Non-Resident External, commonly known as NRE, is an account for non-resident Indians to hold their foreign earnings in India. This account is regulated by the Reserve Bank of India (RBI) and is specifically designed for NRIs who wish to park their overseas earnings in India in Indian currency. This article will discuss the NRE full form and its features, benefits, and drawbacks.
What is an NRE account?
An NRE account is a savings or fixed deposit account for NRIs to park their foreign earnings in India. This account is maintained in Indian rupees and is exempted from income tax in India. This means that the interest earned on the balance in the NRE account is tax-free in India.
Who is eligible for an NRE account?
NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) are eligible to open an NRE account. PIOs and OCIs can open NRE accounts only if they are also citizens of countries other than Pakistan and Bangladesh.
Features of an NRE account
- Currency: The account can be maintained only in Indian rupees
- Repatriation: Funds in the account are fully repatriable i.e., the balance in the account can be transferred abroad without any restrictions
- Tax exemption: The interest earned on the balance in the NRE account is exempted from income tax in India
- Joint account: The account can be held jointly with another NRI, PIO or OCI
- Nomination facility: The account holder can nominate a resident Indian to receive the balance in the account in the event of the account holder’s death
- Deposit and withdrawal: Deposits and withdrawals can be made in Indian rupees only
Benefits of an NRE account
- High-interest rates: NRE accounts typically offer higher interest rates compared to regular savings accounts in India
- No currency risk: NRIs can park their foreign earnings in India without the risk of currency fluctuations
- Easy to operate: The account can be opened and operated remotely through internet banking, and funds can be transferred easily
- Tax exemption: The interest earned on the balance in the account is tax-free in India
- Repatriability: The balance in the account can be transferred abroad without any restrictions
Drawbacks of an NRE account
- Limited usage: The account can only be used for deposits and withdrawals in Indian rupees. It cannot be used for making payments in foreign currency.
- Limited deposit options: Only foreign currency can be deposited into an NRE account. Deposits in Indian rupees are not allowed.
- Joint account restrictions: The account can only be held jointly with another NRI, PIO or OCI.
How to open an NRE account?
NRIs, PIOs, and OCIs can open an NRE account by providing the following documents:
- A valid passport
- Proof of NRI status, such as an employment visa or work permit
- Overseas address proof, such as a utility bill or bank statement
- Indian address proof, such as an Aadhaar card or voter ID
The account can be opened with any authorized dealer bank or any bank authorized to deal in foreign exchange.
Conclusion
NRE accounts are an attractive investment option for NRIs who wish to park their foreign earnings in India. They offer several benefits such as tax exemption, high-interest rates, and repatriability.
However, they also come with some drawbacks such as limited usage and deposit options. Overall, NRE accounts are a great option for NRIs looking to invest in India.
FAQs
Can an NRE account be opened jointly with a resident Indian?
No, an NRE account can only be held jointly with another NRI, PIO, or OCI.
Can funds in an NRE account be used for making payments in foreign currency?
No, NRE accounts can only be used for deposits and withdrawals in Indian rupees.
Is the interest earned on the balance in an NRE account taxable in India?
No, the interest earned on the balance in an NRE account is exempted from income tax in India.
What is the minimum balance required to maintain an NRE account?
The minimum balance required to maintain an NRE account varies from bank to bank. It can range from as low as Rs. 10,000 to as high as Rs. 1 lakh.
Can an NRE account be converted to a regular savings account?
Yes, an NRE account can be converted to a regular savings account if the account holder returns to India and becomes a resident Indian again. However, the account holder must inform the bank of the change in status and complete the necessary formalities.