RFC Fixed Deposit Account

As a returning Non-resident Indian (NRI) with savings in foreign currency, you may plan to transfer funds from your overseas account. A Resident Foreign Currency Account (RFC) provides a quick and straightforward solution.

You can open these deposits in a currency of your choice, including USD, EUR, JPY, etc. This provides a convenient way to maintain overseas earnings in foreign currency. 

An RFC Fixed Deposit (FD) account allows you to earn interest on your foreign currency savings. You can transfer funds from existing NRE, FCNR, or other overseas remittance accounts. These FDs help reduce the stress associated with foreign exchange conversion. 

Though, there may be some risk involved in this aspect at the time of maturity. On regaining NRI status, you can transfer funds back to a NRE account.

You can withdraw cash from an RFC account but you need to follow certain conditions:

• If you plan to withdraw the account balance in Indian Rupees, you can do so from the branch where the account is held

• Your interest earnings along with the balance is fully repatriable

• Funds are remitted to the nominee in case the of the account holder’s unfortunate demise

• In case the nominee resides in India, the equivalent amount will be paid in Indian Rupees

There are a few tax provisions that apply to these fixed deposits. Here are some essential points to note:

• The interest earned on RFC FDs is taxable in India

• The applicable tax rate depends on your residential status under the Income Tax Act, 1961 

• The tax is payable when your FD starts to earn interest 

• The interest may be taxed at predetermined intervals or at the time of maturity 

• NRIs with the Resident but Not Ordinarily Resident (RNOR) status may benefit from tax exemptions on the interest earned u/s 10(15)(iv)(fa)

• NRIs must inform the FD issuer about their RNOR status to prevent Tax Deducted at Source (TDS) on the interest earned 

• NRIs must obtain the RNOR status before the FD matures to benefit from the exemption 

As you can see, booking an RFC fixed deposit account allows returning NRIs to deposit their savings in foreign currencies in India. They do not have to convert these currencies into Indian Rupees, helping them avoid exchange rate fluctuations.