Non-resident External Rupee Account - NRE

Account
About Non-Resident External (NRE) Account

An NRE account is a Rupee denominated account. That is, funds in an

NRE account are maintained in Indian Rupees. It can be a savings,
current or a fixed / term deposit account.

NRE accounts can be opened by NRIs.

Funds can be repatriated from an NRE account. This means that the funds
can be freely sent to any other country.

An NRE account can contain funds remitted from abroad, or obtained from
another NRE / FCNR account maintained in India.

Funds can be transferred from an NRE account to an NRO account without

any restriction.

An NRE account can be held jointly, provided the other person is also an
NRI.

The interest earned on deposits in an NRE account is exempt from tax in

the hands of the NRI.

A resident power of attorney holder can not open an NRE account on

behalf of an NRI. But the resident power of attorney holder can make
local, rupee payments on behalf of the NRI.

Nomination is allowed for NRE accounts.

If the NRI holding the NRE account returns to India and becomes a
resident of India, the NRE account is converted into a regular resident
account.

General

Persons of Indian nationality or origin resident abroad may open, with authorised banks
in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees.
These accounts can be maintained in the form of savings, current or term deposit
accounts. Opening of NRE Accounts jointly in the names of two or more non residents is
permitted provided all the account holders are persons of Indian nationality or origin. For
opening these accounts, the funds are required to be remitted to India through (a)
proceeds of foreign exchange remittances from abroad through banking channels in an
approved manner.
(b) proceeds of foreign currency notes and traveller cheques brought into India by the
non-resident while on a temporary visit to India.

(c) transfer from an existing Non-Resident (External) FCNR account of the same
person.

The account holder has to furnish an undertaking on the account opening form that he
would promptly send intimation to his bank if and when he returns to India for
permanent residence.

Proceeds of remittance arranged by the account holder through banking channels from
any country can be credited to this account. Similarly, income from the account holder’s
investment from the funds in the account can be credited to it, except in cases where
the investments are permitted on non-repatriable basis. Remittances from the account
to the country of residence of the account holder or any other country are freely allowed.

Authorised dealers may allow operations on NRE Accounts by persons resident in India in
terms of Powers of Attorney (Annexure 14.5) or other appropriate authority granted in
their favour of non-resident account holders, provided the powers are restricted to
withdrawals for local payments.

Type of Account

All types of accounts ie. current, savings and term deposit etc. can be opened under

Non-Resident (External) Accounts Scheme. A Non-resident can open joint account

with other non-resident provided all the account holders are persons of Indian nationality
or origin. Opening of a joint account by a non-resident person with a person resident in
India is not permitted under NR (E) Scheme.

Non-resident account can grant power of attorney or such other authority to residents in
India for operating their NR (E) Accounts in India. Such authority, is however, restricted
to withdrawals for local payments only. The resident power of attorney holder cannot
repatriate funds held in accounts outside India under any circumstances or make
payment of gifts on behalf of the account holder.

Account can also be opened by an eligible non-resident Indian during his temporary visit
to India, against tender of foreign currency traveler cheques/currency notes, provided
the bank is satisfied that the prospective account holder has not ceased to be a non-
resident. The amount so tendered would be endorsed on the Currency Declaration Form
CDF where applicable, before crediting the rupee equivalent to the account.

Operation of NRE Accounts

There are certain restrictions on operation of NR (E) accounts and Form A2 / Form A4
is to be completed for few transaction. These forms may be completed either by the
resident party to the transaction or by the bank after obtaining necessary information
from the resident party account holder. The undernoted transactions of debits/credits
are permitted in NR(E) accounts:

Credits in the account

Transaction where Form A4 is not to be completed.

(i) Transfer from FCNR accounts of the same accounts holder.

(ii) Interest accruing on balances in Non-resident (External) or FCNR accounts of the
account holder.

Transactions where Form A4 is to be completed.

(i) Proceeds of foreign exchange remittances, drafts, personal cheques etc. in the name
of the account holder.

(ii)Proceeds of foreign currency travellers cheques, drafts and personal cheques drawn
by account holder on a foreign currency account maintained abroad by him deposited by
account holder during his temporary visit to India, provided authorised dealer is satisfied
that the account holder is still normally resident abroad, the travellers cheques/drafts
are standing in the name of account holder and have not been endorsed in his favour
and in the case of travellers cheques, they are discharged by the account holder in the
presence of the bank officials.

(iii) Proceeds of foreign currency/bank notes tendered by account holder during his
temporary visits to India, provided these are tendered to the authorised dealer in person
by the account holder himself and the authorised dealer is satisfied that the account
holder is still normally resident outside India.

Debits in the account

Transactions where Form A4 is not be completed.

i) All local payments except for the purpose of investment.

ii) Transfer to any other NR (E) of FCNR account of the same person.

iii) Transfer to NR (E) accounts of persons other than the account holder for bona file
personal purpose.

