If you work and live abroad but need to manage your finances and regularly send money back to India, you will need an NRE account. Otherwise known as a Non Resident External Account.
This type of account alongside a Non-resident Ordinary (NRO) allows Non-resident Indians to send money to India to make investments, send money to their families, and manage their properties.
It is an Indian rupee-dominated account that offers complete security.
An NRE account can be opened as a savings account, current account, recurring or fixed deposits account.
It is simply a bank account opened in India in the name of Non-resident Indians, allowing them to store their foreign earnings in the local currency.
One of the main advantages of opening an NRE account is that as the funds are earned abroad, they are exempt from being taxed.
This includes both the balance and the interest earned on these accounts.
How does it work?
The foreign currency deposit is converted to Indian Rupees when transferred to an NRE account.
You can also transfer funds (both the principal and interest amount) to a foreign account from an NRE account easily and without any restrictions.
The international debit card allows you to withdraw money 24/7.
However, you need to ensure that the amounts deposited into an NRE account are earned abroad.
If you link your NRE account number to an investment account, mutual fund investments become easier and instant.
What can you do with an NRE account do?
The main advantage of setting up an NRE account is the smooth remittance of funds from your country of residence back to your family in India.
It allows you to maintain your savings in Indian Rupees and also keep them liquid.
Additionally, an NRE account is high in liquidity and allows full repatriation of funds from the account to the NRI’s country of residence when required.
You can also transfer funds from another NRE or Foreign Currency Non-Resident (FCNR) bank account.
With the proper documentation and information, you can also deposit personal cheques, travelers’ cheques, and bank drafts in any foreign currency.
However, this cannot be done online and must be done in person.
Lastly, you can also withdraw money from an NRE account for local disbursements, to transfer to other NRE accounts, or for remittances outside India.
What Distinguishes An NRE Account?
Repatriation refers to the inflow or outflow of currency to a foreign country.
Through an NRE account, you can conveniently repatriate funds, including the interest earned from an NRE Savings Account.
This is another big advantage of an NRE account as the RBI imposes certain restrictions when it comes to repatriation from NRO accounts.
These restrictions include only being able to remit a maximum of USD 1 million every financial year.
All NRE accounts are exempt from tax.
This exemption applies to both the funds in the account as well as the interest earned on these accounts.
This is another feature that distinguishes NRE accounts from an NRO account where taxes are not exempt.
Joint Account Holding
If you have two Non-resident Indian accounts, you can open a joint NRE account.
However, a joint NRE account cannot be opened by someone who is a Non-resident Indian and an Indian resident.
This is only acceptable if you open a joint NRO account.
Another distinguishing feature of an NRE account is that only funds originating from a foreign country can be deposited compared to NRO accounts where funds originating in India can also be deposited.
Moreover, while funds can be deposited in any currency, funds can only be withdrawn in Indian Rupees from an NRE account.
Lastly, when it comes to funding transferring, with an NRE account, you can transfer funds to both an NRE and an NRO account.
Exchange Rate Fluctuations
An NRE account may be subject to lose from fluctuating exchange rates.
This includes the daily fluctuation in the value of the rupee and the general conversion loss.
On the other hand, NRO accounts are not subject to such exchange rate losses as all deposits are done in rupee denominations.
Choosing between the right account is an important decision so make sure you research the purposes of and main differences between an NRE and an NRO account.
Both accounts are structured to meet the needs of a Non-resident Indian and therefore choosing the one that best applies to you will make your life and finance management much more convenient.