Know What Is NRE Account – Features & Benefits & Limitation

NRE (Non-Resident External) accounts are for NRIs. This account is for an individual who lives outside India but still maintains connections with this country. NRIs cannot invest, buy, or sell in India without an NRE account. Are you planning to transfer funds to India for investment purposes? If yes, read this blog to understand more about an NRE account.

Topics Covered :

• What is an NRE Account?
• How to Open an NRE Account?
• NRE Account Benefits
• Eligibility and Documents Required
• Limitations of this Accounts
• How does an NRE Account Differ from an NRO Account?
• How is an NRE Account Similar to an NRO Account?

What is an NRE Account?

As mentioned above, an NRE account is for an NRI. It is mandatory for NRIs who live abroad but want to convert their earning into Indian currency. NRIs often want to convert their earnings to the Indian currency for several reasons. NRIs might want to invest, purchase, and sell in India. They cannot indulge in these activities without converting their foreign earnings to Indian currency. It also allows them to transfer funds to their dependents in India.

How to Open an NRE Account?

Now that you understand what an NRE account is, let us discuss the steps to open one in India:

• The first step is to choose a bank in India to open an NRE account. Several top banks in India offer such services.
• Choose between online and offline applications. Several banks allow NRIs to apply online.
• Gather all the documents required by the bank for a new account, including KYC (Know Your Customer) documents.
• Submit the account opening application form along with the required documents.
• Submit your photographs and signature. Also, make the initial deposit to this account, as required by your bank.
• Receive NRE account details after verification and understand the terms.

NRE Account Benefits

Here are some NRE account benefits you must know:

Easy Repatriation

NRIs can transfer their foreign earnings into an NRE account and convert them into Indian currency. NRIs do not have to go through a complex currency conversion process.

Recommended Read: NRI Investment in Mutual Fund

Multiple Account Facility

NRIs are permitted to open multiple Non Residential External accounts in India. They can earn more interest by depositing money in multiple accounts.

Investment Facilities

NRIs can transfer funds from an NRE account to trading account. This helps them invest in securities in Indian markets by adding funds to their trading accounts.

NRE Account Features

Knowing the full form of NRE account is not enough for NRIs. One must be aware of its features, which are as follows:

Funds in Indian Currency

Funds deposited in Non Residential External account are automatically converted into Indian currency. However, you can convert your funds into a foreign currency when required.

No Repatriation Limit

There is no repatriation limit for this account. You can repatriate as much as you want. On the other hand, the repatriation limit of an NRO account is USD 1 million.

Tax Benefits

NRIs already pay taxes in the foreign country on their income. For the same rationale, tax is not imposed on funds within an Non Residential External account.

Joint Account Feature

Two NRIs can open a joint this account in India. However, you cannot choose an Indian resident as a joint holder.

Eligibility and Documents Required

Now that you have understood NRE account meaning, here are the eligibility conditions:

• An NRI, PIO (Person of Indian Origin), and an OCI (Overseas Citizen of India) can apply for an this account
• You can only deposit foreign currency in an NRE account
• Only an Indian resident is eligible to become a power of attorney holder

You will also need some documents, which are as follows:

• NRE account application form
• Copy of the passport
• VISA of the NRI’s country or residence permit
• Salary slips (for NRIs employed in organisations)
• Recent passport-sized photographs of the applicant
• Money remittance document

Note: NRI students and foreign national students might be asked to submit a few additional documents

Limitations of this Accounts

NRIs must be aware of Non Residential External account rules and limitations in advance. Here are some limitations associated:

• An NRI cannot deposit the money earned within India in an NRE account. Only foreign currency can be deposited.
• You cannot save money in foreign currency in an NRE account. Funds in this account are converted to Indian currency.
• You cannot give the power of attorney of an NRE account to another NRI. Power of attorney can be given to an Indian resident.

NRE Account Rates of Interest

The funds deposited in this account are not subjected to taxes. However, you can earn additional money by depositing funds in this type of account. The maximum interest is earned through a fixed deposit NRE account. The interest earned is lower than that of an FD (Fixed Deposit) account. NRIs are also allowed to open current NRE accounts in India. When NRIs indulge in business activities in India, they can choose Non Residential External current accounts.

How does an NRE Account Differ from an NRO Account?

NRIs might confuse an NRE account with an NRO (Non-Resident Ordinary) account in India. While both accounts are for NRIs, they have some dissimilarity. For instance, there is no repatriation limit for this account. However, you can only repatriate up to USD 1 million with an NRO account. While these accounts are tax-free, the principal and interest account in an NRO account is taxable. You can transfer funds from an NRE account to an NRO account in India. However, you cannot transfer funds from an NRO account to an Non Residential External account. Fund transfer facility is available only from one NRO account to another.

Recommended Read: How to Choose Mutual Funds

How is an NRE Account Similar to an NRO Account?

There are several similarities between an NRE and an NRO account. For instance, both accounts are used for repatriation of foreign income. You can earn interest by depositing funds in both NRE and NRO accounts. Also, funds are deposited in foreign currency in both accounts. The funds are then converted into Indian currency. Both accounts come with a joint holder facility. However, Indian residents can become joint holders of NRO accounts. The same is not the case with an NRE account. Learn more about NRE and NRO accounts now!