Year on year several Non-Resident Indians (NRIs) are returning to their homeland for good. Most of them may not be in a big hurry to convert their hard-earned foreign currency into rupees. They might want to keep their options open, especially, in the present unstable global environment.

The early part of the year saw chaos in the world financial markets due to China and the sharp fall in crude oil prices. The latest EU referendum resulted in Britain's exit (Brexit) from EU. Its impact on currencies globally is also keeping up the pressure on the rupee.

The exchange rate for the rupee is currently touching a low of 67.25 against the dollar. Some economic analysts (ET Poll) have predicted it will touch the 70 rupee mark by the year end.

In such a scenario returning NRIs might want to hold on to their foreign currency earnings. They may be hoping for a better dollar to rupee conversion rate soon. To their luck banks in India are also offering them savings account and term deposit account. They can now park their hard-earned foreign currency in such accounts.

The name of the account is RFC account. RFC stands for Resident Foreign Currency. Only an NRI returning to his motherland for good can open such an account. For instance you as an NRI have worked abroad for years and earned in dollars. You decide to return to your home country and settle here. In such an instance you are eligible to open an RFC account and maintain your dollars in it.

In RFC account you can maintain funds in dollars and in other foreign currencies too. For example GBP (Pound), JPY (Yen), Euro, CAD, AUD etc., and you can also withdraw them in Indian rupees. The RFC account is a handy tool for those who wish to park their foreign funds to use it later overseas, and thereby not expose their foreign currencies to exchange rate fluctuations.

You can open an RFC account without any regulatory approval from the Reserve Bank of India (RBI). But there are some basic conditions to fulfil before you become eligible to open an RFC account.

  1. You should have resided in a foreign country for a period of at least one year before your return.
  2. You should have returned to India on or after April 18, 1992.
  3. You should be settled for good in India since your return. This is as per the RBI guidelines.

There are two options available within an RFC account 1. RFC savings account 2. RFC term deposit account. You may keep it solo or in joint names of those who are eligible. But you cannot avail of any loans against an RFC account.

If you are an NRI you can opt for an RFC savings account or an RFC term deposit for one to three years. Some banks will even offer you five year RFC term deposits.

RFC Savings Account:

If you are an NRI most banks in India will allow you to open an RFC savings account. In which you can deposit either US Dollars or Euros or British pounds (GBP). Some banks even offer currency options as varied as: USD, GBP, EUR, CAD and AUD.

You will require the following documents for opening this account:

  1. A photocopy of your passport
  2. Visa copy and immigration stamp showing that you had stayed outside India for at least one year 3. Copy of your PAN card (Permanent Account Number)/Form 60 (in the absence of PAN)
  3. Your RFC declaration form
  4. Your passport size photograph

You can make deposits or credits to the RFC savings account by any of the following means:

  1. From your credit balance in NRE (non-resident external) and FCNR (foreign currency non-resident) accounts, particularly when you returned to India.
  2. From income that you may have earned from your overseas assets. Also money earned from the sales proceeds from overseas assets or by selling of foreign currency shares.
  3. Full amount of pension received from abroad.

The RBI website gives full details of depositing of the eligible/permitted money.

Remittances may be made overseas from the money in the RFC account. But it must be for bona fide purposes only. As an NRI you can use the RFC funds for investments or remittances abroad. You may also use the funds for maintenance of your dependents or for personal needs abroad.

You may also use the RFC funds for expenses and investments you plan to use in India. But, in such a scenario withdrawal from the account is permissible in rupees only. Such funds are usually credited by the bank to your resident rupee bank savings account.

If you as the RFC account holder decide to go abroad again for a long duration then in that event there will be repatriation of your balance RCF funds abroad or your funds can be transferred to your NRE/FCNR account(s) whichever option you choose. But for that you need to furnish a statement in the prescribed form STAT 10.

Also note here that the interest earned on your RFC account is subject to tax as per Indian laws.

RFC Term Deposit Account:

As an NRI returning to India, you have one more option in the RFC account called term deposit. You can open this account with any authorized dealer in India. You can then park your foreign funds for a fixed term of either three or five years. This will depend on the bank you choose to open your account with in India. The currency of deposit is any permitted foreign currency.

