What are the basic rules of NRI banking to be aware of?

Simply put, an NRI is a person who is an Indian but resides outside India. There are a number of rules and regulations that govern NRI banking in India. However, there are rules and regulations which are specifically made for NRIs and non-adherence can attract penalties. A person is considered non-resident for tax purposes if he leaves the country for a job abroad or as a crew on an Indian ship and spends less than 182 days in a year in India. All financial transactions carried out in India by NRIs are governed by the Foreign Exchange Management Act, 1999 or FEMA. It is thus advisable for NRIs to get to know to know all the rules properly before they operate any account or carry out business transactions in India.

Some of the basic rules of NRI banking that you need to be aware of are:

• It is illegal for NRIs to hold savings bank accounts. FEMA has regulated that as and when a person acquires NRI status, his resident savings bank account has to be converted to a NRO account. All income like rentals from property, investments, pension etc is to be deposited in this account.

• NRI banking rules state that NRE accounts are required if you want to deposits funds in an Indian bank from abroad. There is no limit on repatriating funds back home to India.

• Another important aspect of NRI banking is that they are not allowed to open a PPF account. This fund account is a very effective savings tool for long term planning can be availed only by resident Indians. However, if an NRI has a PPF account before becoming an NRI, he or she can continue to operate the account till its maturity. The funds will have to be withdrawn on maturity and proceeds should be deposited in an NRO account. If the account is left unattended on maturity, it will be considered as ‘extension without contribution’ and penalties will be levied.

• An NRI will have to pay taxes on any income accrued or received in India. Rental income, salary, interest income on fixed deposits or saving bank accounts are all taxable.

• A person who has been non-resident for 9 consecutive years remains RNOR (Resident but not Ordinarily Resident). This is actually a transition period between being an NRI and becoming a full-fledged Indian resident. This period is for two years and this implies that the foreign income of the NRI does not immediately become taxable.

• If an NRI without PAN card can provide alternative documents, TDS will not be deducted at a higher rate.

• An NRI will have to disclose all foreign assets and foreign income in the tax return if he returns to the country and turns Ordinary Resident Indian for a particular year.

How to manage your foreign funds with the right investment?

Investing in foreign funds, on one hand, can be rewarding, while on the other, it can prove to be risky. Earlier the foreign exchange markets were largely dominated by banks and institutional investors. But now it is not their sole domain anymore due to the influx of online brokerages and margin trading accounts. The FCNR or Foreign Currency Non Resident account allows NRIs to invest in India without worrying about currency risks. It is a term deposit account that can be maintained in foreign currency. Foreign currency is the largest and most liquid market in the world and can offer huge returns on smart investments. Investors should however weigh the pros and cons thoroughly before investing in foreign funds.

The benefits of investing in foreign funds are as follows:

• Large market – The foreign exchange market is the largest and most liquid market in the world. The average daily volume of the transactions that take place in this market is in excess of 4 trillion dollars.

• Diversification – You can protect your investment against the risks in your domestic market. Foreign funds help you to invest in a different country and this insulates you intermittent dips and shocks in your domestic market.

• Flexible trading hours – The foreign exchange market operates 24 hours a day and 5 days a week. This provides you with more time than traditional equity, bond or futures market.

• Low costs – You do not have to pay a commission to trade in foreign exchange. All you need to do is ask or bid spreads that tends to be tighter than equities.
NRI or PIO investors could have been apprehensive about investing in India as they thought that they might be exposed to Foreign Exchange Risk. This would have implied that they would have to convert their money into Indian currency while investing and again convert it back into Foreign Currency during withdrawal. However, the Government of India allowed NRIs to invest in foreign currency in FCNR accounts.

The benefits of FCNR are:

• The biggest benefit is that this account is maintained in foreign currency and this eliminates the constantly fluctuating currency conversion rates.

• The maturity terms of these deposits range from 1 to 5 years.

• The rates of interest offered on the deposit are generally higher than that offered by the country of residence of the NRI. The rates of interest are regulated by the RBI and they are the same all over the country.

• In India, the interests earned on these deposits are tax free and fully repatriable.

Thus you can manage your foreign funds by investing smartly in FCNR accounts if you are an NRI. This account will enable you to invest foreign currency and earn interest. The time periods of such investments are flexible and you can even withdraw your deposit before completion of the selected term.

Benefits of the telegraphic transfer you need to be aware of

Telegraphic transfer or telex transfer often abbreviated as TT is an electronic mode of transferring funds. It is mainly used in transferring funds overseas. It is the mode of transferring funds between accounts using a cable, radio or telephone. It originated when people used to move money using telex that is sending printed messages by cable to move funds from one bank to another.

In todays fast pace lifestyle where time is a luxury and everything is being brought under online services, the need for transferring funds quickly and easily is a must. Compared to the traditional method of transferring funds where you have to visit a bank, the telegraphic transfer is also known as wire transfer can be made from anywhere without visiting a bank. There are so many service providers that transfer your money anywhere you want by paying them a service charge. Contrary to the orthodox mode of funds transfer, it is not mandatory to have a bank account as well.

