Resident Foreign Currency Account: The Choice of NRI’s returning India

“Aa ab lautchalen”, (meaning let us now return) is the title of a Bollywood movie which reflects the thought of many NRIs’ yearning to return to India. The decision to return requires planning, especially the finances and Resident Foreign Currency (RFC) Account is an ideal vehicle for NRIs’ to park their funds in foreign currency in India and avail off its advantages once they actually return to the country.

In the following sections we dwell on the attributes which are specific to the account in the context of NRIs’ returning back to the country.

Opening an RFC Account: Who is eligible?

The following sets of people are eligible to open an RFC account:

Any resident Indian can open an RFC account in any freely convertible foreign currency

NRIs’ who have stayed abroad for a continuous period of 1 year or more and have returned to India

Authorized dealers and banks provide assistance in the opening of an RFC account. Existing FCNR or NRE accounts can be converted to RFC account as per the discretion of the account holder.

In which foreign currencies can RFC account be maintained?

As already stated, RFC account can be opened in any freely convertible foreign currency. Currencies like AUD, CAD, Euro, GBP, JPY, USD, etc qualify for an RFC account.

What kind of interest rates can be expected out of an RFC account?

RFC accounts can be maintained in the form of:

Term Deposits

Current Accounts

Savings Accounts

Interest rates, per se, vary on term and currency. As a benchmark case, at present, an RFC term deposit account maintained for 1 year or more in US dollar carries an interest rate of 2.5% to 3.0 %.

What are the tax implications for interest credited in RFC Account?

The interest credited on a quarterly basis in the RFC account balance is taxable. However, if the status of the account holder is that of a Resident and he or she does not qualify as an Ordinary Resident then he is exempt from tax payment for the interest earned on the RFC account.

What kind of funds can be deposited in the RFC account?

The sources of Funds which can be deposited in an RFC account are specified below:

Funds kept in foreign bank account in foreign currency, which has been earned through the conduct of some business or by way of employment abroad.

Any money in the form of Superannuation, pension etc.  received by a NRI from a foreign employer.

Foreign exchange received on account of sale of assets including shares, bank account, immovable property and investments held by the individual outside India.

Any income earned from assets held abroad such as interest income and dividend.

On attaining the status of a resident Indian, funds from FCNR or NRE account can be deposited in the RFC account and in such cases no penalty is levied on the premature withdrawal of FCNR or NRE account.

Foreign currency notes of different denominations brought from a foreign nation. In cases where the valuation of such   foreign currency notes exceeds $5000 or the total value of notes and Travelers cheque is over $10,000,a Currency Declaration Form (CDF) has to be submitted to the customs authorities. The form has to be produced at the bank for endorsement at the time of account opening or depositing money into the RFC account.

For what purpose RFC account balance can be used?

The balance maintained in an RFC account can be utilized for making investments or for remitting money abroad. RFC account balance can also be used for making payments and investments in India.

The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners
(www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at  ramalingam@holisticinvestment.in