RFC Account in India: How Returning NRIs Can Hold Foreign Currency & Avoid Rupee Conversion
Sushrut Phadke
Founder's Office
Feb 9, 2026
What is an RFC (Resident Foreign Currency) account?
An RFC account is a bank account in foreign currency (such as USD, GBP or EUR) held in India by a person who is now resident but previously non‑resident. FEMA’s “Foreign Currency Accounts by a Person Resident in India” Regulations permit such accounts and state that eligible residents may hold foreign currency balances with relative flexibility of use, subject to overall FEMA and AML controls.
RBI’s Master Direction on Deposits and Accounts recognises RFC accounts as resident accounts that may be offered in savings, current or term‑deposit form, depending on the bank. For returning NRIs, the primary purpose of an RFC account in India is to park foreign currency savings and permitted NRE/FCNR proceeds without immediate rupee exposure.
Who is eligible to open an RFC account? (RNOR & returning NRI rules)
RFC accounts are not generic resident products; they are meant for returning NRIs and similar categories. Banks generally allow opening where:
The customer was non‑resident (NRI/PIO/OCI) for a qualifying period and has returned to India.
The person is now a “person resident in India” under FEMA, even if still RNOR under the Income Tax Act.
On the date FEMA residency flips to “resident,” NRE accounts must be redesignated as resident rupee accounts, and FCNR(B) deposits may be allowed to run to maturity before redesignation. At that point, eligible NRE and FCNR(B) balances can be credited to an RFC account instead of being converted to INR, subject to bank policy. For a broader understanding of this status transition and timelines, Rupeeflo’s guide on RNOR status and tax benefits for returning NRIs sets out the day‑count tests and typical 2 - 3 year RNOR window.
Pros and cons of an RFC account for returning NRIs
Key advantages
Avoid rupee conversion risk: RFC accounts let eligible returning NRIs hold foreign currency instead of immediately converting significant overseas savings and NRE/FCNR balances into INR.
Tax advantage during NRI/RNOR: While the individual is non‑resident or RNOR, interest on RFC deposits is generally exempt from Indian income tax.
Future overseas flexibility: FEMA permits RFC balances to be used for allowable outward remittances and foreign investments, which supports re‑migration or ongoing foreign obligations.
Key limitations
Full tax once ordinarily resident: After RNOR ends and the individual becomes resident and ordinarily resident, RFC interest becomes fully taxable at slab rates.
Restricted funding sources: Only specified foreign‑currency sources—overseas assets, permitted NRE/FCNR conversions and continuing foreign income—can be credited to RFC; ordinary domestic rupee income cannot simply be converted and parked there as a capital‑flight shortcut.
Rate comparison versus INR deposits: RFC interest rates depend on currency and bank and may be lower than the best rupee fixed‑deposit rates, so the benefit is primarily currency and tax positioning, not always higher nominal yield.
How to fund an RFC account & what funds can be deposited
FEMA deposit regulations and bank documentation restrict credits into an RFC account in India. Permitted sources typically include:
Foreign savings and assets: Overseas bank balances, pension receipts, salary savings, or sale proceeds from foreign property or securities remitted through normal banking channels.
NRE and FCNR(B) proceeds on return: When NRE accounts are redesignated and FCNR(B) deposits mature after the individual becomes resident, eligible balances may be moved into RFC instead of directly into rupees.
Continuing foreign income: Foreign salary, pension or consultancy income received after return can be credited in foreign currency, subject to KYC and documentation.
Domestic rupee income generally remains in resident or NRO accounts; using RFC as a substitute for LRS‑based outward remittance is not permitted.
Taxation rules for RFC accounts
Tax treatment depends on Income Tax Act residency, not just FEMA status.
While the individual is non‑resident or RNOR, interest on RFC accounts is generally exempt from Indian tax - this position is reflected in returning‑NRI tax guidance and worked examples.
Once classified as resident and ordinarily resident, RFC interest becomes fully taxable like any other bank interest and must be reported under “Income from other sources.”
RNOR status usually lasts for a limited number of assessment years (commonly up to two or three), driven by days‑of‑stay tests. Planning when to convert NRE/FCNR balances into RFC relative to this RNOR window is therefore a core compliance and optimisation decision.
