What is a Resident Foreign Currency (RFC) Account?
A Resident Foreign Currency (RFC) Account is a bank account that enables individuals returning to India after living abroad for at least one continuous year to hold money in foreign currencies. Once you become a resident, your NRE account and FCNR account must be closed, and the balances can be transferred to your RFC account.
This account can be maintained in any freely convertible currency, such as USD, GBP, EUR, or JPY, allowing you to manage foreign funds easily and avoid exchange rate risks. You can also convert your funds to Indian rupees at existing exchange rates whenever needed.
Key Features and Benefits of an RFC Account
Below are the features and benefits of RFC account:
- Hold foreign currency in India: Continue maintaining funds in international currencies without converting them into INR.
- Fully repatriable: Funds can be freely transferred abroad for any permissible purpose without restriction.
- Flexible usage: Use funds for expenses or investments in India or abroad, including shares, securities, mutual funds, or real estate.
- DICGC protection: Deposits are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakh per depositor per bank.
- Tax advantages: RNOR individuals enjoy tax exemption on interest earned and foreign exchange gains.
Permissible Credits in an RFC Account
Funds credited to RFC accounts include:
- Balances transferred from NRE or FCNR accounts after returning to India.
- Income from overseas assets, such as dividends, interest, or pension.
- Proceeds from the sale of foreign investments or property.
- Traveller’s cheques, foreign currency notes, or personal cheques drawn on foreign accounts.
Permissible Debits in an RFC Account
You can use the account for the following:
- Transfers or remittances abroad.
- Maintenance or support of dependents residing abroad.
- Investments or expenses in India.
- Re-transfer of funds to NRE/FCNR accounts if you again become an NRI.
Eligibility Criteria for an RFC Account
The following individuals are eligible to open an RFC account:
- NRIs, OCIs, or PIOs who have returned to India permanently after living abroad for at least one continuous year.
- Returning NRIs/OCIs on or after April 18, 1992.
- Individuals receiving foreign income, such as pensions, dividends, interest, or proceeds from asset sales abroad.
Documents Required to Open an RFC Account
To open an RFC account, you need to submit:
- Duly filled account opening form.
- Copy of passport and PAN (or Form 60 if PAN not available).
- Valid visa and immigration stamps (as proof of foreign stay for at least a year).
- Passport-size photograph.
- RFC declaration form.
Taxation on RFC Accounts
Tax treatment depends on your residential status:
- Resident but Not Ordinarily Resident (RNOR): Interest earned and foreign exchange gains on the RFC account are exempt from tax for the period you hold RNOR status (up to three years after returning).
- Resident and Ordinarily Resident (ROR): Interest becomes taxable under the head ‘Income from Other Sources’. However, relief can be claimed under applicable Double Taxation Avoidance Agreements (DTAA) if tax on the same income was already paid abroad.
Resident Foreign Currency (RFC) Fixed Deposit
A Resident Foreign Currency Fixed Deposit (RFC FD) allows you to deposit foreign currency for a fixed term (between 1 to 3 years) and earn interest on it. The fixed deposit can be renewed or prematurely withdrawn per the bank’s terms. Interest is linked to international deposit rates in the chosen currency.
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