RFC accounts for home-bound NRIs: All you need to know


By Nitin J Shetty
Chartered Accountant, Mangaluru 

Mangaluru, Jul 11: Year on year several Non-Resident Indians (NRIs) are returning to their homeland for good. Most of them may not be in a big hurry to convert their hard-earned foreign currency into rupees. They might want to keep their options open, especially, in the present unstable global environment.

The early part of the year saw chaos in the world financial markets due to China and the sharp fall in crude oil prices. The latest EU referendum resulted in Britain's exit (Brexit) from EU. Its impact on currencies globally is also keeping up the pressure on the rupee.

The exchange rate for the rupee is currently touching a low of 67.25 against the dollar. Some economic analysts (ET Poll) have predicted it will touch the 70 rupee mark by the year end.

In such a scenario returning NRIs might want to hold on to their foreign currency earnings. They may be hoping for a better dollar to rupee conversion rate soon. To their luck banks in India are also offering them savings account and term deposit account. They can now park their hard-earned foreign currency in such accounts.

The name of the account is RFC account. RFC stands for Resident Foreign Currency. Only an NRI returning to his motherland for good can open such an account. For instance you as an NRI have worked abroad for years and earned in dollars. You decide to return to your home country and settle here. In such an instance you are eligible to open an RFC account and maintain your dollars in it.

In RFC account you can maintain funds in dollars and in other foreign currencies too. For example GBP (Pound), JPY (Yen), Euro, CAD, AUD etc., and you can also withdraw them in Indian rupees. The RFC account is a handy tool for those who wish to park their foreign funds to use it later overseas, and thereby not expose their foreign currencies to exchange rate fluctuations.

You can open an RFC account without any regulatory approval from the Reserve Bank of India (RBI). But there are some basic conditions to fulfil before you become eligible to open an RFC account.

1. You should have resided in a foreign country for a period of at least one year before your return.
2. You should have returned to India on or after April 18, 1992.
3. You should be settled for good in India since your return. This is as per the RBI guidelines.


There are two options available within an RFC account 1. RFC savings account 2. RFC term deposit account. You may keep it solo or in joint names of those who are eligible. But you cannot avail of any loans against an RFC account.

If you are an NRI you can opt for an RFC savings account or an RFC term deposit for one to three years. Some banks will even offer you five year RFC term deposits.


RFC Savings Account:

If you are an NRI most banks in India will allow you to open an RFC savings account. In which you can deposit either US Dollars or Euros or British pounds (GBP). Some banks even offer currency options as varied as: USD, GBP, EUR, CAD and AUD.


You will require the following documents for opening this account:

1. A photocopy of your passport
2. Visa copy and immigration stamp showing that you had stayed outside India for at least one year 3. Copy of your PAN card (Permanent Account Number)/Form 60 (in the absence of PAN)
4. Your RFC declaration form
5. Your passport size photograph


You can make deposits or credits to the RFC savings account by any of the following means:

(a) From your credit balance in NRE (non-resident external) and FCNR (foreign currency non-resident) accounts, particularly when you returned to India.
(b) From income that you may have earned from your overseas assets. Also money earned from the sales proceeds from overseas assets or by selling of foreign currency shares.
(c) Full amount of pension received from abroad.

The RBI website gives full details of depositing of the eligible/permitted money.

Remittances may be made overseas from the money in the RFC account. But it must be for bona fide purposes only. As an NRI you can use the RFC funds for investments or remittances abroad. You may also use the funds for maintenance of your dependents or for personal needs abroad.

You may also use the RFC funds for expenses and investments you plan to use in India. But, in such a scenario withdrawal from the account is permissible in rupees only. Such funds are usually credited by the bank to your resident rupee bank savings account.

If you as the RFC account holder decide to go abroad again for a long duration then in that event there will be repatriation of your balance RCF funds abroad or your funds can be transferred to your NRE/FCNR account(s) whichever option you choose. But for that you need to furnish a statement in the prescribed form STAT 10.

