FCNR (B) or Foreign Currency Non-Resident (Bank) Account is in the form term or fixed deposits (it is not a savings account). Hence, they are also known as FCNR (B) Deposits.
Only Non-Resident individuals (NRIs) or a Person of Indian Origin (PIO) are eligible to open a Foreign Currency Non Resident (Bank) Account with a bank.
The FCNR (B) Deposits can be held singly or jointly (two or more) by NRIs or PIOs with a resident relative on a ‘former or survivor’ basis.
According to regulatory guidelines, the resident relative can operate the account as a Power of Attorney (POA) holder during the lifetime of the NRI/ PIO account holder.
However, the operations of the account for the POA holder are restricted to withdrawals for permissible local payments or remittance to the account holder himself through normal banking channels.
Nomination facility is permitted in favour of one person only, who could be either a Resident or NRI.
FCNR (B) Deposits can be opened in any foreign currency which is easily convertible. Axis Bank gives you choices of six currencies: US Dollar (USD), Great Britain Pound (GBP), Euro, Japanese Yen (JPY), Australian Dollar (AUD), and Canadian Dollar
What documents are required for FCNR (B) Deposits?
- Copy of valid passport
- Proof of NRI status
- Proof of Overseas and Indian address
- Copy of Indian PAN or Form 60
- Recent passport size coloured photographs
Apart from the copy of valid passport, proof of overseas and Indian address, and a recent passport size photograph the following…
- Copy of valid PIO/OCI card or any other proof of PIO status (as per customer identification policy)
- Duly signed and filled-in PIO declaration
All of the above photocopies should be attested by your banker abroad, or the Indian Embassy, or the notary or equivalent authority as per the applicable law.
How much is the tenure for FCNR (B) Deposits?
Deposits to this account have a flexible maturity term ranging from 1 year to 5 years. On maturity the FCNR (B) Deposits can be renewed too.
FCNR (B) Deposits earn you tax-free interest depending on the tenure you choose and the currency. According to regulatory guidelines, banks are prohibited from the payment of interest on non-resident deposits of senior citizens including FCNR (B)
The interest on FCNR (B) Deposits shall be paid on the basis of 360 days to a year. For deposits upto 1 year, the applicable rate is without compounding effect. For a deposit term of more than 1 year, it is at intervals of 180 days, and thereafter
for remaining actual number of days may be compounded.
Payment of interest on FCNR (B) Deposits of NRIs/PIOs who return to India:
When NRIs/PIOs return to India for good, as per the regulations, the bank at its discretion may allow the account to continue till maturity at the contracted rate of interest.
Except the provision relating to rate of interest and reserve requirements as applicable to FCNR (B) Deposits, for all other purposes, will be treated as resident deposits from the date of return of the account holder to India.
Further, the bank will convert the FCNR (B) Deposits on maturity into Resident Rupee Deposit Account or RFC Account (if eligible) at the option of the account holder. If the FCNR (B) Deposit is converted into RFC Account, then the penalty clause is
The rate of interest on the new deposit (Rupee account or RFC Account) will be the relevant rate applicable for such deposit account.
Payment of interest on FCNR (B) Deposits of deceased depositor/s:
In this case, the regulatory guidelines say:
- At the contracted rate of maturity of the deposit;
- In the event of the payment of the deposit being claimed before the maturity date, the bank should pay interest at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate, without charging
- In the event of death of the depositor before the date of maturity of the deposit and the amount of the deposit being claimed after the date of maturity, the bank should pay interest at the contracted rate till the date of maturity. From the date
of maturity to the date of payment, the bank should pay simple interest at the applicable rate operative on the date of maturity, for the period for which the deposit remained with the bank beyond the date of maturity. However, in the case
of death of the depositor after the date of maturity of the deposit, the bank should pay interest at a rate operative on the date of maturity in respect of savings deposits held under Resident Foreign Currency (RFC) Account Scheme, from the
date of maturity till the date of payment;
- If, on request from the claimant/s, the bank agrees to split the amount of term deposit and issues two or more receipts individually in the name/s of the claimant/s, it should not be construed as premature withdrawal of the term deposit for the
purpose of levy of penalty provided the period and aggregate amount of the deposit do not undergo any change.
Which are the other permissible credits to FCNR (B) Account?
As per regulatory guidelines, the credits permitted to this account are as under:
- Inward remittance from outside India;
- Interest accruing on the account;
- Interest on investment;
- Transfer from other NRE (Non-Resident (External) Rupee Account Scheme)/ FCNR(B) accounts; and
- Maturity proceeds of investments (if such investments were made from this account or through inward remittance)
Is transfer from existing NRO or Non-Resident Ordinary Rupee Account to open FCNR (B) Deposits allowed?
No, this is disallowed.
And which are the permissible debits from FCNR (B) Account?
The permissible debits are:
- Local disbursements;
- Remittances outside India;
- Transfer to other NRE/ FCNR (B) accounts; and
- Investments in India
Are premature withdrawals permitted?
Yes, premature withdrawals are allowed, but it’s at the discretion of the bank. And, they may charge a penalty (to recover swap cost), particularly when the premature withdrawal is before the completion of the minimum stipulated period of 1
year, in which case no interest is payable.
Note that the Conversion of FCNR (B) Deposits into NRE Deposits or vice-versa before maturity are also subject to penal provisions.
Can a loan be taken against FCNR (B) Deposits?
Yes, but subject to the margin requirement of the bank. And these loans cannot be repatriated outside India. This means, they can be used only in India for purposes specified in the regulations. Loans to the account holder cannot be used for the purpose
of relending or carrying on agricultural or plantation activity or for investment in real estate.
As per the regulations, there should be no direct or indirect foreign exchange consideration for the non-resident depositor/s, agreeing to pledge his deposits to enable the resident individual/firm/company to obtain such facilities.
Note that the facility to prematurely withdraw FCNR (B) deposits is unavailable when a loan against these deposits is taken.
Repatriability: The principal amount and the interest earned are fully repatriable to the resident country.
Taxability: As per the current regulatory guidelines, both principal and interest earned on FCNR (B) Deposits are exempt from tax in India.
If you are a risk-averse NRI or PIO looking for assured returns on your investments, the FCNR (B) Deposit Account is one good option to invest directly in foreign currency and earn a decent tax-free rate of return.
Plus, the entire deposit is fully repatriable, which is a benefit. It even provides the advantage to make local disbursements. And, in case you wish to avail a loan or prematurely withdraw your deposit for some reasons, it is permissible. However,
note that recurring deposits are not allowed under this scheme.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.