INDOlink 
Money Talk

 

FCNR Accounts

 

General Information

NRE accounts maintained by banks in specified foreign currencies in India are called FCNR accounts. They can be opened by both NRIs and OCBs by remitting funds from outside India. Persons / OCBs residing in bilateral group countries cannot open accounts under the scheme. At present, the account can be maintained in 4 currencies, namely:

                                     - UK Pound Sterling

                                    - US Dollar

                                    - German Deutsche Mark

                                    - Japanese Yen.

The rates of interest payable on FCNR deposits in different currencies and for different maturities are announced by the RBI from time to time. The obvious benefit of maintaining FCNR accounts (as distinct from NRE rupee accounts) is that NRI is not exposed to risk of adverse currency fluctuations.
 

Remittances

Remittances for opening / crediting the accounts should normally be received in either of the above four currencies. Remittances made in any other foreign currency will be converted by the receiving bank into one of the four specified currencies chosen by the remitter for his foreign currency account. The funds in the account are repaid to the account holder in India or freely remitted outside India under his instructions without prior reference to the RBI, if the account holder continues to be a non-resident. The interest on deposits is payable in the currency in which the account is maintained. In case the account holder wants funds to be remitted in any currency other than the currency in which the deposit is held, his banker would convert any of the four specified currencies into the currency required by the
account holder at the prevailing rate of exchange and effect the payment / remittance.
 

Taxability of interest

Interest earned by individual is exempted from income tax vide section 10(4)(ii) of Income-tax Act. It is also possible to claim that the interest paid by a scheduled bank is exempt under section 10(15)(iv)(fa). (Section 10(15)(iv)(fa) exempts from Income Tax "interest payable ........ by a scheduled bank on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India"). On this interpretation, exemption from tax on interest earned by OCBs on FCNR accounts will be available; this is because section 10(15)(iv)(fa) does not restrict the exemption only to individuals.
 

FCNR (Banks) Scheme

The Credit Policy announced on 7th April, 1993 has introduced a new FCNR Scheme called "FCNR (Banks) Scheme". This scheme is in addition to, and not in substitution of, the existing FCNR Scheme. The Foreign Currency (Non-Resident) Accounts (Banks) Scheme would have the following salient features:

(i) As in the case of the existing FCNR Scheme, repatriation of funds would be freely permitted in foreign currencies.

(ii) The Reserve Bank will not provide exchange rate guarantee to banks for deposits under the new scheme. The exchange rate guarantee will be provided to depositors by the Authorised Dealers and accordingly, the exchange risk would be borne by the banks.

(iii) The deposit rates under the new scheme would be identical to those prescribed for the existing FCNR scheme.

(iv) The deposits under the new scheme would be fully exempted from maintenance of CRR and SLR requirements and accordingly these liabilities would not form part of net demand and time liabilities for the purpose of reserve requirements.

(v) Lending out of resources mobilised under this scheme would not be considered as part of net bank credit for the purpose of determining priority sector lending.

The other terms and conditions applicable to the existing FCNR Scheme would also be applicable to the new FCNR (Banks) Scheme.

It may be clarified that as far as the non-resident depositor is conerned, there is no change in the exchange cover provided under the FCNR facility.
 
 
 

INDOlink Home Money Talk Investment in India