Also note here that the interest earned on your RFC account is subject to tax as per Indian laws.


RFC Term Deposit Account:

As an NRI returning to India, you have one more option in the RFC account called term deposit. You can open this account with any authorized dealer in India. You can then park your foreign funds for a fixed term of either three or five years. This will depend on the bank you choose to open your account with in India. The currency of deposit is any permitted foreign currency.


Along with the RFC term deposit account application furnish the following documents:

1. Attested photocopy of all relevant pages of your passport.
2. Documents to show that funds deposited into the account are eligible for the purpose


You can make credits to the RFC term deposit account by any of the following means:

(a) Overseas remittances such as funds in bank account abroad. It could be income such as dividend, interest, profit, rent, etc or proceeds from sale of entitled property abroad
(b) Pension or other monetary benefits received from abroad. This could be arising out of employment outside India before your return to India
(c) Interest earned on RFC account
(d) Foreign currency notes or travelers cheques
(e) Transfer from other RFC accounts
(f) Funds transferred from NRE or FCNR accounts
(g) Transfer from RIFEE account
(h) Permissible Debits
(i) Any bona fide remittance from abroad routed through normal banking channels

In the RFC term deposit account withdrawals or payments made within India will be in rupees only. It is permissible to transfer deposits to other RFC accounts.

But, permission to make payment in foreign currency to any entity within India is possible only after RBI approves the same.

The advantage of RFC term deposit is that a wide array of foreign currencies is available for maintaining in the banks. Unlike the RFC savings account where it is possible to maintain only three to four foreign currencies.

Interest rates on the term deposits vary from bank to bank. For information on the interest rates you can check the websites of the respective banks. The rates will vary depending on the kind of foreign currency you would like to park in the account for long term.


Interest and Taxation:

In majority of the cases, for a returning Indian a RFC term deposit in dollars earns a higher rate of interest. Rate of interest varies by term of deposit and currency. Quarterly credit of interest is made to the account. Most banks pay interest on par with FCNR account on RFC account, and it stands at 2.5-6%.

Interest earned on the RFC deposit is exempt from tax if an NRI declares himself as "Resident, Not Ordinarily Resident," (RNOR). This means if you have been an NRI for 9 out of last 10 years or if you have spent less than 729 days in India in the last 7 years, you qualify as an RNOR.

You can then declare yourself as RNOR and be exempt from tax for the next 3 years after which the bank will consider you resident Indian. But, if you return before the aforesaid number of years then the interest earned from the RFC term deposit will become taxable.

The term deposit’s one major drawback is its lock-in period. As a result you will have to bear the brunt of the exchange rate fluctuations.

Premature closure of the account is possible but it comes with a penalty unlike RFC savings account. In the latter you can withdraw funds whenever required, without incurring added costs.

Nomination: Nomination facility is available in Resident Foreign Currency account. You as account holder can choose either a resident or non-resident as nominee for his account. In case the account holder dies if his nominee is an Indian resident, the payment of the balance funds in the account to him/her will be in Indian rupees. And in case the nominee is an NRI there will be repatriation of the balance funds abroad.



Comment on this article

  • Ravin, Kuwait

    Sun, Aug 27 2017

    Thank you Nitin, a well organized, informative blog. I read many articles and even the RBI regulations on RFC. I am bit confused, I look for a clear clarification. I have several NRE Term deposits (in Indian Rupees) and they mature in March/April 2019 and an NRE RD account maturing in Oct 2018. I don't have any FCNR account. I also get my Superannuation benefits (Indemnity) in local currency and I can convert them and transfer them to my NRE account before I travel to India. I am returning to India for good in Oct 2017 after working 17 years as NRI. So I can wait till my NRE FD matured in 2019 March/April then move the matured amount to my RFC account? The Indemnity amount I transferred to my NRE account I can move to RFC account when I declare that I am no more an NRI?. How many months I can wait to make such declaration to the bank. Is there time period like 6 months for it.

