Banking, Money and Taxes in India

Most expats are wary of dealing with banks in India. It is not uncommon to find many blogs or reviews giving harrowing accounts of people’s traumatic experiences with banks and their bureaucratic approach to customers. But, like most things in India, while banking may be a time consuming activity initially, once you get past the mundane logistics, most banks provide services at your door step.... literally!

 

Expats should note that banking in India has come a long way post sector-liberalisation in the 1990s. Since then there has been rapid growth in this sector, with several Indian and foreign players vying for market space. 

 

 

The official currency of India is the Indian Rupee, abbreviated as INR or as Rs. The Reserve Bank of India (RBI) is the centralised banking institution in the country and controls the currency. The rupee is subdivided into 100 paise. 

 

However, “paise” coins are no longer available. So although in theory items will have a 50 paise cost, the amount paid is always one rupee. For example, if an item costs Rs.5.50, and you give the shopkeeper Rs.6, you will not receive 50 paise back. Reason being, there is no 50 paise coin! Although there are old coins which are in circulation, they have no monetary value. 

It is always very difficult to get change in India, so it is advisable to maintain a stock of smaller denominations with you. 

 

An oddity that you will have to get used to in India is the Indian number system. Globally, millions, billions and trillions is commonly used with commas falling after every three digits. India is still using the old British system in which 100,000 is called one lakh and 100 lakhs is one crore or ten million. 

 

Once you are past 100,000 everything is counted in lakhs and crores with a comma after every two digits once you are past the thousand mark (1,00,000). This can cause confusion, especially when referring to the financial statements of your companies.

 

 

The banking sector in India is very robust, and is constantly moving forward with a wider assortment of improved service offerings for customers, and an overall development that’s becoming increasingly efficient and productive. Even in the recent wake of the global economic crisis, the sector remained one of the healthier performers in the world, standing relatively strong and untouched.

 

The Indian banking sector is a mixture of public, private and foreign ownerships. As of 2011, the industry had 28 public sector banks (i.e. those banks in which the Government of India has a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. All these banks have a combined network of over 53,000 branches and 17,000 ATMs across India.

 

In recent years and with growing competition, banks in India have become more customer-driven, with increased focus on improving banking efficiency. This has resulted in a switch from traditional paper-based banking to electronic banking. Most banks encourage minimal interaction with customers, making all products and services available online.

 

In addition, depending on the nature of your account, banks can offer you a dedicated relationship manager who will assist you with all your requirements right at your doorstep. They will even collect cheques to deposit into your account, should you not be able to go to the bank. Furthermore all bank ATMs have a drop-box facility whereby you can drop in your cheque and your account will be credited accordingly. 

 

A majority of banks also provide facilities to make utility bill payments at their ATMs.

 

 

Many expats moving to India blindly opt to use international banks over the local private banks, as these entities are familiar and seemingly trustworthy. However, as mentioned earlier, competition has put both local and international banks at a similar level, meaning that both institutions offer comparable standards of customer service and products. 

 

Leading local banks include ICICI Bank and HDFC Bank. These banks offer a wide range of services and are totally customer centric. Some of the more prominent international banks include HSBC, Barclays, Deutsche Bank, Royal Bank of Scotland, Standard Chartered and Citibank, to name a few. 

 

►Product offerings
 

While foreign and local banks offer largely similar product offerings, bank accounts, period deposits, loans, credit cards, debit cards, ATM facilities, phone and Internet banking, their service charges will differ. 

 

The international banks sometimes have higher charges for various services, so before deciding on a bank, do check the service charges applicable for various routine banking tasks. 

 

All banks are mandated by the RBI to clearly note their service charges on their official web site, as well as at the bank, so you will not have any difficulty finding these figures. In addition, all banks offer a range of accounts to cater to various needs, which of course will enable you to pick the right bank for you.

 

 

Until recently, foreign banks operated as branches in India and were not allowed to function as wholly owned subsidiaries. As a result, their expansion was controlled, so foreign banks today have a less comprehensive network of branches and ATMs in the country, as compared to local private banks. In addition, the ATMs are not always located at the bank branch, but could possibly be scattered across the city, making ATM usage inconvenient. 

 

Local private banks, on the other hand, have a large number of branches and ATMs throughout the city, thus providing easy access for customers. In illustration of this fact, ICICI bank has a network of 2542 branches and 7037 ATMs across India; while Standard Chartered bank, the largest international bank in the country, has 94 branches and 1500 ATMs across India. 

 

 

When it comes to customer service and efficiency, foreign banks and local private banks function at similar levels. Both are primarily electronic, though some local private banks may still depend on some degree of a paper trail. 

 

In general though, all banks are trying to reduce customer walk-ins at the branch, and have even started charging for some services associated with this. The idea is to encourage the switch to electronic banking. 

 

 

Most banks offer a non-resident (NRO) savings or current account for expats who earn an income in India. The features and benefits of this account vary between banks, but as a minimum requirement, the account will provide you with products like ATM/debit and credit cards, cheque books as well as Internet and phone banking. More important to note is that for most bank accounts for expats (NRO accounts), you are required to maintain an average quarterly balance of generally 500 USD. This amount may vary between banks, but failure to maintain the balance will result in a penalty fee which will be directly debited from your account.

 

So you would first need to get an apartment and complete your  FRRO registration in order to open a bank account. Many expats would have bank accounts opened for them by their company, which in most cases would be via international banks. 

 

 

If you wish to repatriate your earnings, or if you wish to transfer money abroad, most banks offer outward remittance services. Expats are allowed to remit up to one million US dollars per financial year for bonafide purposes as per RBI guidelines.

 

In addition to the general documents of proof of identity, passport and visa, you would also need to submit a remittance instruction to your bank (the bank has their own format which they will give you) and Form A2 - Application for withdrawal of Foreign Exchange, which describes the reason for remittance. 

 

For international money transfers, you can also use companies like Western Union Money Transfer and Moneygram, although their charges are higher than bank charges.

Exchanging money in India 

Credit Cards in India

ATMs in India

 

The term “Expatriate” is an undefined term in India’s Income Tax Act 1961. Hover the Act does state that non-residents will become eligible to income tax on any income accruing or arising or received in India. So the tax laws which are applicable to Indian citizens are also applicable to you.

 

Personal tax rates in India are progressive up to 30 percent, plus the applicable cess of 3 percent (2 percent for Primary Education Cess and 1 percent for Secondary Education Cess).

 

In India, the assessment year is the period of 12 months from 1 April to 31 March. Income earned in the period of 12 months or less immediately preceding the assessment year is taxed in the assessment year. It is possible to get tax deductions up to the extent of Rs.1,00,000 through investments allowed as per income tax laws

 

►Tax Filing status – All individual taxpayers are required to file an individual tax return and are assessed separately. Some companies file the returns for expats, but if not, you can also do this online or appoint a Chartered Account to handle this for you. For filing your returns online there is a service fee of around 40 to 50 USD, while a CA will cost you much more. But if you are not tax savvy, a CA is your best option.