FCNR Deposit

There are many NRIs (Non-Residential Indians) living in foreign countries who have an interest in investing their money in India. The Indian government has facilitated various ways for non-residential Indians to invest in their homeland, India. 

NRIs need to have an FCNR account, which is among the three kinds of accounts required to invest their money in India. NRIs receive significant benefits from FCNR deposit accounts, such as tax exemption on earned interest and higher interest rates in comparison to other countries.

What is FCNR Deposit

FCNR is an abbreviation for Foreign Currency Non-Residental bank account. FCNR deposit is a fixed deposit account for NRIs that can only be availed to those who have either an NRO or NRE account. FCNR account is a profitable option as it allows non-residential Indian investors to deposit their money in foreign currencies like USD, Euros, JPY, and many more. 

In the FCNR deposit, the interest and principal are fully repatriable, which means you can transfer the income earned in India to your current country location. It can be any country or residential area other than India.

Features of FCNR Deposit

FCNR account has no particular interest rate and has a tenure of 1-5 years. An overdraft facility is also available for NRIs. Some of the prominent features of FCNR (Foreign Currency Non-Resident) bank account are as follows:

• Currency Denominated Account: A foreign currency non-resident account is a foreign currency-denominated account supporting many currencies all across the world. NRIs can invest and deposit their money in the following currencies:
  • USD (United States Dollar)
  • AUD (Australian Dollar)
  • HKD (Hong Kong Dollar)
  • CAD (Canadian Dollar)
  • JPY (Japanese Yen)
  • SGD (Singapore Dollar)
  • CHF (Swiss Franc)
  • EUR (Euro)
  • GBP (Great Britain Pound)
• Deposit Account: Unlike an NRO or an NRE account, which are savings accounts, an FCNR deposit is a fixed or term deposit account that allows NRIs to deposit money in foreign currencies.
• Repartiable: In FCNR deposit, the accounts are fully and freely repatriable. In simple words, the earned interest and the principal deposit amount on the investment or deposit in India can be sent to your foreign account in your current residency country.
• Forex Rate Protection: The FCNR deposit accounts are fully protected against foreign exchange rate risk, which occurs due to the fluctuation of currency prices from one currency to another. The FCNR account transfers your interest and principal in the same currency in which it's being maintained, leaving no room for any exchange loss.
• Rupee Loans: In this, you can use your FCNR deposit money as collateral to borrow a rupee loan. NRIs can also use their FCNR deposits to repay any foreign currency loan when it matures.

Pros of FCNR Deposit Account

1. Joint Account Ownership: They allow for multiple individuals to invest together for a larger amount as two or more Non-Resident Indians can be the joint account holders.
2. Useful for Foreign Debt: FCNR account holders can use the interest earned on maturity to pay off foreign currency loans taken outside of India, reducing the burden of foreign debt.
3. Compounded Interest: FCNR accounts offer compound interest, which is calculated on a half-yearly basis and is payable after the first year, allowing the savings of the holder to grow more quickly.
4. Flexible Durations: FCNR deposits have flexible durations ranging from one to three years, letting NRIs choose what fulfills their investment or saving goals while also allowing overdraft.
5. Regulated Interest Rates: The RBI sets the upper limit for interest rates, which prevents banks from charging absurd interest rates.

Cons of FCNR Deposit Account

1. Early Withdrawal Penalty: Account holders who withdraw the deposited amount within a year will not be paid any interest from the bank. A penalty is also applicable if the account holder tries to switch to an NRE account during that period.
2. Weak Bank Risks: If your amount is deposited against a bank that is not top-notch and the bank files for bankruptcy, the bank might not be able to return the money, and the credit insurance in India is negligible, too.
3. Taxation in Other Countries: While FCNR accounts are not taxable in India, they may be in the country where the NRI resides.
4. Limited Options: FCNR only provides term deposits; saving and recurring accounts are not available.
5. Not Future Proof:  The Government of India, under the Income Tax Act, can change the amount and rate of levied tax at any time.
6. Loan Eligibility Restrictions: The loans that are taken against the FCNR accounts are applicable only to the account holders.

Eligibility Criteria and Required Documents for FCNR Deposit Account

To open an FCNR account, non-residential Indians need to fulfill a particular set of guidelines and eligibility criteria.

• The investor must own an Indian passport issued by the government of India with the individual’s name, DOB, address, photo, and signature.
• The investor depositing the money must be NRI (non-resident Indian), PIO (Person of Indian Origin), or OCI (Overseas citizen of India).
• NRIs can have an FCNR joint account with other NRIs, OCIs, and PIOs.
• In order to earn the interest in the FCNR deposit, an individual should deposit for at least a year, and interest in this account is paid on a 1-year basis.
• As per the Citizen Act 1955, individuals have to be a citizen.

After the eligibility criteria come the important documents required by an individual to open their FCNR account.

• Income proof of the person
• Valid passport of the person
• Form 60 or the Indian PAN card of the person
• Address and NRI status proof(current residential country) of the person
• Passport-size pictures of the person

Conclusion

Foreign currency non-resident accounts have a 5-year maximum tenure and can be beneficial long-term investments for NRIs who want to deposit and invest money in India. The interest rate of the FCNR deposit account may differ based on certain factors, such as the kind of currency, investment duration, deposited money, etc.

One should do their proper research, compare certain plans, and then invest in any account within their financial capacity and limits. The non-resident Indians can consider factors like currency, taxation, family, etc, to make their final decision before investing.