Telegraphic transfer is one of the most widely used mode of transferring funds because of unlimited advantages it has over other modes of funds transfer, they are:

• The process of transferring funds using telegraphic transfer is very simple. All you need to do is visit a service provider with the amount you want to transfer and the account number of the recipient, fill in the form and you are done. This makes it the easiest way of transferring funds.

• The funds transferred through telegraphic transfer is generally available to the recipient in a single business day or less, making it one of the quickest mode of transferring funds.

• Since it is protected by multi-layered security by credentials provided by you, it is one of the safest and secure method of transferring funds.

• Since the telegraphic transfer is a very rapid process, it is not much affected by the fluctuations in the exchange rate and the international money market.

• The service charge attached to telegraphic transfer is very nominal even in overseas transactions making it one of the cheapest modes of transferring funds.

• It is widely accepted across the globe in almost every country and is the preferred mode of fund transferring for people who remit money back to their home countries.

• The upper limit of transferring funds using telegraphic transfer is very high making it a preferred option for those who want to make large money transfers.

• It has a very wide application not limiting to hardcore find transfer, it can also be used for paying credit card bills, telephone bills, internet and other utility bills.

What are the tips you need to keep in mind when you want to remit to India?

India is the leading recipients of remittance globally with more than 25 million people of the Indian diaspora sending money to India. The total money remitted to India in the year 2015 was around $68.9 billion contributing to 4% of the gross domestic product (GDP). Remittance to India has grown exponentially since 1991 and is on a constant rise which is expected to grow further more in the next decade.

The regulatory body for remittance in India, FEMA (foreign exchange management Act) of 1999 allows a NRI (non-resident Indian) and PRI (persons of Indian origin) to open and maintain any of the following account:

• Non-resident ordinary rupee account (NRO)

• non-resident external rupee account (NRE)

• foreign currency non-resident bank account (FCNR)
There are a number of ways by which people remit to India. The most commonly used method is the wire transfer offered by almost every bank and some private money transfer agencies. Other ways of remitting money to India are through bank drafts, money orders, ACH transfer, personal cheques and online transfer. No matter which mode you choose to remit to India, listed below are some of the points that you should consider before sending money:

• Never forget to check and compare the exchange rates before sending money. Since the currency value differs, a minor difference in exchange rates can be huge in rupees. So you compare with all the agencies before remitting so that you get the best value for your money and the recipients receive the maximum of what you remit to India.

• You should keep a check on the news and international market trends. If something major is predicted to happen in near future such as demonetization in India or brexit in Uk, it is better to avoid those period and let the dust settle down before you remit to India.

• Selecting the right mode of transfer plays a key role. Different modes have different service charge, cancellation fees, processing fee etc and choosing the right mode of transfer impacts on the total amount to be remitted.

• Timing your remittance is also important. You should always try and remit money  on weekdays (Monday to Friday) as live exchange rates are open so you get plenty of options. Moreover, the international markets are closed on weekends.

• The international money market is ever fluctuating and it is hard to keep a tab on that. So it’s better if you set online alerts for an increase or decrease in exchange rates to give you the best possible outcome.

• Shopping is always a good idea in financial market. Money transfer agencies always come up with something lucrative to attract new customers and shopping gives you a clearer picture of the best rates and deals available.

Why the festive time is the best time to send money to India?

In India, generally, preparations for festivals include house renovation, buying jewellery, buying silver coins, new clothes, electronics, and preparing mouth-watering delicious food items. We Indians celebrate our festivals with an exchange of sweets and good wishes with friends and loved ones. There is joyful celebration with bursting of fireworks everywhere. Well, sending money to India to your family would be the most convenient way to express your love and gratitude in your absence. These funds gives the receiver the flexibility to choose his/her own gift and liberty to spend the way they would wish to.

Probably, the first thing that a person working abroad would do every month is sending money to India to their family. And during festivals they would ensure that they can send money in a hassle-free way and it reaches to their family on time. These special days give an opportunity to do a little more so as to make one’s loved ones feel special. Many of the people living miles away from their family would relate to this responsibility of making money transfer to India to their home.

At times, a person might wait for the best exchange rate and then make money transfer to India. Another factor that can be considered, which many NRIs bear in mind is, the transaction/operational cost associated with a transfer of money to India and the duration within which the money reaches the recipient. But with the advent of new technologies, remitting money back home has become much more convenient and easy. Gone are the days when remittances were sent via traditional channels such as drafts, cheques, then through post offices. Over the past few decades, technological enhancement and globalisation have helped to build a wider range of facilities for making money transfer to India.