    DisAgree Agree Reply Report Abuse

  • angelina, kuwait

    Wed, Jul 20 2016

    Your article is very much appreciated. Thanks

    DisAgree Agree [1] Reply Report Abuse

  • A J SANIL, MULKI/MUSCAT

    Fri, Jul 15 2016

    Dear Nitin
    God bless you for sharing the very useful information about maintaining of RFC Account for the returning Indians from abroad.

    DisAgree Agree [4] Reply Report Abuse

  • Evans Christopher Sumitra, UDUPI/ NEW YORK, USA.

    Wed, Jul 13 2016

    Thank you Nitin J Shetty. A very informative article for Indians working abroad and who plan to settle down in India.

    DisAgree Agree [5] Reply Report Abuse

  • ad, mangaluru

    Wed, Jul 13 2016

    rfcs are good for those needing foreign currency use, for those who don't a bad idea-lost interest income on fds in india even after paying income tax.

    DisAgree [1] Agree Reply Report Abuse

  • CA Nitin J Shetty, Mangalore

    Tue, Jul 12 2016

    Pasha...
    Foreign Currency(Non-Resident) Accounts( Banks) Schemes(FCNR-B).

    Account is opened with initial deposit by remittance from place of stay abroad.
    Funds earn competitve interest rates
    Funds are fully repartiable, whenever desired.
    No Income Tax is payable on interest earned by individuals
    Accounts can be opened under term deposits scheme only.
    Accounts can be opened in six currencies viz.Stg. Pounds, US dollars,Euro, Japanese, Yen,Australian Dollars and in Canadian Dollars.
    Exchange risk on funds kept under the scheme is borne by the bank.
    Interest on deposits is payable in currencies in which the account is maintained.
    Inter Changeability of funds between NRE& FCNR(B) accounts is permitted.
    Gifts to close relatives in India out of balance in FCNR(B) accounts are free from gift tax.

    Bank Accounts for Non Resident Indians Returning to India.
    Resident Foreign Currency (RFC) Accounts Scheme.
    Scheme is available for NRIs returning to India, who have been resident outside India for a continuous period of not less than one year and who became resident in India on or after 18-4-1992.
    Accounts can be opened with remittance from outside India out of the NRI's eligible assets aboard or transfer of funds from his NRE/FCNR(B) accounts without penal provisions of premature withdrawal.
    Accounts can be opened in any foreign currency and in any scheme i.e Saving/current/Time Deposits.
    Exchange risk is borne by the Bank.
    The Deposit earns higher interest than what is earned abroad.
    Funds are repatriable outside India for bonafide needs of the depositors and their close relatives.

    DisAgree Agree [2] Reply Report Abuse

  • CA Nitin J Shetty, Mangalore

    Tue, Jul 12 2016

    Alwyn...

    NRIs are permitted to open FCNR (B) account with their resident close relative (as mentioned below or they are members of a Hindu undivided family) as a joint holder on “Former or Survivor” basis (NRI being the former):


    1.Father
    2.Mother (including step-mother)
    3.Husband or Wife
    4.Son (including step-son)
    5.Son’s wife
    6.Daughter (including step-daughter)
    7.Father’s father
    8.Father’s mother
    9.Mother’s mother

    10.Mother’s father
    11.Son’s son
    12.Son’s son’s wife
    13.Son’s daughter
    14.Son’s daughter’s husband
    15.Daughter’s husband
    16.Daughter’s son
    17.Daughter’s son’s wife
    18.Daughter’s daughter

    19.Daughter’s daughter’s husband
    20.Brother’s wife
    21.Sister (including step-brother)
    22.Sister (including step sister)
    23.Sister’s husband.

    DisAgree Agree [5] Reply Report Abuse

  • Rita, Germany

    Tue, Jul 12 2016

    Due to Inflation ,value of Money has very much gone down.I personally wouldn't prefer to have foreign currency in NRI.account.Instead invest in assets.I had the experience this year for 1000 Euro got 75,000.what you can do with this almost less than 1000Dollar?after some years it will be be still less.When someone wants again to go back to foreign Country,there will be no Problem to buy foreign currency in Banks.well everyone should decide what he does.

