For NRIs (Non-resident Indian) away from home, handling finances is a matter of precision and strategic planning. You may want to support your dependents in India or make an investment, all while earning in foreign currency. Fortunately, Non-resident External (NRE) accounts make this possible, offering specific functionalities and benefits tailored to the needs of those looking to park their overseas earnings in India.
As per the Reserve Bank of India’s (RBI) mandate, NRIs are not allowed to hold Indian bank accounts when residing abroad. Hence, it is mandatory for them to open an NRE bank account for managing funds in India.
What is an NRE Bank Account?
Short for Non-Residential External, NRE bank accounts are INR-denominated accounts that allow you to park your foreign currency earnings in India. At the time of deposit, the amount is converted into INR at the prevailing exchange rate.
With digital banking becoming a norm, you no longer have to visit an Indian bank branch to set up an account. Many tech-forward banks allow you to open an NRE account online, eliminating the usual problems associated with traditional banking.
Features and Benefits of NRE Bank Account
Here is why you should have an NRE savings account as an NRI:
- Full Repatriation
Funds in NRE bank accounts are fully repatriable, which means you can move both the principal and interest amount to the country of residence.
- Tax-Free Interest
The interest earned on the funds in your NRE bank account is exempt from tax in India.
- Joint Account Option
You can open a joint NRE bank account with another NRI or a resident Indian relative.
- International Debit Card
Modern banks provide international debit cards for access to funds in your NRE account, adding a layer of convenience to your banking experience.
Difference between NRE and Other NRI Bank Accounts
Apart from NRE accounts, NRIs can also open NRO (Non-Resident Ordinary) and FCNR (Foreign Currency Non-Resident) accounts, which come with their own set of benefits. Here Is a comparison between the three to help you understand NRI accounts better.
| Points of Difference | NRE | NRO | FCNR |
| Tax Liability | Both principal and interest are free of tax liability in India. | Both principal and interest are taxable in India. | Both interest and principal are non-taxable. |
| Usage of the Accounts | Used to park foreign income in India. | Used to manage revenue generated in India, including rent, dividends, pension, or interest | Used as a deposit instrument to earn interest and grow wealth. |
| Repatriation | Unlimited | While the interest is repatriable the principal amount is limited to 1 million USD or equivalent per annum for bonafide purposes | Unlimited |
| Type of Deposit | Available in the form of savings accounts, current accounts, recurring deposits, and fixed deposits. | Available in the form of savings accounts, current accounts, recurring deposits, and fixed deposits. | Available in the form of term deposits. |
| Transfer of Funds | It can be used to transfer funds to NRO, NRE, and FCNR accounts. | It can only be used to transfer funds to another NRO account. | It can only be used to transfer funds to an NRE account. |
In a Nutshell
With tax benefits, ease of repatriation, and regular interest payments, the NRE savings account is a must-have financial tool for the NRIs. However, it is essential to have knowledge about all the NRI account options to ensure that your choice aligns with your goals.
Lastly, opt for a bank that lets you open an online NRE account. This way, you can conveniently set it up and start managing your finances on the move.
