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Returning to India after living abroad can be an exciting yet challenging transition. As an NRI, you likely accumulated foreign assets like overseas bank balances, investments, and properties. Bringing these assets back to India and managing them can be a major concern.
The good news is that India allows returning NRIs a helpful financial account called a Resident Foreign Currency (RFC) account. Read on to understand an RFC account, who can open one, its convenience, and how to transfer your foreign assets into RFC accounts smoothly.
What is an RFC account?
An RFC or Resident Foreign Currency account allows NRIs returning to India to deposit their foreign currency assets and manage them from India itself. An RFC works just like a regular bank account except that it is held in a foreign currency of your choice instead of Indian rupees.
RFC accounts make it easy for repatriating NRIs to bring their overseas assets back to India and retain them in the foreign currencies they held without needing to convert them to rupees immediately. The funds can be used for various purposes, including investments, travel, maintenance of dependents abroad, etc.
Who can open an RFC account?
The eligibility criteria to open an RFC account are as follows:
- You must be an NRI who has returned to India permanently on or after April 18, 1992
- Alternatively, you could be an NRI who is on employment abroad with at least 1 year of overseas stay
- Persons of Indian Origin (PIOs) relocating to India can also open RFC accounts
If you become an NRI again subsequently, you can easily convert the RFC to an NRE or FCNR account. RFC accounts can also be opened jointly by eligible NRIs.
Convenience and flexibility offered by RFC accounts
1. Retain foreign currency assets in India
The biggest benefit of an RFC account is that it allows you to keep foreign exchange assets with Indian banks without converting them to rupees. This protects you from currency conversion costs and exchange rate fluctuations.
2. Flexible use of foreign assets
RFC accounts allow immense flexibility in managing your overseas funds from India itself through deposits, withdrawals, money transfers, investments, etc., in the foreign currencies permitted.
3. No restriction on end use
Unlike NRE/FCNR accounts, usage of RFC account funds is not restricted. You can freely use RFC funds for investments, travel, maintenance of family abroad, etc., based on your needs.
4. Tax concessions
Interest earned on RFC deposits is taxable. However, by claiming RNOR status, you can claim a TDS exemption if you are eligible. This helps reduce tax outgo.
Permitted currencies for RFC accounts
While opening an RFC account, you can choose any popular foreign currency like:
- US dollars
- Great Britain pounds
- Euro
- Japanese yen
- Canadian dollar
Forex markets offer easy buying and selling for these currencies, providing stability and convenient cash conversion. Indian Rupee withdrawals are available through an RFC account.
Transferring overseas assets into the RFC account
NRIs returning to India can transfer a host of foreign assets into their RFC accounts conveniently:
- Overseas bank balances: All funds held in banks while being NRI.
- Overseas investments: Assets like shares, securities, bonds, and mutual funds bought while being NRI.
- Overseas properties: Sales proceeds from properties like houses or land you may own abroad.
- Business assets abroad: Your stake or share in any business or company overseas.
- Employment-related incomes: All foreign earnings received while working abroad as an NRI.
When you return to India, you can also transfer existing FCNR and NRE account balances into RFC accounts. The premature withdrawal penalty won’t apply in this case if funds were held for 1 year or more.
Submit relevant asset statements/documents, and your passport/visa when applying to open an RFC account.
Advantages of parking overseas assets in RFC account
1. Convenience: Manage all foreign assets from India, avoiding the costs and complexities of maintaining overseas accounts.
2. Retain asset value: By keeping assets in foreign currency, you retain their value and are free from INR currency fluctuation risks.
3. Liquidity: Withdraw funds anytime in INR via bank transfers to conveniently use in India.
4. Tax compliance: Incomes from foreign assets like interests, dividends, rents, etc., credited to RFC accounts help you stay tax compliant.
5. Flexible usage: Freely use RFC funds for overseas investments, children’s education abroad, etc., without restrictions.
Key aspects of the RFC account
Some key things to know about RFC accounts:
- Multiple accounts permitted: You can open multiple RFC accounts in different foreign currencies based on specific needs.
- Joint accounts allowed: RFC accounts can be opened jointly with close relatives who are former NRIs.
- Operates like savings accounts: Most banks offer RFC accounts as savings accounts without a chequebook facility for basic transactions.
- Minimum balance varies: Different banks prescribe varying minimum average balance limits for RFC accounts that accountholders must maintain.
- Loans not allowed: Unlike NRE/FCNR accounts, banks don’t offer loans or overdrafts against RFC account funds.
Conclusion
For NRIs returning to India, managing their finances and other aspects of relocation can be quite challenging. However, with RFC accounts, they can park their overseas assets safely within India and easily access their foreign funds. These accounts are perfect for managing overseas retirement funds, student loan funds of children studying abroad, or investments made in stocks or properties abroad over the years. RFC accounts have become quite popular among Indians returning home after their time abroad because they make the move smooth and hassle-free.
FAQs
An RFC or Resident Foreign Currency account allows returning NRIs and PIOs to deposit their foreign savings into an Indian bank account. Any NRI returning to India after April 18, 1992, to settle down for good is eligible to open an RFC account. Even those returning after a 1 year overseas stay qualify for this special bank account.
The RFC account enables returning NRIs to hold their overseas earnings in foreign currency when resident in India. This helps them tap foreign savings without violating forex laws. They also get the flexibility to manage assets abroad via permitted debits. Holding funds in foreign currency also hedges against INR depreciation.
NRIs who have accumulated savings while working abroad can benefit from the RFC account, which can hold major global currencies like the US Dollar, Euro, Pound Sterling, Yen, etc. This account provides more options than interest-bearing FCNR accounts.
The interest earned on the RFC account is fully taxable in India. To save taxes, resident account holders must submit Form 15G/H to the bank if they qualify based on age/income thresholds. The tax liability is the account’s sole sore point.
Yes, an existing RFC account can be seamlessly converted to an NRE or FCNR account if the account holder decides to move out of India again for employment or business. This avoids an unnecessary closure and reopening of the account later.