The Non-Residential External (NRE) account is a type of savings or current account specifically designed for Non-Resident Indians (NRIs). It allows NRIs to maintain their savings in India while they are living abroad. The funds held in an NRE account are held in Indian Rupees and are fully repatriable, meaning that the NRI can transfer the funds back to their home country without any restrictions.
One of the key advantages of an NRE account is that it enables the NRI to earn tax-free interest on their savings in India. Additionally, the account holder can freely transfer funds between their NRE account and their foreign account without any restrictions, making it a convenient solution for managing their finances from abroad.
Another advantage of an NRE account is that it provides a convenient way for the NRI to manage their money in India, even if they are living abroad. The account holder can use internet banking facilities to transfer funds, check balances, and make payments from the comfort of their own home.
1. NRE Account Meaning
NRE stands for Non-Resident External account, which is a type of savings account offered by Indian banks to individuals who are non-resident Indians (NRIs) or persons of Indian origin (PIOs) living outside of India. These accounts allow NRIs to hold and manage their money in India in Indian Rupees.
2. Who can open a Non-Resident (External) Rupee Account – NRE Account
A Non-Resident (External) Rupee Account, also known as an NRE account, can be opened by any Non-Resident Indian (NRI), meaning an individual who holds an Indian passport but resides outside of India for the purpose of employment, education, or for carrying out business or vocation.
NRIs, including Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs), are eligible to open an NRE account. In order to open an NRE account, the individual must provide proof of identity, proof of residence, and a copy of their passport and visa. They must also provide a declaration of their NRI status.
3. NRE Joint Account
An NRE account can be held jointly by two or more Non-Resident Indians (NRIs) or Persons of Indian Origin (PIOs). NRIs or PIOs may also hold the account jointly with a resident relative, such as a spouse, on a “former or survivor” basis, as defined by the Companies Act, 2013. In such cases, the resident relative can operate the account as a Power of Attorney holder during the lifetime of the NRI or PIO account holder.
4. Indian Rupees NRE Account
The Non-Residential External (NRE) account is operated in Indian Rupees (INR), which is the currency of India. This means that any funds deposited into the NRE account will be held in INR and any transactions made from the account will also be made in INR.
5. Type of NRE Accounts
There are four main types of Non-Residential External (NRE) accounts in India: NRE Savings Account and NRE Fixed Deposit Account, NRE Current Account, NRE Recurring account.
- NRE Savings Account: This is a rupee-denominated savings account that is maintained in India by an NRI. The funds in this account are freely repatriable, meaning they can be transferred back to the NRI’s home country without any restrictions.
- NRE Fixed Deposit Account: This is a type of term deposit where the NRI deposits a lump sum of money for a fixed term and earns a higher rate of interest compared to an NRE savings account. The interest earned on an NRE fixed deposit is also tax-free in India and the deposit is fully repatriable.
- NRE Current Account: An NRE Current Account is a type of Non-Residential External (NRE) account that does not earn interest. Opening an NRE current account requires minimal documentation, and it can even be done online through the bank’s website. To attract Non-Resident Indians (NRIs) who are living abroad, banks often keep the minimum monthly balance requirement low.
- NRE Recurring Deposit: The NRE Recurring Deposit Scheme only accepts funds from Non-Residential External Accounts. Indian banks generally offer NRE Deposits with a minimum term of 1 year and the deposit amount and interest rate may vary between banks. One significant benefit of investing in this scheme is that the interest earned by NRIs is tax-free in India.
6. Permissible credits in the NRE account
NRE accounts are eligible for credits including inward remittances from outside India, interest accrued on the account, investment interest, transfers from other NRE/FCNR(B) accounts, and maturity proceeds of investments made from the NRE account or through inward remittance. Additionally, current income such as rent, dividend, pension, and interest is considered a permissible credit to the NRE account.
7. Permissible debits in the NRE account
Permissible debits from an NRE account include local disbursements, remittances outside India, transfers to other NRE/FCNR(B) accounts, and investments in India.
8. Repeatability of NRE Account:
An NRE account is repatriable, meaning the funds in the account can be freely repatriated or transferred outside of India.
9. Income tax in NRE Interest
Interest income from NRE accounts is tax-free in India. The interest income earned from an NRE account is exempt from income tax in India.
10. Change in Residential Status from Non-resident to Resident
Upon Change in Residential Status from Non-resident to Resident, NRE accounts can be designated as resident accounts or the funds in them can be transferred to RFC accounts at the account holder’s discretion, when the account holder returns to India for employment or changes their residential status.
11. Reasons to Hire NRI Tax Consultant
There are several reasons why one might choose to hire an NRI tax consultant:
- Tax law expertise: NRI tax consultants have specialized knowledge and expertise in Indian tax laws and regulations, ensuring compliance with tax requirements and minimizing the risk of penalties or fines.
- Tax optimization: NRI tax consultants can help with tax planning and optimization, ensuring that the NRI pays the minimum amount of tax required by law while maximizing benefits.
- Tax compliance: NRI tax consultants can help with the preparation and filing of tax returns, ensuring that the NRI meets all tax compliance requirements.
- Avoidance of double taxation: NRI tax consultants can help to avoid double taxation by advising on tax treaty provisions and ensuring that the NRI takes advantage of any tax exemptions or deductions that may apply.
- Representation in tax matters: An NRI tax consultant can serve as a representative in tax matters, dealing with the tax authorities on behalf of the NRI.
- Time-saving: Hiring an NRI tax consultant can save time and effort for the NRI, who may not have the time or resources to handle complex tax matters on their own.
Overall, NRI tax consultants can provide valuable support and guidance for NRIs looking to manage their tax affairs in India and ensure compliance with Indian tax laws.