Transactions where Form A4 is required to be completed.

i) Payments for permissible investments by the account holder.

ii) Payments towards purchase price of immovable property by account holder. However,
if the account holder is not an Indian national, declaration to Reserve Bank of India for
acquisition of property under section 31 of Foreign Exchange Regulation Act, 1973 is to
be obtained.

iii) Any other transaction if covered under general or special permission granted by
Reserve Bank.

Transaction required to be reported on Form A2

i) Remittance abroad.

ii) Sale of foreign currency traveller cheques etc. to account holder himself or his
dependants provided that they hold a ticket showing journey date which should not be
later than thirty days from the date of sale.

All other transactions of credit/debit to these accounts not covered under the above
provisions required prior approval of Reserve Bank. Form A4 is to be completed in
duplicate in such cases and forwarded to Reserve Bank through the bank with whom the
account is maintained. The transactions will be put through the account only after a copy
of Form A4 duly approved by Reserve Bank is received back.

Change of Status from Non-resident to Resident

Immediately upon return of the account holder to India and on his becoming resident in
India, NR (E) account will be redisignated as resident rupees account or converted to
RFC account as per the option of the account holder.

However, if the account holder is only on a short visit to India, the account will continue
to be treated as NR (E) account even during his stay in India.

In respect of funds held in fixed deposits in NR(E) Accounts, interest will be payable at
the rate originally fixed, provided the deposit is held for the full even after conversions
into resident account.

Advantages of NRE Account

Non-residents can enjoy the following advantages by maintaining NRE Accounts:

1. Term deposits for one year and above made by non-residents carry interest at rates
higher than those available to residents in India.

2. The interest on deposits and any other income accruing on the balance in the
accounts are free of Indian Income-tax.

3. The balances in the accounts are free of Wealth-tax.

4. Gifts to close relatives in India from out of balances in the accounts are free of Gift-
tax, when gifted before 1st October, 1998, thereafter there is no gift tax in India.

5. The entire credit balance (inclusive of interest earned thereon) can be repatriated
outside India at any time without reference to the Reserve Bank.

6. Local disbursement from the accounts can be made freely.

7. Purchases of Units of Unit Trust of India (UTI), Central and State Government
Securities and National Plan/Savings Certificates can be made freely from the balances in
these accounts.

8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or

certificates originally purchased out of the funds in the account can be freely credited to
these accounts by banks, without reference to the Reserve Bank.

9. Account holders are supplied special series of cheques forms for operations on these
accounts.

10. Account holders can avail of loans/overdrafts from banks against security of fixed
deposits in their NRE accounts.

Disadvantages of NR(E) Accounts

NR (E) accounts are opened in Indian rupees and all foreign exchange remittances
received for credit of those accounts are first converted to Indian rupees at the buying
rates by the banks. Any withdrawal in foreign currency will be permitted by the bank by
converting Indian rupees in the account to foreign currency at the selling rate. This
conversion loss is to be borne by the account holder.

Exchange rates are subject to fluctuation on day to day basis and Indian rupee has
depreciated against all major foreign currencies in recent past. Balances held in Indian
rupees in NR (E) accounts are thus exposed to exchange fluctuation risk.

How do you open an NRE account?

The process is similar for both accounts. To open an NRO or NRE account, one has to make a
request with an authorised bank. One is then is required to submit documents like utility bill, driving
licence, resident permit, rent received, passport and overseas or Indian bank statement. Also, the
minimum fund has to be remitted to India either as fore remittance and transfer from existing NRE
accounts.

What are the advantages and disadvantages of NRE account?

Interest on deposits in an NRE accounts is tax free in India. The balance lying on the account does
not attract wealth tax. Any gifts given from the money lying in this account does not attract gift tax.
The primary disadvantage associated with an NRE account is that it suffers from currency risk and
attracts lower rate of interest in comparison to NRO account.

Account Highlights:

• Savings / Current or Term Deposits accounts in Indian Rupees can be opened.

• Minimum period of NRE Term deposit is one year and maximum period is 3 years.
• The balances in these accounts can be repatriated outside India at any time.
• Transfer to / from other NRE / FCNR Account is possible.
• Accounts in the name of 2 or more NRI's are permitted.
• Nomination facility is available.
• Interest earned on deposit is exempted from Indian Income Tax.
• Balances in the accounts are free from wealth Tax.
• Gifts to close relatives in India from balances in the account are exempted from gift
tax.
• NRE Account can be operated by resident in terms of Power of Attorney for Local
payments.
• Local disbursements from accounts can be made freely.
• Loans / Overdrafts can be availed against the security of Term Deposits.
• Premature withdrawals are allowed. Interest for such withdrawals is paid one percent
less than the rate payable for the period of deposit held.
• Standing instructions for local payments are accepted.
• Term Deposits will be allowed to be continued till maturity at the contracted rate on
return to India and re-designated as resident account.
• The depositor runs the risk of depreciation in Rupee against foreign currencies.

Schemes available under NRE Account:

• Fixed Deposit (Simple Interest Deposit).

• Recurring Deposit (Monthly Interest Deposit).
• Muthukkuvial Deposit (Reinvestment Plan).
• Pearl Deposit (Reinvestment Plan with Compound Interest Payment).