Pros & Cons of keeping non-

resident bank accounts in

India . . .

• India to share NRI bank account information with account holders home country • Should I keep or close my NRI Bank Accounts? As rules and regulations change with efforts by governments to combat tax evasion. Let’s take a look at how some of the recent regulations on the exchange of banking information between countries of non-resident bank accounts and how this may impact Indian NRIs, OCI & PIOs. Most non-residents or shall I say NRIs who hold Indian passports and reside abroad due to employment related issues have no choice but to open NRI bank accounts in India. Accounts like NRO and NRE are essential for these NRIs. However, there is a large segment of ‘Persons of Indian Origin’ [PIO] who now hold foreign citizenship and continue to open or hold NRI bank accounts in India. Reasons for having NRI Bank Accounts Several years ago one of the incentives for people may have been the vast difference in interest rates paid on NRI bank accounts in India. North American bank deposit interest rates have been so low that they amounted to almost nothing. As I write this, the current rate of interest in USA on saving account deposits is 0.03%. Placing money in India and earning higher interest without declaring it as income was considered by many a win win situation. However, things have changed now and financial account sharing information of non- resident account holders between countries does make one think whether the convenience of having a foreign bank account is worth the effort. Should you close your NRI Banking Account in India? Reevaluate whether you really need NRI Bank Accounts in India. If you already have an NRI bank account, how has it helped you so far? As rules and regulations change the requirement to provide documentation periodically is also changing, how will such changes affect you as a foreign bank account holder? First and foremost let’s look into why NRIs [PIO, OCI] need to maintain NRI bank accounts in India. Some of the reasons that come to mind are: 1. To earn higher interest on their deposits as interest rates abroad are quite low 2. To save tax, some people may not be reporting their interest income abroad 3. Convenience sake to have money available for visits to India etc. 4. Repatriation of their Indian pension income 5. Remit money from India for instance funds from the sale of property where deposit should be made in NRO accounts. Let us examine the reasons above to expand on this topic.

Higher interest rate in India

Consider the following points: • To get non-residents to deposit their money in India banks have no choice but to offer a higher interest rate. If rates were similar then there would be no incentive for most people living abroad to open a bank in India. • Inflation and interest rates are generally tied together over a period of time. India has a higher rate of inflation compared to USA. So gains in India despite the higher rate will lose some of the high interest gain due to the higher inflation rate. • Currency fluctuation can make a huge difference in what you may earn or lose! Historically the Indian rupee to US$ margin seems to be widening. • Unless the final aim of the depositor is to spend the money in India, it makes more sense to keep your money in the country you live in. Save tax • This argument no longer holds considering the FATCA – CRS Reporting agreements will now make it impossible to hide money in financial institutions abroad. There is no threshold under CRS and all accounts regardless of amount will be reported to the account holder’s home country. • Since under CRS agreement non-residents will have to provide the banks where they hold NRI accounts their home country issued tax identification numbers, the option to hold a number of small deposits in various NRI accounts will not help them. • NRO account holders pay a TDS of 30% in India [unless they provide a tax residency certificate from their home country] on NRE accounts while there is no Indian tax levied this income may be subject to the account holders world wide income declaration in their home countries. Convenience sake to have money available in India • NRI bank account may make some sense for those who periodically send money to India for various reasons. On the other hand sending money to India these days is not a problem and can be done fast. It is when you want to send money out of India that all sorts of paperwork comes into effect. • Taking money to India for occasional visits should not be a problem as cashing foreign exchange is easy and at value of foreign currency against India Rupee for the past several years has been steadily increasing. Repatriation of their Indian pension income • Here I will admit that anyone getting pension in India needs a NRO account to easily get their money sent abroad. Although do refer to a RBI notification A.P. (DIR Series) Circular No.26 (September 28, 2002). A excerpt from this circular is posted below: Excerpt from RBI notification Attention of Authorised Dealers is invited to A.P. (DIR Series) Circular No. 45 dated May 14, 2002, in terms of which A.Ds may allow repatriation of current income like rent, dividend, pension, interest etc. of NRIs who do not maintain NRO Account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/ provided for. A doubt has been raised as to whether Non-Resident Indians/ Persons of Indian Origin (NRIs/PIOs) seeking to repatriate funds from India, but having no taxable income in India, are also required to furnish a certificate as indicated in the A.P. (DIR Series) Circular No. 45 dated May 14, 2002. 2. It is, therefore, clarified that such NRIs/PIOs who do not maintain NRO Account and have no taxable income in India need not submit a Chartered Accountant’s certificate for remitting their current income like dividend, rent, pension, interest etc. In such cases Authorised Dealers may obtain a simple declaration, in duplicate, from the NRIs/PIOs to the effect that he/she is not a tax payer in India. The Authorised Dealer may retain such declaration with them for future reference from Income Tax Authorities, if any. [A.P. (DIR Series) Circular No.26 (September 28, 2002] Remit money from India • Outward Remittance of funds for instance money received from the sale of property where deposit should be made in NRO accounts first makes opening a NRO account necessary. Although opening a NRO account does not take a long time and can be done when required. There must be a many NRIs settled abroad who have NRI bank accounts with no intention of buying or selling property in India. Why it makes sense to close NRI Bank Account

Increase in filling documents by account

holders

1. The paperwork that NRI account holders continuously need to provide for maintaining NRI bank account in India keeps increasing. 2. With new bank account holders information exchange between governments that comes into force from 2017/2018 there is always a possibility that those holding foreign bank accounts will end up filling additional forms etc. when filing taxes in their home countries 3. All NRI accounts in India are generally considered to be in high risk category for KYC purposes 4. KYC documents required every two years or so to be submitted to bank by NRI account holders. Generally even though the account holders information may not change they must keep sending the same documents repeatedly. Your passport may be valid for 10 years but the banks insist on getting a copy of the same document every two/three years for KYC.

Non-use of bank locker can lead to

cancellation of locker

Have a locker in India, banks may cancel your locker allotment even if you have been paying the locker rent. As per RBI: “ Where the lockers have remained unoperated for more than three years for medium risk category or one year for a higher risk category, banks should immediately contact the locker-hirer and advise him to either operate the locker or surrender it. This exercise should be carried out even if the locker hirer is paying the rent regularly”

Bank Fees that NRIs may not be aware of

• NRI bank account holders need to maintain a monthly average balance of INR 10,000 at account level or INR 25,000 at Customer ID level or pay a penalty [automatically deducted from your account] of Rs. 100 + 5% for every month the minimum balance is not maintained. • Close your account before 12 months banks will charge a fee. If closed before six months the fee charged will be higher! • Lost locker key – Pay a Bank set charge plus the entire cost of breaking open and replacing the lock by the manufacturer of the lockers. • Visit your bank locker more than the set limit will also lead to a fee per visit • A savings as well as current account should be treated as inoperative / dormant if there are no transactions in the account for over a period of two years • Fee charges may also be levied by some banks for cash transactions [deposits & withdrawals] after a set number of times per month.