Know What is NRE Account, its Benefits, & Account-opening Process

Introduction

There are plenty of NRIs who have friends and family in India. Due to this, they may need to transfer funds frequently to their loved ones back home. This can be done by opening an NRE account in India. If you are an NRI who wants to send funds to India, this article will be your guiding light.

What is an NRE account?

An NRE account or a Non-resident External Account is an NRI bank account required to transfer earnings from a foreign currency to INR. If you are an NRI with foreign earnings who wants to send or transfer funds to India and hold them in Indian currency, you must have this rupee account to park your money. An NRE account can be a savings account, a fixed deposit account, a recurring deposit account, or a current account. Using this account, as an NRI, you can make transactions in India and repatriate these funds easily to your country of residence. Another aspect of this account is its account ownership. You can open this account individually or jointly with another NRI.

The Need for an NRE account

As per the Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot have a regular savings account in a bank in India to make any transactions. An NRE account must be opened to convert foreign earnings and save them in Indian rupees. As an NRI, you need this account to buy, sell or invest in India. You will be unable to do any of the above-listed transactions without an NRE account. However, you must know that this account only holds foreign earnings and not your earnings from India. NRIs need a Non-resident Ordinary Account (NRO) account to hold payments from India.

Another critical aspect of an NRE account is that the money you deposit in this account is saved in rupee currency. Hence, if you want to keep your funds in foreign currency, this account will not serve your purpose.

Advantages of holding an NRE account

Holding an NRE account comes with many advantages. Let us learn about them.

Liquidity

An NRE account is highly liquid and allows easy movement of funds from India to abroad without currency conversion hassles. Your funds in this account can be quickly repatriated to your country of residence without any trouble.

Tax-free

In India, the funds deposited in your NRE account, i.e. the principal and the interest you earn on it, are exempt from taxes.

Maintenance

As an NRI, you can grant your power of attorney to an Indian resident who can function your NRE account on your behalf from India. Except for the opening and closing of your NRE account, such an individual is permitted to take any actions required to operate your account smoothly, including withdrawing funds.

Multiple Transactions

You can use the funds in this account to make multiple types of transactions that may be personal, business-related, or investment-related. Financial market transactions can also be facilitated using an NRE account.

Withdrawal

As an NRI, you can easily withdraw funds from the NRE account through an international debit card.

Additional Read: What are the benefits for NRI in India?

How to open an NRE account?

You can open an NRE account at any authorized dealer bank. Many banks offer an online account opening feature that does not require you to visit the bank’s branch in your country of residence or India. To open an NRE account, you have to meet the following eligibility criteria for it,

• You should be an NRI (Non-resident Indian), a PIO (Person of Indian Origin), or an OCI (Overseas Citizen of India).
• You must deposit your earnings in a foreign currency
• You are a spouse of an Indian citizen or a PIO.
• Your power of attorney, if any, must be an Indian resident.

If you meet the eligibility criteria for holding an NRE account, you can submit the following to open your NRE account,

• NRE account opening form/application
• Photocopy of your Indian Passport (if you do not have an Indian Passport, submit OCI/PIO proof)
• Abroad Residence Address Proof
• Photocopy of your Visa or Residence Permit
• Other miscellaneous documents like photographs, etc.

The NRE account opening process is relatively quick when you have kept your required documents handy before initiating your account opening process.

Tax Implications of having an NRE account

The Double Tax Avoidance Agreement (DTAA) allows NRIs to avoid paying double tax. As per DTAA, the funds in such accounts are assumed to be already taxed by the NRI’s country of residence. Hence, the principal amount is tax-free.

Additionally, when you deposit funds in an NRE account, you essentially deposit your earnings of a foreign currency in India. This means the deposits in such these accounts facilitate the foreign currency reserves of our country and lead to the strengthening of the INR. Thus, to promote such deposits and increase the reserves of India, the Indian government has exempted taxed on interest that you earn from your funds in the NRE accounts too. This makes your principal amount and your interest both tax-free.

Conclusion

An NRE account is a convenient way to save your earnings from a foreign country in India, especially when you have transactions in India. And the type of NRE account you choose to open, as an NRI, should be based on your liquidity needs. It means that you must opt for an NRE term deposit account that will yield you higher interest if you do not have liquidity requirements shortly. On the other hand, if you may have regular withdrawals, it is better to opt for an NRE savings account with moderate interest earnings.  

FAQs

What is the full form of NRE Account?

NRE Accounts are a type of account specially designed to meet the banking needs of Non-Resident Indians (NRIs). The term NRE stands for Non-Residential External, with the word ‘external’ probably referring to the foreign income you can park in the account.

What is the difference between an NRE and NRO Account?

As an NRI, you can open an NRE and an NRO Account. However, the two accounts are used for different purposes. While an NRE Account helps you manage and park your foreign earnings in India, and NRO Account helps you deposit and handle your income earned in India. Usually, the two accounts function in tandem.

What is a major benefit of opening an NRE Account?

Apart from the convenience it offers you in terms of managing your foreign earnings, it also provides tax benefits. A major plus point of opening an NRE Account is that any interest earned on the funds parked in an NRE Account is exempt from tax in India. However, taxation is subject to the regulations of the country of residence.

Are the funds parked in an NRE Account repatriable?

Repatriation refers to the act of taking something from one country, which may be a country of origin, to another country, perhaps of residence. When you open an NRE Account, any funds you park in it are repatriable and can be transferred from your country of origin to that of residence, including the interest earned.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.