Along with the RFC term deposit account application furnish the following documents:

  1. Attested photocopy of all relevant pages of your passport.
  2. Documents to show that funds deposited into the account are eligible for the purpose

You can make credits to the RFC term deposit account by any of the following means:

  1. Overseas remittances such as funds in bank account abroad. It could be income such as dividend, interest, profit, rent, etc or proceeds from sale of entitled property abroad
  2. Pension or other monetary benefits received from abroad. This could be arising out of employment outside India before your return to India
  3. Interest earned on RFC account
  4. Foreign currency notes or travelers cheques
  5. Transfer from other RFC accounts
  6. Funds transferred from NRE or FCNR accounts
  7. Transfer from RIFEE account
  8. Permissible Debits
  9. Any bona fide remittance from abroad routed through normal banking channels

In the RFC term deposit account withdrawals or payments made within India will be in rupees only. It is permissible to transfer deposits to other RFC accounts.

But, permission to make payment in foreign currency to any entity within India is possible only after RBI approves the same.

The advantage of RFC term deposit is that a wide array of foreign currencies is available for maintaining in the banks. Unlike the RFC savings account where it is possible to maintain only three to four foreign currencies.

Interest rates on the term deposits vary from bank to bank. For information on the interest rates you can check the websites of the respective banks. The rates will vary depending on the kind of foreign currency you would like to park in the account for long term.

Interest and Taxation:

In majority of the cases, for a returning Indian a RFC term deposit in dollars earns a higher rate of interest. Rate of interest varies by term of deposit and currency. Quarterly credit of interest is made to the account. Most banks pay interest on par with FCNR account on RFC account, and it stands at 2.5-6%.

Interest earned on the RFC deposit is exempt from tax if an NRI declares himself as "Resident, Not Ordinarily Resident," (RNOR). This means if you have been an NRI for 9 out of last 10 years or if you have spent less than 729 days in India in the last 7 years, you qualify as an RNOR.

You can then declare yourself as RNOR and be exempt from tax for the next 3 years after which the bank will consider you resident Indian. But, if you return before the aforesaid number of years then the interest earned from the RFC term deposit will become taxable.

The term deposit’s one major drawback is its lock-in period. As a result you will have to bear the brunt of the exchange rate fluctuations.

Premature closure of the account is possible but it comes with a penalty unlike RFC savings account. In the latter you can withdraw funds whenever required, without incurring added costs.

Nomination:

Nomination facility is available in Resident Foreign Currency account. You as account holder can choose either a resident or non-resident as nominee for his account. In case the account holder dies if his nominee is an Indian resident, the payment of the balance funds in the account to him/her will be in Indian rupees. And in case the nominee is an NRI there will be repatriation of the balance funds abroad.

By Nitin J Shetty
Chartered Accountant, Mangaluru
Published on July 11 2016 in DaijiWorld.com

You generally take a home loan for either buying a house/flat or a plot of land for construction of a house, or renovation, extension and repairs to your existing house. Before you start the home loan process, determine your total eligibility, which will mainly depend on your repaying capacity. Your repayment capacity is based on your monthly disposable/surplus income, which, in turn, is based on factors such as total monthly income/surplus less monthly expenses, and other factors like spouse's income, assets, liabilities, stability of income, etc.

The bank has to make sure that you're able to repay the loan on time. The higher the monthly disposable income, the higher will be the loan amount you will be eligible for. Typically, a bank assumes that about 50% of your monthly disposable/surplus income is available for repayment. The tenure and interest rate will also determine the loan amount. Further, the banks generally fix an upper age limit for home loan applicants, which could impact one's eligibility.

Most lenders require 10-20% of the home's purchase price as a down payment from you. It is also called 'one's own contribution' by some lenders. The rest, which is 80-90% of the property value, is financed by the lender. The total financed amount also includes registration, transfer and stamp duty charges.

Even though the lender calculates a higher eligible amount, it is not necessary to borrow that amount. Even a lesser amount can be borrowed. One should try to arrange the maximum.

