This article is a deep-dive into how, when, and why to use RFC accounts: not just as a banking product, but as a transitional asset management strategy for intelligent NRIs planning a return to India.
Resident Foreign Currency (RFC) accounts are savings and fixed-deposit accounts that India-returned NRIs can open to store foreign currency.
RFC accounts hold funds in foreign currency (like USD/GBP/EUR/JPY), are tax-free in India [as long as you maintain Resident but not Ordinarily Resident (RNOR) status], and are fully repatriable outside India.
Note that Resident Foreign Currency (Domestic) Accounts (called RFC-D) also exist and those are current accounts which do not pay any interest. These accounts are outside the scope of this article.
🏦 Regulatory background
The Reserve Bank of India (RBI) governs RFC accounts in India. You can read more about the underlying regulations here:
The “R” in RFC stands for “Resident” and that is why NRIs, while still abroad, cannot open a new RFC account. FEMA guidelines require the account holder(s) to be Resident Indians and you need valid passport entry stamps to prove your residency status that needs to be submitted along with your account opening forms. Your RFC account will be active only when you are no longer an NRI.
💡 Pro Tip: Open an NRE account today
If you do not have an NRE account yet, you should open one ASAP.
You can open an NRE account from abroad and then convert to RFC once you reach India.
Let’s say you have ₹10,00,000 in your NRE savings account. You return to India and decide to convert this to an RFC USD account. On the day of conversion, the bank’s exchange rate might be, say, ₹86 = 1 USD. The bank will:
The 182-day rule is used for determining tax-residency under the Income Tax Act of 1961 and whether you are an Indian resident or not under the Foreign Exchange Management Act (FEMA). While Income Tax Act deals with what taxes a person has to pay in India, FEMA deals with, amongst other things, what kind of accounts and transaction a person can have in India.
However, unlike the Income Tax Act which has fairly rigid rules around tax-residency (e.g you become an Indian tax-payer if you are spending 182 days in India), FEMA is more intent based.
Therefore, if you are coming back to India for good, you can provide documentation to that effect, thereby lowering the 182-day waiting period. You can submit the some or all of the following documentation to the bank to provide evidence that you are intending to become a resident of India:
If the bank accepts the documentation, and you can shop around several since banks tend to apply their discretion in interpretation of documentation, you can open your RFC account immediately after returning to India.
Unlike the NRO, NRE, and FCNR accounts for NRIs living outside India, the RFC account is specifically for NRIs returning to India.
Resident Foreign Currency (RFC) are for NRIs who have returned to India and used to store foreign currency, say in USD, GBP and EUR
This table summarises NRE, NRO, FCNR and RFC account types for NRIs returning to India:
| Feature | NRE Account | NRO Account | RFC Account |
|---|---|---|---|
| Funding Source | Foreign income only | Foreign + Indian income | Transfer of foreign income/assets post-return |
| Currency Type | INR | INR | Foreign currency (USD, GBP, EUR, etc.) |
| Repatriation | Freely repatriable | Limited to USD 1M/year with forms 15CA/CB |
Freely repatriable |
| Tax on Interest (NRI) | Exempt | Taxable @30% + cess | Not applicable (not allowed as NRI) |
| Tax on Interest (RNOR) | Exempt | Taxable @30% | Exempt |
| Tax on Interest (Resident) | Taxable | Taxable | Taxable |
| Best Use Case | Holding foreign funds tax-free | Handling Indian income (rent, dividends etc.) |
Holding foreign funds post-return, repatriation flexibility |
| Use While RNOR? | Retain | Avoid for foreign transfers | Transfer foreign currency here |
| Ease of Remitting | Very High | Moderate (capped at $1mn w/ Forms 15CA/CB) |
Very High |
| Account Validity | NRI/RNOR only | NRI/RNOR/Resident | RNOR/Resident |
With these basics out of the way, we will now cover strategies and behavioural aspects of dealing with RFC accounts that will make you happy that you came across this article in the first place.
When you visit a bank after your return to India, your Bank RM might mention the RFC in passing as a temporary parking solution. However, this is short-sighted since you can use the RFC account strategically to meet your financial goals.
💡 Pro Tip: Convert NRE to RFC before ROR kicks in
Redeem NRE FDs just before changing status to ROR to lock-in forex holdings by re-allocation into RFC FDs.
