A Non-Resident External (NRE) account is a savings account managed for foreign income to earn tax-free interest which is fully repatriable of funds. To use foreign money in India, it is the most convenient method. In NRE accounts domestic deposits are not allowed. Only foreign currency is permitted to credit into the NRE savings account.
In the NRI banking there are two types of pillars one is NRE account and other is NRO account. Though they are similar there is a vast difference between them. Here in this article, we discuss the NRE account.
NRE Account
- Can be opened and maintained for savings, fixed term, current account
- Can be used only for foreign earnings (income generated outside India)
- Is totally Tax-free (interest on the account is not taxable in the country)
- Is Freely repatriable to account universally
- Fetches Higher interest
The domestic currency rupees in NRE accounts are repatriable abroad. You can convert rupees to AED or any currency and send that money to the receiver in another currency under this account. The income which is earned in AED or any other foreign currency will be converted into INR by the banks itself when you deposit the amount to the NRE account.
If you are planning to convert money and send it to family members for their living expenses you can use an NRE/NRO account. In an NRE account, you deposit in one currency and withdraw in another currency. You can withdraw money but the exchange rate would be on you. If you wish to withdraw money it is best to have a Foreign currency non-resident account as there is no point in speculation on currency exchange fluctuations. In simple terms, NRE accounts are savings accounts that may be opened by NRIs in India.
Working conditions of NRE Savings Account
- The amount in the NRE savings account can be deposited through foreign earning sources or the funds can be transferred from any other NRE savings account.
- Funds that are available in savings accounts in India cannot be transferred to NRE accounts.
- It is totally tax free and interest earned is also not taxable.
- You can transfer money to any other foreign account source.
- Funds can be transferred or withdrawn from Indian bank accounts through an ATM just like any savings account.
- Local Indian currency deposits are not allowed into NRE savings accounts, the amount in this account is repatriable to foreign countries.
- Foreign currency can be deposited in an NRE account and the bank will deposit the same exchange proportion to rupees into NRE savings account.
Click here for 8 Reasons why one should have a savings account
How to open an NRE Account?
You can open an account in the UAE or in India. In the UAE, you can visit any bank branch (Towards the end of the article we have listed the best ‘NRE’ banks in the UAE). You have to provide them with basic documentation and other details and open an NRE account in India with the state and city branch of your choice through them. Suppose if you have visited India then directly go to the bank NRI branch and open an account. You have to deposit a small amount in foreign currency and later remit foreign currency from overseas.
Few Points to be noted
- An NRI living out of India may not convert an NRE account to a savings account.
- If NRI moves to India and becomes a resident in India as per Foreign Exchange Management Act then NRE account should be closed.
- After the account has been closed, funds have to be transferred to the resident savings account or to the Resident foreign currency account.
- It is the responsibility of NRI to inform the bank about the change in residential status.
- Once you inform banks about changes in residential status, Some banks may continue NRE fixed deposits until maturity or some banks may close the NRE Fixed deposits. If the bank permits to continue NRE fixed deposits, you will be taxed from day one to the fixed deposit maturity because according to the Foreign Exchange Management Act you are not allowed to have an NRE account as you are a resident of India.
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What Documents are required to open an NRE account?
The following are the documents required to open an NRE account in the home country or overseas.
- Passport copy
- Residence Visa or work permit or employment visa
- PAN Card
- CRS Declaration/FATCA Declaration
- Central Know Your Customer
- Address proof both the domestic and international address
- Any other documents as requested by the authorities
If you are submitting the documents outside India, then you have to provide an attestation of documents by a Banker/Notary/Embassy official/consulate official for a Non- FATF country. The above documents should be submitted with the declaration confirming that documents are true and correct. While You are submitting your photo copies make sure that date of birth, residence address, signature, place of issue (if any), date of expiry (if any), place of issue (if any), and other details are clear and legible.
What are the Benefits of NRE Account?
The following are the benefits of an NRE account.
- Interest earned on NRE Account is not taxable in India
- You can withdraw cash and shop across any country with an international debit card.
- Easily transfer your funds from the account in a freely convertible foreign currency.
- You can transfer funds from your NRE account or FCNR account which are held in other banks in India.
- Enjoy full repatriability and earn tax-free interest in India.
- Free mandate card and cheque book
- Transfer funds from an existing NRE / FCNR Account held in other banks in India
What is the validity of an NRE account?
When a person is no more an expat and from the day one when he returns to the country he is a resident of India. The person cannot make any investments into the NRE account. NRE account can be re-designated into resident rupee account. If there are any NRE deposits then they can be closed immediately or they can be converted from NRE Fixed deposit to resident account Fixed deposit. During this period premature closure will not attract any penalty charges.
How to close an NRE Account?
You can close your NRE account by submitting your consent for closure through the bank’s format or through a letter as suggested by your bank. You can transfer the remaining balance from your NRE account to savings account. You can either request your bank to issue DD or Pay order.
You have to disable all the accounts which you have enabled with your NRE account such as payment standing instructions. You have to Surrender your debit cards/ATM cards, lockers, unused cheques leaves, inform the bank about the post-dated cheques which are issued by the bank will treat them as cancelled and destroyed, and surrender other documents if any. You have to submit a photocopy of a self attested passport copy and other documents which are requested for account closure. The bank may also ask for signatures of two account holders to close the account. For account closure there may be some applicable service charges levied. If your account is inactive and you want to close it, first request your bank account to activate and then you can close the account.
Best NRE Accounts in India
- Axis Bank
- Kotak Mahindra Bank
- ICICI Bank
- SBI Bank
- Bank of Baroda
- HDFC Bank
- CITI Bank
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
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