Overview of Resident Foreign Currency Accounts for NRIs

A decision to return to India after a long stint abroad is a difficult one, for NRIs. It is even more difficult to plan the move – from choosing the place to move in, deciding how to spend time in India, building new friend circles to moving your assets to India. Opening a Resident Foreign Currency Account is a must for all NRIs in this situation, as this article will explain.

Even after you have made a decision to move to your home country, you may be still apprehensive if you would be able to adjust your life to Indian ways. If you plan to return abroad, for long term again, what would happen to your assets you have transferred to India? A lot of questions linger in the mind. Do I have to convert all my assets to Indian Rupees? What if I want to go back? Wouldn’t I incur a lot of currency conversion charges if I convert Rupees to foreign currency?

Well, Resident Foreign Currency account, also known as RFC account is a boon for those NRIs who plan to return to India permanently or plan to stay in India for a few years and return later.

When you return to India, depending on the date of arrival in India, your tax status will be classified as Resident but Not Ordinary Resident (RNOR), up to 3 tax years. This is a transitional status, which helps you to move your assets to India, in a tax-efficient manner.

When you are under the RNOR tax status, you can open an RFC account with your bank to bring back foreign funds to India and hold it in any convertible foreign currency.

Let us understand in detail about the RFC account.

Type of account: These accounts can be opened as regular Savings/Transaction accounts or as Term Deposits or as Current Account. Any existing NRE or FCNR accounts can be converted to RFC accounts on request.

Eligibility: Any NRI, who has stayed abroad for a continuous period of one year or more and has returned to India, can open an RFC account.

Currencies Allowed: Your funds can be held in any freely convertible foreign currency like GBP, USD, AUD, Euro etc.

Type of funds that can be deposited: You can deposit funds from the below sources into an RFC account:

  1. Funds in a foreign bank account which have been earned by employment or business abroad.
  2. Any superannuation or employee benefits received from the overseas employer into a bank account abroad.
  3. Income earned from any financial assets abroad, such as interest or dividend.
  4. Foreign currency notes brought from abroad subject to a maximum limit of 5000 USD.
  5. Pension received from abroad.
  6. Foreign exchange received for selling assets held abroad, such as immovable properties, shares and other investments.

Usage of RFC accounts: The funds in RFC accounts can be used for the purposes listed below:

  1. For any remittances or remittance abroad.
  2. For maintenance of dependents and any personal expenses abroad.
  3. For investments and expenses in India, funds can be used after conversion to Indian Rupees.

Taxability: Interest earned on this account is taxable. However, if you are under RNOR tax status, you can claim tax exemption on the interest period for a maximum period of 2 years.

Conversion from NRE to RFC and vice-versa: When you move to India after a minimum stay of one year abroad, you can convert your existing NRE/FCNR account to RFC account. In case, you wish to move abroad again, the same account can be re-converted to NRE/FCNR account.

RFC account is a tax-efficient tool to use if you plan to return to India. It, not only gives you the flexibility of holding foreign currency, but also helps you in easy conversion to Indian Rupees. The tax exemption allowed for 2 years, on the interest earned is an additional incentive for you to consider moving your offshore assets to India.