NRI alert: RFC accounts can revolutionise your savings strategy!

Non-resident Indians (NRIs), after years of working abroad, often accumulate substantial foreign investments, including savings in bank accounts, shares, and mutual funds. On returning to India, managing these foreign assets becomes a primary concern.

Historically, before 1992, NRIs returning to India for permanent settlement had to surrender all their foreign currency assets and balances in NRE (Non-Resident External) or FCNR(B) (Foreign Currency Non-Resident) accounts to the Reserve Bank of India (RBI) within three months of their return. The reconversion privileges and Returning Indians Foreign Exchange Entitlement Scheme (RIFEE) were then given to them. If any NRI wished to retain foreign currency assets abroad, they needed RBI’s prior approval.

However, in a move towards liberalisation in 1992, the Government of India exempted returning NRIs from the surrender requirement.

This is where the concept of a foreign currency account comes into play, offering NRIs a way to maintain their funds in a currency other than the Indian Rupee, Nepalese Rupee, or Bhutanese Ngultrum.

There are several types of foreign currency accounts designed for different needs. They are:

• Exchange Earners Foreign Currency (EEFC) Account
• Resident Foreign Currency (Domestic) [RFC(D)] Account
• Resident Foreign Currency (RFC) Account

Each of these accounts serves distinct purposes, catering to different financial needs and circumstances. In this blog, we will focus on the nuances and advantages of the RFC account, catering to the unique needs of returning NRIs.

You may also like: All you need to know about the basics of forex trading in India

What is an RFC account?

An RFC account is a type of bank account in India that can be opened by individuals who have returned to India and are now residents. It is distinct from other foreign currency accounts in its purpose and usage. 

While the EEFC account is a non-interest-bearing current account primarily for Special Economic Zone (SEZ) developers to deposit their foreign earnings, the RFC banking account can be in the form of current, savings, or term deposits and is more versatile, allowing deposit of foreign exchange acquired in various forms, including pensions, investments, or assets held abroad. 

The RFC(D) account, on the other hand, is intended for residents to deposit foreign exchange acquired in the form of currency notes, travellers’ cheques, or other specific means. The key difference lies in the source of funds and the flexibility in usage and investments, with the RFC account offering greater freedom for managing foreign currency.

Also read: The world of currency fluctuations: How does it impact your investments?

Who can open?

There are certain people who can open an RFC account. Primarily, it’s for Person of Indian Origin (PIO) or  NRIs who returned to India after 18th April 1992, having lived abroad continuously for at least a year before their return. These accounts are ideal for those who have settled back in India but still want to maintain and manage their foreign currency earnings. 

Type of accounts

1. Individuals: Any eligible person can open an RFC account. 
2. Joint Accounts: You can open an RFC account jointly with other eligible persons. 
3. Account with Relatives: Interestingly, you can also open an RFC account with resident relatives. The Companies Act, 2013 defines relatives to include members of a Hindu Undivided Family (HUF), spouses, parents, step-parents, sons, step-sons, daughters-in-law, daughters, sons-in-law, brothers/sisters, and step-brothers/step-sisters.

However, it’s important to note that in a joint account with relatives, the relative cannot operate the account during the account holder’s lifetime. This means the primary account holder has exclusive control over the account while they are alive.

Permitted credits under the RFC account

Permitted credits in an RFC account cover various types of foreign exchange earnings. These include:

1. Pension and benefits: You can credit your RFC account with any kind of pension or other financial perks that you received from your foreign employer.
2. Conversion of certain assets: Funds obtained from converting specific assets, as mentioned in Section 6(4) of FEMA (Foreign Exchange Management Act), are also permissible.
3. Gifts or inheritance: Any foreign exchange received as a gift or inheritance from a person covered under Section 6(4) of FEMA can be credited to your RFC account.
4. Historical holdings: Funds acquired before 8th July 1947 and any income from these holdings, if held outside India with RBI permission, are eligible.
5. Insurance earnings: Earnings from LIC claims, or the maturity or surrendered value of policies settled in foreign exchange by Indian insurance companies, can be credited.
6. Transfer from NRE/FCNR accounts: Upon a change in residential status, balances from NRE or FCNR(B) accounts can be transferred to your RFC account, and vice versa. If you become an NRI again, you can convert your RFC account back to FCNR(B) or NRE accounts. 

These options provide flexibility in managing diverse foreign currency sources, making the RFC account a versatile financial tool for those with international monetary interests.

Also read: Foreign portfolio investments – Overview, types and benefits

Opening an RFC account

Opening an RFC account is a straightforward process. Here’s a quick guide:

1. Choose a bank: First, select the bank that offers RFC accounts. Different banks might offer varying features, so it’s wise to compare options.
2. Gather documents: You will need to provide photocopies of passport details and personal information for all applicants. Pages containing your name, date of birth, passport number, and photo are included in this.
3. PAN or form 60: You must provide a copy of your Permanent Account Number (PAN) card. If you don’t have a PAN, you will need to submit Form 60.
4. Proof of foreign stay: Provide evidence of your foreign stay. This should be a copy of a valid visa and immigration stamps showing you were abroad for at least a year.
5. Photograph: A passport-sized photo of each applicant is needed.
6. RFC declaration form: Complete and submit the RFC declaration form provided by the bank.

Bottomline

RFC banking account is a valuable tool for NRIs and PIOs returning to India, offering a flexible way to manage foreign currency assets. It bridges your international financial affairs with local banking needs, making it an ideal choice for those seeking to maintain and grow their global investments in India.