RFC is the only way to hold forex in India once you become a resident (ROR). So if you have NRE accounts and your status is about to become ROR, then breaking the FD and converting to RFC FD will preserve forex holdings and repatriability. Depending on the bank, there may not be premature withdrawal penalty on NRE FD breakage.
If you cannot open an RFC account until 182 days pass in India, a prudent practical step is to create a 1-year FCNR deposit from your foreign bank account in any Indian bank. These deposits can be opened online and can be converted to RFC on maturity.
The basic premise of having an RFC account is that INR conversion is a one-way process. Getting money out of India, once you become Resident and Ordinarily Resident (ROR), requires you to pay TCS on LRS transfers.
Under the RBI’s Liberalised Remittance Scheme (LRS), resident Indians can spend up to $250,000 (over ₹2 crores) per financial year on investing in foreign stocks, children’s education, foreign tours, and foreign medical expenses.
LRS is applicable to two types of transactions:
| Feature | Description |
|---|---|
| Purpose | Allows resident individuals to remit funds abroad for permissible current or capital account transactions. |
| Eligible Individuals | All resident individuals, including minors. (For minors, remittances are made by a parent or guardian). |
| Remittance Limit | Up to USD 250,000 per financial year (April-March). |
| Permitted Transactions |
* Private visits. * Gifts/donations. * Overseas employment. * Emigration. * Maintenance of close relatives abroad. * Business trips. * Medical treatment. * Overseas education. * Purchase of property abroad. * Investments in equity or debt. |
| Prohibited Transactions |
* Remittances for prohibited items under Schedule I of FEMA (Current Account Transactions) Rules, 2000. * Remittances to countries identified by FATF as “non-cooperative countries and territories.” * Remittances for margin trading (e.g foreign FnO) or purchasing lottery tickets. |
Some of these transactions are subject to Tax Collection at Source (TCS) as per the rates below.
TCS rates from 1st April 2025 onwards:
| Purpose of Remittance | TCS Rate | Threshold |
|---|---|---|
| LRS for education purpose from education loan |
NIL | Any Amount |
| LRS for the purpose of education, other than above, or for medical treatment |
Up to ₹10 Lakh: NIL Above ₹10 Lakh: 5%, 10% if sender PAN is inoperative |
₹10 Lakh per FY |
| Any other purpose under LRS (including overseas tour packages or investing in foreign stocks/ETFs) |
Up to ₹10 Lakh: NIL Above ₹10 Lakh: 20% |
₹10 Lakh per FY |
There are two important points you must remember regarding TCS:
You also lose all the benefits of routing incoming remittances into a forex-denominated account which we will cover now.
Here are some use cases for opening an RFC account:
Having foreign assets that generate cash flow is common in many return-to-India cases. For example, you might have dividends from a foreign brokerage account, CDs that did not mature before you returned, social security or pension payments, consulting / free-lance income or real estate assets you left behind for rental income.
If this money directly lands in a rupee-denominated account in India, you will get only the spot value of the rupee on that date.
If you expect the rupee to depreciate, as the chart above clearly shows, you will miss out on the appreciation until and unless you need to spend that money immediately. You can convert your forex to INR strategically via the RFC account as per movements of the Rupee and your requirements:
Note that, as per the concept of interest rate parity, the lower interest rate of RFC savings accounts tends to compensate for the expected depreciation of the INR over the holding period.
A Resident but Not Ordinarily Resident (RNOR) is an individual classified by their tax status as per the Income Tax Act of 1961.
The RNOR status is an intermediate classification applicable to NRIs returning to India. RNOR status applies if any of these conditions are met:
There are some additional cases around income being above ₹15 lakh once you are staying in India that depends on the number of days spent in India in the previous year.
If neither of these conditions is met, RNOR status is not applicable, and the individual will be classified as either an NRI or a Resident Indian.
Here is an easy-to-use calculator that can help you figure out whether you are RNOR or not:
Enter the details to calculate know whether you are an NRI, RNOR, ROR or Resident Indian.