Yes, it is (mostly) mandatory to have a co-applicant. If someone is the co-owner of the property in question, it is necessary that he/she also be the co-applicant for the home loan. If you are the sole owner of the property, any member of your immediate family can be your co-applicant.

The loan application form gives a checklist of documents to be attached with it, along with a photograph. In addition to all the legal documents related to the purchase of the house, the bank will also ask you to submit your identity and residence proofs, latest salary slip (authenticated by the employer and self-attested by you) and Form 16 or income-tax return (for businessmen/self-employed) and the last 6 months bank statements/balance sheet, as applicable. Some lenders may also require collateral security like the assignment of life insurance policies, pledge of shares, national savings certificates, mutual fund units, bank deposits or other investments.

Based on the documentary proof, the bank decides whether or not the loan can be sanctioned or provided to you. The quantum of the loan that can be sanctioned depends on this. The bank will give you a sanction letter stating the loan amount, tenure and the interest rate, among other terms of the home loan. The stated terms will be valid till the date mentioned in that letter. When the loan is actually handed over to you, it amounts to disbursement of the loan. This happens once the bank is through conducting technical, legal and valuation exercises. One may opt for a lower loan amount during disbursement against what is mentioned in the sanction letter. At the disbursal stage, you need to submit the allotment letter, photocopies of title deed, encumbrance certificate and the agreement to sell papers. The interest rate on the date of disbursement will apply, and not the one as per the sanction letter. In such case , a new sanction letter to be issued.

One can pre-close the loan ahead of its original tenure. If you are on a floating interest rate, no charge will be applicable. If you are on a fixed rate, there may a charge applicable.

The EMI that one pays every month has a principal component, in addition to the interest that is paid. Ideally, when one is paying the principal each month, the loan outstanding should also reduce each month and one ends up paying the interest only on the reduced loan outstanding. Most banks follow the monthly reducing basis approach.

Partial prepayment refers to any payment made by the borrower in addition to the regular EMIs. It directly reduces the outstanding principal amount and the interest gets calculated on the reduced principal. Prepayment helps in reducing the total interest outgo as the loan tenure gets reduced. The higher the prepayment amount and the longer the period, the more will be your savings.

Generally, the lenders offer various modes for loan repayment. One may issue standing instructions to the banker to pay the instalments through ECS (Electronic Clearing System), opt for direct deduction of monthly instalments by your employer or issue post-dated cheques from your salary account.

When you take a home loan, you don't just pay the EMI on the loan. There are several other charges, though not all apply to every case. There could be a processing fee of about 0.5-1% of the loan amount. At times, the lenders waive it. For some high-value properties, two valuations are done, and the lower of the two is considered for loan sanctioning. The lenders call it technical evaluation fee. Most lenders engage firms to scrutinise borrowers' legal documents. Generally, banks include this cost in the processing fee, but some public sector (PSU) lenders charge it separately.

Every home loan lender is supposed to furnish you with a statement at the beginning of the year showing how much of total interest and principal is expected to be repaid during the year. This statement helps you to declare the figures to your accounts department as a declaration of investment proof for tax deduction. At the end of the year, the lender is supposed to send a statement again showing the actual amount of interest and principal repaid that would help you to take tax benefits.

It is always better to cover your home loan liability and not let it fall on your family in your absence. You may either buy a pure term insurance plan or a mortgage insurance plan for an amount equal to the loan amount for a specific tenure. One is allowed to pay a single premium or regular premiums to buy any such plans. It is, however, not compulsory to buy such an insurance plan while taking home loan from the lender

A home improvement loan is offered to facilitate improvement of a self-owned property to existing or new customers. This loan may be used for repairs, renovations, improvement, and extension of the house. The loan works like this: The borrower will have to work out a cost estimate of the work intended to be done and give it to the lender, who will take a quotation from the contractor to verify the estimate submitted. The money is released at the rate of the construction work to the contractor to whom it is due.

Some banks also offer a 'top up loan' that can be availed time and again for various personal requirement based on the property value. It offers the customer additional funds against the security of the same property. To avail top up loan, the vintage of at least six months is required for the loan availed. The end use of top up loans can be furnishing of home, buying consumer durables, child's education, family holiday or any other personal requirement

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