Understanding RFC Accounts for NRIs Returning to India

If you are an NRI who has returned to India or are planning to do so, you might wonder what to do with your foreign currency earnings or how to deal with your existing Indian bank accounts.

You can hold your foreign currency in a Resident Foreign Currency (RFC) account in India.  

While Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts are mandatory when you become an NRI to manage money in India. An RFC account is mandatory for returning NRIs (when you become a resident) to manage your foreign currency.

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What is a Resident Foreign Currency (RFC) Account in India?

A Resident Foreign Currency (RFC) account is a type of bank account that lets you hold money in foreign currency in India. You can open an RFC account once you return to India permanently after residing abroad for a period of one year (continuously) or more. 

Once you move back to India, you can no longer operate your Non-Resident External (NRE) or Foreign Currency Non-Resident (FCNR) account. You can transfer the funds from these accounts to the RFC account.

An RFC account is useful if you have foreign currency earnings or assets abroad and want to keep them in the same currency without converting them into Indian rupees. Depending on your chosen bank, the account can be opened and maintained in any freely convertible foreign currency, such as the US dollar, British pound, euro, etc. 

You can also convert your foreign currency into Indian rupees whenever you want at the prevailing exchange rate.

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Features and Benefits of RFC Account in India

Some of the common features and benefits of RFC accounts in India are:

• You can keep your foreign currency earnings in the same currency without having to convert them into Indian rupees without having to worry about exchange rate fluctuations and losses.
• RFC account is fully repatriable, meaning you can transfer the funds to any foreign country without any restrictions. You can also convert the funds into Indian rupees whenever you want at the prevailing exchange rate.\You can use your RFC account for various purposes, such as paying for your expenses in India or abroad, investing in shares, securities, or mutual funds in India or abroad, or making donations or gifts to relatives or charities in India or abroad.\Your RFC deposits are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a limit of Rs. 5 lakhs per depositor per bank.

• You can use your RFC account for various purposes, such as paying for your expenses in India or abroad, investing in shares, securities, or mutual funds in India or abroad, or making donations or gifts to relatives or charities in India or abroad.\Your RFC deposits are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a limit of Rs. 5 lakhs per depositor per bank.

• Your RFC deposits are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a limit of Rs. 5 lakhs per depositor per bank.

• You can enjoy tax benefits on your RFC account, depending on your residential status and the source of income. If you are a Resident but not an Ordinarily Resident (RNOR) in India, you can claim exemption from tax on the interest earned on your RFC account and on the foreign exchange gains or losses arising from the account. 

• Suppose you are a Resident and Ordinarily Resident (ROR) in India. In that case, you can claim exemption from tax on the interest earned on your RFC account if the income is derived from certain sources, such as pension, dividend, interest, etc., from abroad.

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Permissible Credits and Debits in RFC Account

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Eligibility Criteria for RFC Account

The RFC account is accessible to individuals returning to India after residing abroad (NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs)) interested in holding foreign currency in India. NRIs receiving foreign exchange remittances, such as pensions, salaries, or proceeds from overseas asset sales, require an RFC account to manage their foreign income in India. Eligible individuals include: 

• NRIs/OCIs who have returned to India on or after April 18, 1992.
• NRIs/OCIs who have stayed outside India for at least one year before their return.
• NRIs/OCIs who have moved permanently to India.

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Documents Required for RFC Account

To open an RFC account in India, you need to submit the following documents to the bank:

• Account opening form
• Copy of Passport 
• Copy of PAN or Form 60 (if no PAN is available).
• Copy of valid visa and immigration stamps (evidence of foreign stay for at least one year).
• Passport size photograph
• RFC declaration form

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Resident Foreign Currency (RFC) Fixed Deposit

An RFC fixed deposit is a type of term deposit account that lets you deposit your foreign currency funds for a fixed period of time and earn interest on them. You can open an RFC fixed deposit account with any currencies the bank offers for RFC accounts. You can choose the tenure of your RFC fixed deposit, ranging from one year to three years. You can also renew your RFC fixed deposit upon maturity or withdraw it prematurely, subject to the terms and conditions of the bank.

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Taxation of Resident Foreign Currency (RFC) Account

The taxation of RFC accounts depends on your residential status and the source of income. If you are a Resident but Not Ordinarily Resident (RNOR) in India, you can claim exemption from tax on the interest earned on your RFC account and on the foreign exchange gains or losses arising from the account. This exemption is available for the period during which you are an RNOR, usually up to three years from the date of your return to India.

If you are a Resident and Ordinarily Resident (ROR) in India, you must pay tax on the interest earned on your RFC account, regardless of the source of income. However, you can claim relief from double taxation if you have already paid tax on the same income in the foreign country, as per the Double Taxation Avoidance Agreement (DTAA) between India and that country.

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Resident Foreign Currency (RFC) Account: Frequently Asked Questions (FAQs)

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Can I keep an NRI account after returning from overseas?

When you return to India permanently, you become a resident as per the Foreign Exchange Management Act (FEMA). As a resident, you cannot hold on to your NRE account.

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What happens to NRI accounts when one returns to India?

When you return to India permanently, you must convert your existing NRO or NRE savings account. You can open a resident savings account or deposit your foreign currency in an RFC account.

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Can I convert the NRE account to an RFC account?

When you move to India permanently, you can convert your NRE account to an RFC account.

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Is NRI required to inform anyone when he returns to India permanently?

Upon permanently returning to India, you must notify the following individuals or entities regarding the change in your residential status:

• The Bank with which you have your banking accounts.
• The Depository Participant (DP) who is managing your DEMAT account.
• Companies in which you hold shares or debentures as NRIs and firms where you hold partnership interests.

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Can an RFC account be opened by transferring balances in my NRI accounts?

You can open an RFC account by transferring balances from NRE or FCNR deposits.

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Can funds in the RFC account be repatriated abroad?

Yes, funds in the RFC account can be repatriated abroad without any restriction.

Suggested Read - NRE FDs: Good Investment Option for NRIs?

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