This calculator assumes that you return to India in FY 2025-26 i.e. between 1st April 2025 and 31st March 2026
If you have RNOR status, interest earned in an RFC account is tax-free in India. Therefore, the RNOR status provides a limited window to create a tax-sheltered interest income stream. This plan works when you need to spend in forex and can avoid the effect of rupee depreciation. The tax-free nature of the RFC account (during the RNOR stage) is an extra bonus.
Rupee FD minus 30% tax vs. RFC FD (tax-free) with Effect of Rupee depreciation
If we look at today’s FD rates in ICICI for example, a 6.85% 18-month FD gives an after tax 4.87% for someone in the 30% tax bracket.
The same FD, created as an RFC FD in USD, is at 4.75% which is tax-free for RNOR status holders and preserves the purchasing power of forex.
There are a few use cases where having Forex exposure is helpful:
Reverse migration is common for many NRIs whose return to India is either premature (say due to visa issues) or unplanned (due to a family requirement). You might also plan to be globally mobile due to career or business requirements.
In such a situation, converting your forex to INR in one go will be a mistake due to LRS hassles and loss during conversion from forex to Rupee (while bringing into India) and again remitting out.
The RFC account is well-suited to store forex inside the Indian banking system with the flexibility that you can take it out at a moment’s notice if you need to.
Here is a flowchart to help you decide whether you should open an RFC account or not:
Banks often push returnees to close these accounts before it actually needs to be done in the name of FEMA compliance.
Here you should remember that FEMA is an intent-based law. Unlike income-tax residency rules, which are set in stone in terms of days of residence in India, FEMA offers the flexibility to choose what you want to do in case you plan to return abroad and avoid immediate reclassification of your accounts.
RBI Circular titled Accounts in India by Non-residents, dated 16-Jan-2025 says
Source: https://www.rbi.org.in/commonman/Upload/English/FAQs/PDFs/Accountresidents16012025.pdf
Therefore the responsibility lies with the returning NRI to inform their bank(s) immediately of a change in residential status.
| Event | Timeline (Expected) | Action Required |
|---|---|---|
| Arrival in India for permanent return | Immediately (Within 30 days) |
Inform banks of change in residential status (NRI ➝ Resident) |
| FCNR/NRE/NRO Reclassification |
Typically within 3 months | Banks expect re-declaration of residency and initiate reclassification |
| Conversion of NRE ➝ Resident Account | At earliest of: - On maturity of deposit - Or on request from customer post-status update |
Can continue NRE till maturity if status declared; must not renew as NRE |
| FCNR Account | Same as above | Can be held till maturity; no new deposits allowed |
You have the option to convert the maturing FCNR proceeds into an RFC account to maintain forex exposure. You can do the same with NRE also with in implicit currency conversion happening since NRE is in INR while RFC is in foreign currency.
Important: Failure to inform the bank does not defer the change in tax status. The Income Tax Act applies independently of FEMA. Even if you don’t inform your bank, your NRE/FCNR interest becomes taxable in India once you become ROR.
Once you are back in India, please follow these steps:
Many NRIs, while speaking to bank RMs reading from a script, tend to convert all of their holdings to INR out of misplaced compliance fears.
You should remember that:
Therefore, if you still have foreign income or capital gains, let it land in the RFC account first and then find the right time for it in terms of usage in INR or forex.
The RNOR period allows you to legally avoid paying tax on your foreign income (rent / capital gains etc.) AND your Indian RFC/FCNR account interest. If you miss this detail, you are paying a lot of income tax unnecessarily.
Timeline: Pre-Return ➝ RNOR ➝ Resident
| Step | Time frame | Action |
|---|---|---|
| 1 | Immediately on return | Inform bank of change in residential status; retain NRE/NRO status until reclassified |
| 2 | Month 1 | Open RFC Account; transfer any foreign assets (cash, deposits, pensions, matured policies abroad) into RFC |
| 3 | Ongoing | Keep using NRE for foreign remittances ➝ tax-free interest; do not route foreign funds via NRO in-case you want to go back |
| 4 | During RNOR | Consider prepaying Indian liabilities or investing from RFC to avoid eventual taxation post-RNOR |
| 5 | End of RNOR (~Year 3) | Plan for any large outbound remittances or currency hedging from RFC before losing repatriability or tax-free status |
Notes:
| Step | Time-frame | Action |
|---|---|---|
| 1 | ROR stage | NRE account (if still active) must be converted to Resident Rupee account |
| 2 | ROR stage | RFC continues but interest is now taxable; consider merging or converting depending on currency needs |
| 3 | Ongoing | All interest income (RFC) now taxable |
| 4 | If planning to emigrate again | Do not transfer foreign funds to ₹ accounts; use RFC to preserve currency denomination and repatriability |
If RNOR is not applicable, as per the classification rules (see this RNOR status calculator), the returning NRI directly becomes ROR status holder.
