NRE Account: A Detailed Guide for NRI Maintaining NRE Account

The Non-Resident (External) Rupee Account Scheme, or NRE, is governed by Part II para 4 of RBI FED Master Direction No. 14/2015-16 dated 1-1-2016 and Schedule I of FEM (Deposit) Regulations, 2016.

The instructions for opening and maintaining the account are given in Schedule 1 to Foreign Exchange Management (Deposit) Regulations, 2016.

The key features of the scheme are as follows:

  1. NRE Account Eligibility: NRIs and PIOs (now OCI) can open and maintain NRE accounts with authorised dealers and banks (including cooperative banks) authorised by the Reserve Bank.
  2. NRE Account Types: NRE accounts may be maintained in any form, including savings, current, recurring, or fixed deposit accounts.
  3. NRE Joint Accounts: Joint accounts can be opened by two or more NRIs/PIOs (now OCI), or by an NRI/PIO (now OCI) with a resident relative(s) on a ‘former or survivor’ basis. During the NRI/PIO’s (now OCI) lifetime, the resident relative can operate the account only as a Power of Attorney holder.
  4. Permissible Inward Remittances in NRE Account: Permissible inward remittances to the NRE account include remittances from outside India and from other NRE accounts.
  5. Permissible Credits in NRE Account: Permissible credits to this account include interest accruing on the account, interest on investment, transfer from other NRE/FCNR(B) accounts, and maturity proceeds if such investments were made from this account or through inward remittance.
  6. Loan in NRE Account: Loans are governed by the regulations stated in Part II para 4.8 of the RBI FED Master Direction No. 14/2015-16 dated 1-1-2016. The definition of “loan” includes all types of fund based and non-fund based facilities. Authorized banks in India are permitted to grant loans against NRE account funds to either the account holder or a third party in India, with no limit, subject to standard margin requirements. Loans cannot be repatriated outside India and must be used for the following purposes:
    • (a) personal or business activities, excluding relending, agricultural or plantation activities, and real estate investment;
    • (b) non-repatriation based direct investment in Indian firms/companies by contributing to their capital, subject to relevant regulations;
    • (c) purchasing a flat/house in India for personal residential use, subject to relevant regulations.

If a loan is granted to a third party, the non-resident depositor cannot receive direct or indirect foreign exchange compensation for pledging their deposits to enable the resident to obtain the loan. The loan can be repaid by adjusting the deposits or through inward remittances from outside India via banking channels or from the balances in the account holder’s NRO account. Premature withdrawal of deposits is not possible if loans have been availed against the deposits.

7. Exemption on Interest from NRE Account: Interest earned on balances held in NRE accounts is exempt from Income Tax.

8. Interest Rate of NRE Account: The rate of interest and duration of these accounts will comply with instructions provided by the Department of Banking Regulations, Reserve Bank of India.

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