I am 60 plus, and am returning to India after staying in the Gulf for 20 years. I have non-resident external (NRE) and foreign currency non-residential (FCNR) deposits, which mature at different times up to 2020. Considering that my status after return is resident not ordinarily resident (RONR) during the first 2 years (minimum), please advise on the following considering both income tax rules and Foreign Exchange Management Act (FEMA) regulations. i) Can I continue the NRE and FCNR deposits as such? If not, what options do I have? If I can continue, will the interest on these deposits be taxable? ii) Can I reinvest the maturing deposits during RONR status as NRE or FCNR deposits? If I can’t, while reinvesting them as resident deposits, can I avail the benefit of higher interest available to only resident senior citizens in banks and Senior Citizen Savings Scheme?
To answer your first question, when a non-resident Indian (NRI) returns to India, the onus is on him to notify his bank of the change in the status from non-resident to resident so that the bank account can be re-designated the bank accounts to resident account from NRE or FCNR. You have the option to re-designate these accounts either as resident account or transfer the funds to a Resident Foreign Currency (RFC) account. No penalties would be levied in the case of premature conversion of balances held in NRE and FCNR deposits into RFC accounts by NRIs on their return to India. Interest earned on the foreign currency deposit account is exempt till a person qualifies to be RNOR.
Also, the FCNR deposit accounts are permitted to be held till maturity of the deposits at the discretion of the bank.
The FCNR deposits on maturity will be converted into resident rupee deposit account or RFC account (if eligible) at the option of the account holder. The rate of interest on such account cannot exceed the rate payable on savings bank deposits held under RFC account scheme.
To answer your second question, under the exchange control law, you will most likely qualify as a person resident in India in the year of your return as you would come to stay in India with an intention to stay for an uncertain period. Hence, you will not be able to reinvest the matured deposits as NRE or FCNR deposits. As a resident senior citizen, you would be eligible for higher interest rates on the deposit accounts offered by the banks in India. For more details on the above, we recommend you to contact your bank.