If you don’t take the benefit of RNOR if it is available to you then
If you treat your RFC account as a fit-it-forget-it parking account, then you lose out on all of the benefits including:
To remediate, opening an RFC account requires you to plan both the entry points and the exit timings to make the best use of the facility like we will now illustrate as a case study.
Here we have a case of an NRI Mr. V who returned from a Software Architect role in London to Bengaluru in April 2023. His £225,000 corpus would have been converted to INR at 101.6908/£ if he did the conversion immediately and any FD he would have made would have become taxable at 30% or more.
Instead, he opened an RFC account after arrival and took out a £55,000 chunk in USD in June 2024 to pay for his son’s US college fees bypassing the hassles of LRS and the 5% TCS applicable (as per June 2024 rules) on such a transfer. The GBP had appreciated by 4.45% by then which implied a savings of over ₹10 lakhs on the total corpus due to the run-up of the Pound and ₹7.97 lakhs of tax due to his RNOR status as the table shows below.
| Event | Date | Cashflow | GBP/INR Rate |
Rate change % |
Benefit (₹ lakhs) |
Tax saved (₹ lakhs) |
|---|---|---|---|---|---|---|
| India Return RFC Opening |
2023 Apr | +£225,000 | 101.6908 | N/A | N/A | N/A |
| US Masters Fee payment |
2024 Jun | -£55,000 | 106.2169 | 4.45% | 10.18 | 7.97 |
| RNOR end | 2025 Mar | -£170,000 | 110.7131 | 8.87% | 15.34 | 10.29 |
Once his RNOR expired in March 2025, he had gained ₹15.34 lakhs on the remaining £170,000 in the account and ₹10.39 lakhs on saved tax on interest. The interest on £170,000 is taxable since ROR status has kicked in since April 2025. Mr. V now has the option of keeping a portion of the amount, say £60,000, for the June 2025 fee instalment and liquidate the rest for investing in INR assets.
No. RFC accounts are meant only for residents under FEMA who were previously NRIs. You can initiate the process just before or after return, but the account becomes operational only once you qualify as a resident under FEMA, typically when your stay in India exceeds 182 days in a financial year (can be earlier) and you’ve ended your employment/visa abroad.
a. NRE → RFC: Yes, once your residential status changes, banks can re-designate your NRE FDs or balances into RFC. b. NRO → RFC: Not directly. NRO balances need to follow repatriation guidelines before they can be credited to RFC.
The major currencies like USD, GBP and EUR are offered by most banks. Other banks might offer AUD, CAD etc.
RFC funds can be used for investments in India (stocks, MF, real estate etc) after conversion to INR. You can also remit the money abroad, within FEMA guidelines, to invest abroad or pay for expenses like college degrees, vacations etc.
Banks offer RFC accounts starting at $1,000, £1,000, €1,000 etc. You should check with your bank for the actual requirements since those vary from bank to bank.
a. During RNOR: tax-free. b. During ROR: taxable at slab rates. If you are a tax-payer abroad, the RFC interest might be taxable there.
No. Indian investments (e.g. mutual funds, real estate, equities) require INR. You’ll need to convert RFC balances to INR first. However, you control the conversion timing, which is the advantage that RFC accounts provide.
You must convert the RFC account back into an NRE/NRO account. The RFC is a resident product, and FEMA status is non-resident again. All balances can be repatriated.
There is no defined time limit for closing an RFC account. RFC FDs have a maturity date but RFC savings and current accounts can be kept open without strictly enforced limits. Usage of RFC funds must meet FEMA guidelines.
To understand how RFC accounts fit into your return to India plan:
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This post titled How Returning NRIs can Preserve Forex and Save Taxes via RFC accounts? first appeared on 28 May 2025 at https://arthgyaan.com
