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Key Takeaways: Most NRIs set up an NRE account to enjoy repatriation of funds without limits and take advantage of its liquidity. If you are looking to remit money without any limitation, then opening an NRE account is the best option for you.
You live and work abroad, but your retired parents choose to stay in India. You want to remit money to them regularly to ensure they are as comfortable as possible. What’s the best way to do it, you ask? Just set up an NRE account and enjoy the smooth remittance of funds from your country of residence to your loved ones in India.
A Non-Resident External (NRE) account is a rupee dominated account opened by an NRI to facilitate deposit of foreign currency earnings. The advantage of an NRE account is that it has high liquidity and allows for full repatriation of funds from the account to the NRI’s country of residence when required.
Why do you need a separate account?
Following the Foreign Exchange Management Act (FEMA) guidelines, the Reserve Bank of India allows an NRI to open two types of savings bank accounts with authorised dealers and banks: A Non-Resident External (NRE) Rupee account and a Non-Resident Ordinary Rupee (NRO) Account.
The RBI states that an NRE account should be opened by NRIs themselves1. It does not permit the holder of a power of attorney to open these accounts. So, if you don’t already have one, make sure you open one on your next visit.
Depositing and withdrawing money2
Apart from remittances to India, the account allows you to make foreign currency deposits during your visit to India. It permits you to transfer from another NRE or Foreign Currency Non-Resident (FCNR) bank account. Personal cheques, travellers’ cheques and bank drafts drawn in any foreign currency can be deposited by you in person. However, banks have to be provided with proper documentation to prove that you are an NRI.
Interest earned on the funds in your account, proceeds from the sale of FDI investments, interest and dividends from other assets can be seamlessly credited to an NRE account.
You can also withdraw money from this account for local disbursements, remittances outside India, investment in shares, purchase of immovable properties or transfer to other NRE/ FCNR accounts.
Two or more Non-Resident Indians can open a joint NRE account as long as all account holders are persons of Indian origin or nationality. If one of the joint account holders becomes a resident Indian, then the banks have the option to delete his/her name and allow the account to continue as an NRE account. Another option is to convert the account into a resident Indian account by removing the NRI holder’s name.
Please note that an NRI has an option to open an NRE account jointly with a resident Indian only in former or survivor mode of operation3.
Becoming a resident Indian again
What happens to an NRE account when you return to India? The NRE account has to be redesignated to a resident account or a Resident Foreign Currency (RFC) account. If the account holder is in India for a short visit, the account may continue as an NRE account during his stay in the county.
Final Note: The primary difference between an NRE and an NRO account is that the former is used for parking foreign income earned outside India and the latter is used to maintain and manage income earned in India. NRE accounts do not have a limit on repatriation and the interest earned is tax-free in India. An NRO account, in contrast, has a limit of $1 million on remittances outside India in a financial year.
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*Disclaimer: This article has been shared purely from an information perspective and we recommend you conduct extensive research before proceeding.