Status under Income Tax Act | RFC interest in India |
RNOR (Resident but Not Ordinarily Resident) | Exempt (under Section 10(15)(fa) of the IT Act) |
ROR (Resident and Ordinarily Resident) | Fully Taxable at applicable slab rates |
Repatriation and FEMA compliance
Under FEMA’s foreign‑currency‑account framework, balances in RFC accounts held by residents can be used for permitted foreign‑exchange transactions. In practice:
RFC balances can normally be remitted abroad or used for eligible foreign investments and expenses, subject to purpose checks, documentation and AML norms.
Because the funds are already in foreign currency, the LRS‑style INR conversion limit is not applied in the same way, though overarching outbound‑investment and sectoral caps still apply.
If the individual later becomes non‑resident again, banks can typically move RFC balances into NRE or FCNR(B) accounts, re‑establishing NRI banking without a fresh foreign remittance.
RFC vs NRE vs NRO account: what should returning NRIs choose?
Functional comparison
Feature | RFC account in India | NRE account | NRO account |
Holder | Resident (ex‑NRI) | Non‑resident | Non‑resident |
Currency | Foreign currency | INR | INR |
Main use | Preserve foreign currency post‑return | Park foreign income in INR | Manage India‑source income |
Interest tax | Exempt while NRI/RNOR, taxable later | Exempt while non‑resident | Taxable with TDS |
Repatriation | FCY usable/remittable abroad as per FEMA | Full repatriation | Up to USD 1 million per FY |
Practical decision pointers
If you remain NRI, continue with NRE and FCNR(B); RFC becomes relevant only once you are resident under FEMA.
If you are returning and expect RNOR status and hold significant foreign‑currency or NRE/FCNR balances, an RFC account in India helps preserve foreign currency and keep interest outside Indian tax during the RNOR window.
If you hold mainly India‑source assets and small foreign balances, a standard resident account plus NRO for Indian income may be simpler.
If you may move abroad again, RFC provides a compliant bridge from NRE/FCNR to resident status and back to NRE/FCNR if circumstances change.
For foundational banking concepts around non‑resident and returning‑resident accounts, Rupeeflo’s explainer on non‑resident (NR) account basics gives additional account‑type context before you decide on RFC, NRE and NRO combinations.
Conclusion
An RFC account in India is a targeted FEMA tool that lets returning NRIs hold foreign currency legally in India, manage exchange‑rate risk, and align interest taxation with the short RNOR window before full resident status kicks in. Choosing between RFC, NRE and NRO accounts should be driven by residency trajectory, the scale of foreign assets and the need for overseas flexibility rather than only by headline interest rates.
Rupeeflo supports this transition by combining regulatory explainers - such as its RNOR tax benefits guide and NR account overview - with product‑level comparisons, helping returning NRIs structure RFC, NRE and NRO holdings correctly from day one. Regulations and tax rules change, so returning NRIs must always confirm the latest FEMA notifications, RBI directions and Income Tax provisions or consult qualified professionals before implementing any RFC strategy.
Disclaimer: Regulatory and tax positions described here are based on current FEMA regulations, RBI directions, and Income Tax guidance and are subject to change. Readers must verify updated rules and seek professional tax and legal advice before acting on this information.
FAQs
Can a long‑time resident who never went abroad open an RFC account?
No. RFC products are intended for individuals who were non‑resident under FEMA and have returned to India; a resident who never held non‑resident status ordinarily cannot open an RFC just to hold foreign currency.
Can I move money from my resident savings account into RFC and then send it abroad?
Not as a general rule. Domestic INR funds must follow LRS and other FEMA rules for outward remittance; RFC is not meant to be a shortcut for exporting domestic capital.
Does RFC interest stay tax‑free if I try to keep RNOR status as long as possible?
RNOR status is determined objectively each year from the Income Tax Act’s day‑count rules; it cannot be extended beyond what the statute allows, and once you become resident and ordinarily resident, RFC interest is taxable.
Can RFC balances be used to invest directly in overseas equities or funds?
Yes, subject to FEMA, outbound‑investment rules and bank processes, RFC balances can usually be used for eligible overseas investments, with full documentation and KYC/AML checks.
What exactly happens to my NRE and FCNR(B) accounts on the date I become resident?
Banks must redesignate NRE accounts as resident accounts and treat FCNR(B) deposits as per RBI’s deposit regulations; on maturity, FCNR(B) proceeds and NRE balances can be moved into RFC or converted into INR as per your instructions and eligibility.