During the festive seasons, the banks come forward with lower and much lucrative exchange rates. Hence making money transfer to India during the festive might appear to be pretty much profitable. Whatever be the transferable amount of money to India a pre-planning regarding the time of sending is important. The right timing could make a huge difference in the amount that the recipient account gets in India. For this, tracking of currency exchange rates for a few days or even for weeks is necessary. If a person has time, then he or she should use it to get quotes from different companies and compare who gives them the best buck for their money. Leaving it for the last minute can result in missing out the opportunities of sending money to India at low exchange rates. So, planning ahead helps a lot.

Hence, many people working abroad prefer to send money to India during the festive seasons because the banks and other financial institutions come forward with low and lucrative exchange rates.

How to convert your bank account into an NRO account?

When a Resident Indian becomes an NRI, he needs to convert his resident savings account to NRO account as per the laws pertaining to Indian banking and income tax. The NRO account provides the simplest way to access and operate funds and investments already made in India. The accounts can receive foreign remittances, while having a joint account holder who is a resident India, e.g. the account holder’s parents, and RBI also permits repatriations from NRO account to abroad limited by a maximum annual amount.

In order to convert your current resident saving account to NRO account, you first need to inform the bank about your NRI status. You will need to provide proof that the account holder is now a non-resident of India in accordance to the definition in the Indian tax laws. Once a person becomes an NRI, he cannot continue to hold bank accounts with resident India status.

In order to convert the existing resident bank account into an ordinary non-resident account you need to submit following documents to your bank:

• Identity proof such as passport, driving license, voter id card, or aadhar card

• NRI status proof, e.g. green card or copy of your VISA

• Proof of foreign address, through utility bills, telephone bills or foreign bank statements

• Recent photographs which are not older than 3 months.

The applicant or account holder must provide proof of overseas resident in the approved form. This form includes employment details, student status, dependent visa status, or a copy of the resident permit in the country one is currently living in.
This proof has to be attested by the Indian embassy, notary, or an Indian bank with an overseas branch. Many banks accept self-attested copies of documents. If you need to include your local Indian address, you need to submit another local address proof with attestations.

An NRI can hold three types of bank account namely, NRE, NRO, and FCNR. Out of these three, FCNR, which stands for Foreign Currency Non-Resident, is a foreign currency account which can only be opened as fixed deposit with Indian banks. For daily need, you can either have an NRE saving account or an NRO account. Since you cannot deposit Indian money into NRE account, you must have a NRO account to deposit the income you are receiving in NRO. This income can include rental incomes, dividends received from existing investments such as the Stock Market, in order to receive INR from any friend or family.

The main reasons to open NRO account are as follows:

• To receive any income in Indian rupees e.g. rental income or dividends.

• In order to deposit INR as NRE account can only be funded using foreign currency or remittance.
This is how we can convert a bank account into NRO account.

What can you use your NRI account for?

In banking terminology, the term NRI account refers to funds deposited by a Non-Resident Indian or NRI. The funds are deposited with a financial institution authorised by the Reserve Bank of India to provide such services. A Non-Resident Indian is an Indian citizen who primarily resides outside of India. NRI account lets a person transfer their earnings to India conveniently with complete security. They can repatriate the funds held in the account along with interest earned at any point of time and they don't even have to pay tax on the interest amount. With a host of direct banking channels, which are easily available at one’s fingertips, he/she can stay in complete control of their hard-earned income abroad.

In order to open a NRI account the documents needed are as follows:

• Photocopies of the pages of the passport containing passport details and personal details of the applicant.

• Photocopy of Permanent Account Number (PAN) or Form 60 in absence of PAN.

• Photocopy of valid visa or work permit.

• One passport photograph of the applicant.

• Documents confirming the overseas or Indian address. The given address has to match the address mentioned in the application form.

• An Initial Payment Cheque or Draft from the applicant’s own account equivalent to the amount required to maintain the average monthly balance in the account. (In case of Draft, Demand Draft slip is mandatory).

In case, the applicants cannot come to the bank for opening their account, then all photocopies of the above-mentioned documents need to be attested by either an Indian Embassy or Notary or by a Banker overseas. If the documents are not certified, then all the documents are needed to be self-signed and submitted.

An NRI account can be used by an applicant living abroad for the following purposes:

• For transferring of funds freely between India and abroad whenever required.

• For earning higher interest rates on the account with zero tax payment on the interest earned by the NRI account holder in India.

• For withdrawing cash easily and for shopping worldwide with International Debit Card.

• For appointing a mandate to operate the applicant’s account for him or her.

• For conducting online transactions securely, 24x7, with the net-banking facility.

• For payment of utility bills such as electricity bills, phone bills, mobile phone payments, etc. just by a simple registration.

• Other benefits include getting a personalised chequebook, tax exemptions on interest earned and exemption on wealth tax, free email statement facility, availability of safe deposit lockers at certain branches, facilities of investing in Mutual Funds by linking the NRI account to the investment savings account.

All these benefits provided by the NRI accounts facilitate the Non-Residential Indians to maintain them without much headache and in a secured manner.