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.