While Resident Indians cannot keep foreign currency generally and beyond the limits specified under the Reserve Bank of India (RBI) regulations, RBI allows eligible individuals to hold RFC accounts. Here are the salient features of such accounts:
- Eligibility – An RFC (Resident Foreign Currency) account can be opened by any resident individual of Indian nationality or origin, who has been a non-resident for at least one year, can open an RFC account with any AD Bank in India. Further, any individual, who is otherwise not eligible to open an RFC account, can also apply to RBI for permission to open such accounts. RFC accounts are beneficial for the account holders when they have future expenses in foreign currency, like a child’s education overseas, etc.
- Mode of Account – One can open an RFC account as a savings account, current account or deposit account. Such an account can be held in any of the specified freely convertible foreign currencies, including US Dollar (USD), Japanese Yen (JPY), Pound Sterling (GBP), etc. As such, the account holder eliminates the exchange risk if the intention to hold the foreign currency is to remit the funds overseas later.
- Opening an RFC account – An RFC account can be opened by any eligible resident Indian by visiting any bank branch in India. Along with the application form, one must also submit KYC (Know Your Customer) documents evidencing the eligibility to hold such accounts, identity proof, address proof, current Indian address proof, etc.
- Funding an RFC Account – Following amounts are allowed to be credited in RFC accounts:
- Pension or other benefits received on employment outside India before the return and received in foreign currency.
- Interest income on such RFC accounts
- Transfers from other RFC accounts held by the account holder
- Balances in the NRE/ FCNR accounts held by the account holder when they were non-resident
- Utilization of Balance in RFC Accounts – There is no restriction on the use of account balances for RFC accounts. One is free to use such balance for domestic or international use. Since the account balance is denominated in foreign currency, one can save on the foreign currency conversion charges when using account balance for foreign currency remittance in the same currency. On the contrary, when using the account balance within India, the amount would first be converted from foreign currency to Indian currency at the prevailing exchange rates and thereafter transferred.
- Change in Residential Status – If the residential status of the resident Indian changes again to a Non-Resident Indian (NRI), the RFC account balance can be transferred to new NRE (Non-Resident External)/ FCNR (Foreign Currency Non-Resident) accounts.
- Joint RFC Account – An RFC account can be held jointly with another eligible resident Indian or any resident Indian on a ‘former or survivor’ basis. This means that in the case of an ineligible resident Indian being the joint account holder, such individual can only operate the RFC account in case of the death of the primary account holder.
- Nomination of RFC Accounts – One can appoint a resident Indian or an NRI as a nominee to the RFC accounts. Having a nominee for the account is always advisable for account protection in life contingencies. In case of any unfortunate event, the RFC account balance is remitted abroad in the case of the NRI nominee or paid in Indian currency in the case of a resident nominee.
- Taxability of Interest Income – The interest income is taxable for the resident Indians generally. However, if the individual is categorized as ‘Resident but Not Ordinarily Resident’ (RNOR), interest income on RFC accounts are not taxed.
RFC accounts, thus, provide an option to the Non-Resident Indians (NRIs) relocating back to India to maintain foreign currency balances conveniently.
The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules, as tax benefits are subject to changes due to change in tax laws.