With a view to providing further incentives and giving wider options to persons of Indian nationality / origin residing abroad (NRIs) and overseas corporate bodies predominantly owned by NRIs (OCBs), for making investments in India, Reserve Bank has formulated a Deposit Scheme viz. Foreign Currency (Ordinary Non-repatriable) Deposit Scheme.

Under the FCNR (NR) Scheme, accounts in U.S. Dollars can be opened with Authorised Dealers by remittance of foreign exchange from abroad or by transfer of funds from the existing Non-resident (External) / FCNR Accounts. No penalty will be levied in case of premature withdrawal of existing Non-resident (External) / FCNR deposits for the purpose of making investments in the proposed Scheme. The deposits accepted under the Scheme will be kept denominated in U.S. Dollars for a fixed period of three years [till 15th June, 1992, the period was five years]. Interest will also be computed in U.S. Dollars and compounded at half-yearly intervals at the rate of two percent (till 15th June, 1992 the interest rate was one percent) above the applicable rate for FCNR dollar deposits for three years ruling on the date of deposit. The maturity proceeds of the deposit including interest accrued thereon would, however, not qualify for repatriation outside India at any time and hence the amount will be credited to the Ordinary Non-resident Rupee (NRO) Account of the depositor. The amount of the deposit can be gifted by individual account holders to any individual of Indian nationality or origin resident abroad or to the account holder’s close relative in India or to any Charitable Trust in India recognised under the Income-Tax Act without payment of any gift tax for one time gifting. The deposit will continue to remain denominated in U.S. dollars even if the depositor subsequently becomes resident in India. NRIs can hold the deposits held by NRIs under the Scheme will be free from Indian Income-Tax. The deposits will also be free from wealth-tax and gift tax for one time gifting. Authorised Dealers can grant rupee loans / overdrafts in India without any limit to the NRI deposit holder against the security of the said deposit for purposes other than investment. Repayment of loan may be made by remittance from abroad or by debit to Non-resident (External) / FCNR / Non-resident (Ordinary) Account of the depositor or against adjustment or maturity proceeds of the deposit.

The scheme has been replaced in November, 1992 whereby the main amendment is that authorised dealers have been permitted to allow nomination facility in favour of a resident or non-resident, subject to condition of non-repatriation.

As the account is a foreign currency account, the interest earned on the balance will be covered by section 10(15)(iv)(fa) of Income-Tax Act and will be exempt from income-tax.
 

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