates
FCNR deposits can be held for durations of anywhere between 1 and 5 years. The interest rates will differ depending on the foreign currency and duration. Higher interest rates are charged for longer deposit durations. Leading Indian banks offer reasonable interest rates on their FCNR deposits. Interest will be compounded every quarter during the tenure period.
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Fully Repatriable Nature
Principal as well as interest accrued through the FCNR deposits can be fully and freely repatriated. The maturity amount can be transferred into your foreign bank account in the very same foreign currency. This aspect facilitates the process of financial planning for people intending to utilize the money outside India.
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Option for Early Withdrawal
FCNR deposits can be withdrawn before their full duration has passed. The interest earned will be credited at prevailing interest rates for the exact tenure. Certain banks charge no premature withdrawal fees.
Steps to Open an FCNR Deposit
A valid NRE Savings Account is mandatory for opening an FCNR deposit account. The process involves:
- Step 1: Open an NRE account online at the bank’s official website using the electronic KYC process and online form submission.
- Step 2: Proceed to the nearest bank branch and open the FCNR deposit. You cannot do it online. So, physically visiting the bank branch is the only option.
- Step 3: You have to select among the various available foreign currencies, such as ER and GBR. CAD, USD. Do not forget to mention the duration of the deposit and the minimum account balance you want to invest.
- Step 4: Make deposits in your FCNR account via remittances through wire transfer from outside India or fund transfers from any FCNR or NRE accounts from any Indian bank.
- Step 5: On successful booking, obtain a fixed deposit advice slip. You will be able to view and monitor the deposit account using online banking facilities.
Integration with NRI Banking Services
The FCNR deposit account forms an integral part of other NRI banking services offered to NRIs, including NRE savings accounts, NRO accounts, and investments. Top banks offer a consolidated digital facility to use these various NRI services through internet and mobile banking facilities.
FCNR deposits may be an excellent choice for NRIs looking for stability, taxes, and repatriation. Go to the nearest branch of your bank to know more about FCNR deposits and how they suit your finances.
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