Banking beyond borders: Can US citizens open accounts in India?

Transferring money from India to a foreign account can be cumbersome. Additionally, if the payment exceeds ₹7 lakh, tax collected at source (TCS) would be deducted, which could be claimed later. Ram felt that the whole process was too complicated for his retired parents to handle.

Fortunately, a solution came from a banker friend who, like Ram, is an overseas citizen of India (OCI) and holds a foreign passport. He had faced a similar situation recently but managed to sidestep the hurdles of filling out the required forms or TCS deductions.

He had a non-resident ordinary (NRO) bank account back in India. The Reserve Bank of India (RBI) allows not only non-resident Indians (NRIs) but also overseas citizens of India (OCIs) and persons of Indian origin (PIOs) to hold bank accounts in India, in the form of NRO, non-resident external (NRE), or foreign currency non-resident (FCNR) accounts. So, instead of transferring the money to his US bank account, Ram’s friend transferred the funds to his NRO account.

An NRO account is like a regular account where you can deposit income, capital gains, or gifts earned within India. By doing this, he doesn’t have to fill out those forms, consult a chartered accountant CA, or even pay TCS on it. It’s much like transferring funds to any normal bank account in India.

The funds held in the NRO account can be used to transact within India or invest in stocks, bonds, mutual funds, etc.. However, the catch is that you cannot transfer the money back to a foreign account directly. To do so, the funds need to be shifted to an NRE account. Such transfers are treated like any other foreign remittance and once that is done, funds in NRE account can be transferred repatriated to any foreign country tax-free.

Other use cases

Several NRIs own properties or apartments in India and receive rental income, which is normally credited to an NRO account. Sagar Soman, a chartered accountant, said that the tenant, or for that matter anyone giving money to NRIs or OCIs should deduct tax deducted at source (TDS) of 31.2% (including cess) during the transfer.

If the OCI or POI is expecting an inheritance, India doesn’t levy any tax on it. However, if the amount has to be remitted back to a foreign country, Form 15CA and Form 15CB (if the amount exceeds ₹5 lakh) need to be submitted. The foreign country may or may not impose a tax on inheritance.

They can also have the option of opening a foreign currency non-resident account, where they can lock their money in fixed deposit denominated in foreign currency. They can fully repatriate this money to their home country. “It allows you to save in foreign currency without worrying about forex risk,” said Ajay R. Vaswani, a CA who specialises in NRI clients.

Having an Indian bank account also means that OCI cardholders have easy access to banking facilities like a debit card or Unified Payments Interface (UPI) when they’re visiting India.

If you were a resident in India and then moved abroad, you need to convert your resident savings account into an NRO account. If you do not have an existing account and wish to open a new one, this can be done either online or offline.

According to the Bank of Baroda website, you will need to provide proof of NRI status, including your passport and visa, proof of foreign address, and either your Permanent Account Number (PAN) card or Form 60.

“Additionally for US citizens, FATCA/CRS declaration, social security number (SSN), W-9 form for FATCA (Foreign Account Tax Compliance Act) compliance is required,” said Vaswani.

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To be sure, foreign citizens who are not OCIs or PIOs cannot open bank accounts in India unless they are employed, studying, or visiting India as tourists. Citizens of Bangladesh and Pakistan require special permission to open accounts.

Also Read: NRI investing in Indian stocks? Know about TDS on capital gains

Gift City options

Gift City is emerging as a competitive option for investing in Indian markets. NRIs, OCIs, PIOs, or any foreign national can invest in India through Gift City without needing an Indian bank account.

Additionally, the funds from Category III Alternative Investment Funds (AIF) investing in Indian mutual fund schemes are completely tax-free in India. However, most of these funds are structured as AIF Category III and require a minimum investment of $150,000. Many asset management companies (AMCs), such as Mirae, HDFC, and DSP Mutual Fund, are preparing to launch retail funds in Gift City with a minimum ticket size of just $100.

Also Read: GIFT City’s lenders are now banking on FDs to lure NRIs

Gift City also offers banking facilities and allows NRI, OCIs, and foreign nationals to open fixed deposits denominated in foreign currencies. Apart from offering higher interest rates than other foreign countries, they also have more flexible tenure than FCNR accounts in India. For instance, the minimum tenure in an FCNR account is one year, whereas Gift City FDs offer tenure for as short as seven days.

However, limited awareness and the lack of robust net banking with most banks in Gift City have hindered its widespread adoption.

(Ram’s example is hypothetical.)