    DisAgree [1] Agree [4] Reply Report Abuse

  • Pasha, Karnataka

    Mon, Jul 11 2016

    Dear Nithin, please advise what is the difference between FCNB & RFC Term Deposit?

    DisAgree Agree Reply Report Abuse

  • Alwyn, Mangalore

    Mon, Jul 11 2016

    Very much informative. Thanks DW.

    One question. Can NRI open an joint account with his spouse who never been abroad. What about nominee and the rules. Nice if you publish otherwise need to go bank and wait few hours/days to get reply.

    DisAgree [1] Agree [6] Reply Report Abuse

  • Alwyn, Mangalore

    Mon, Jul 11 2016

    Sorry need correction. Not nominee what I want to know is about NRI & Non-NRI joint account is possible or not in this account. Thanks

    DisAgree Agree Reply Report Abuse

  • Flavian, Mangaluru/Kuwait

    Mon, Jul 11 2016

    I am planning to settle down but Dollars balance will be maintained till the end of current term of BJP! Make hey when sun shines.

    DisAgree [5] Agree [14] Reply Report Abuse

  • Stan DSouza, Bangalore

    Mon, Jul 11 2016

    Dear Nitin, Very informative article. But I think usefulness of these RFC accounts need to be analyzed from multiple points. The plus points are (1) the currency rate risk is taken care of. But long term future currency rate movements are just speculations. Many believe that with the growth trajectory of current Indian economy, the exchange rates in medium term could be favorable to us. (2) RFCs allow holding your assets in Foreign currency for easy future remittance. Here again as per recent LRS of RBI (Liberalized remittance Scheme), even a Resident Indian can easily remit abroad upto USD 250,000/- . Unless one needs much more FC than this amount, this benefit seems not so attractive.
    But the negative to be considered, is the differential in Fixed deposit returns post tax between RFC accounts and (if converted)that of resident Indian rupee accounts. Even in the scenario where no taxation is applied to RFC accounts, the post tax resident FDs interest rate is around 5.5% (at highest Income tax bracket of 33%) vs. average tax free interest rates of 2% on RFC accounts. The differential in absolute return on a large sum @ 3.5% is quite significant especially for those who come at a retiring age and look for income from their FDs for living. Hence people have to take a call based on their needs and requirement. Thanks again for the article.

    DisAgree Agree [13] Reply Report Abuse

  • Vincent Rodrigues., Frazer Town,Bangalore

    Mon, Jul 11 2016

    This is really good to the NRI's who returning back to their nations to settle once for all.

    DisAgree Agree [11] Reply Report Abuse

  • Flavian, Mangaluru/Kuwait

    Mon, Jul 11 2016

    "The exchange rate for the rupee is currently touching a low of 67.25 against the dollar. Some economic analysts (ET Poll) have predicted it will touch the 70 rupee mark by the year end"

    What could be the exchange value by the end of current BJP term?

    DisAgree [4] Agree [17] Reply Report Abuse

  • HENRY MISQUITH, MANAMA

    Mon, Jul 11 2016

    75 to 80 Rs.

    DisAgree [2] Agree [10] Reply Report Abuse

  • Tony Crasta, Mangalore/Sydney

    Mon, Jul 11 2016

    A very well written and compiled article, explained in simple terms with full details. Well done Nitin J. Shetty. This article will help quite a number of NRIs.

    DisAgree Agree [12] Reply Report Abuse

  • RPB, Mangalore

    Mon, Jul 11 2016

    Informative

    DisAgree Agree [5] Reply Report Abuse

  • shan, dubai

    Mon, Jul 11 2016

    Thank you sir.

    DisAgree [2] Agree [10] Reply Report Abuse

  • Sachidanand Shetty, Dubai/Mundkur

    Mon, Jul 11 2016

    Oh a very good article Dear Nitin Shettre…. I hope that it is not applicable to Mallya Saab!!!!

    DisAgree [7] Agree [29] Reply Report Abuse

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