Have you recently shifted to India and are looking for a perfect money deposit solution? A Non-Resident External or NRE account is the best option for depositing foreign money for NRIs in India. It can be a fixed deposit, recurring, or savings deposit account and is tax-free. The article will help you understand the NRE deposit at a deeper level so you can take maximum benefits of the NRE deposit.
What is an NRE Account?
An NRE elaborated as a Non-Resident External account, is a type of deposit account where foreigners can deposit their money to convert into Indian currency. Concisely described, the NRE deposit is a tenure deposit account that is used to park foreign earnings. It is a tax-free account that is available for Non-Resident Indians (NRIs), Persons of Indian origin (PIOs), and Overseas Citizenship of India (OCIs).
In addition, the principal amount and the interest are fully repatriable. It means the money can be transferred back to the foreign currency of the account holder. Furthermore, there are some important considerations for an NRE account, i.e., individuals residing in India are not permitted to register for an NRE account. However, Indian residents can open an NRE account as a joint account holder with another NRI.
Eligibility Criteria for NRE Account
As per the Foreign Exchange Management Act (FEMA), no NRI is allowed to register for regular accounts in India. Therefore, NRI can only handle and invest their foreign currency in NRE deposits, where the same will be remitted to an Indian bank account by NRIs. There are certain eligibility criteria to meet the requirement for depositing foreign money in an NRE account.
- You must be an NRI or PIO to open the NRE account
- An NRI savings account is required for NRE Fixed Deposit
- Applicant must have an authentic passport from their recognised resident country
- Documents for residential proofs, including residential visa, employment contract, and others, are necessary to open an NRE account
- Applicants must meet the minimum age requirements. Many banks have a minimum age limit of 18 years.
- As per the Indian Citizenship Act of 1955, the parents or grandparents of the account holder must have citizenship of India to open an NRE savings account
- Indians who are earning abroad, studying or doing business.
- The account holder must be the spouse of an Indian citizen or PIO.
Components of the NRE Account
Learn about the major components of an NRE deposit. Components are mentioned in tabular form.
| Components | Description |
| Deposit Currency | The money is deposited in Indian currency. The account can be regulated using net banking. |
| Tenure | The investment tenure for NRE deposits ranges from 1 year to 10 years. |
| Deposit Limit | Deposit limit schemes vary with different banks. |
| NRE Fixed Deposit Rate | NRE FD interest rates range from 8% per annum. Interest rates can be evaluated using the NRE deposit calculator. The calculator is available on every bank’s or financial firm’s website for free. |
| Auto-Renewal | Banks allow automatic renewal for NRE deposits. |
| Insurance Coverage | NRE deposits are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC). Investors can claim up to INR 5 lakhs compensation for any default or errors caused by banks. |
| Loan against Fixed Deposit | Investors can borrow up to 95% of the deposit amount. In case the borrower is not able to repay, the deposit amount will be taken as the recoverable amount. |
| Nomination | Applicants have the facility to nominate an individual for the NRE deposit. |
Interest Rates of NRE Account
Here are some banks with NRE interest rates for 2023.
| Banks | NRE Interest Rates per year for less than INR 2 crore | |||
| Upto 1 year | 1 to 3 years | 3-5 years | 5 to 10 years | |
| Central Bank of India | 6.75% | 6.75%-6.50% | 6.25% | 6.25% |
| IDBI Bank | 6.80% | 6.80%-6.50% | 6.50% | 6.25% |
| Canara Bank | 6.90% | 7.25%-6.90% | 6.80% | 6.70% |
| State Bank of India | 6.80% | 7.00%-7.10% | 6.25% | 6.50% |
| Union Bank of India | 6.30% | 6.30%-7.00% | 6.50%-6.70% | 6.70% |
| Axis Bank | 6.70% | 6.70%-7.10% | 7.10% | 7.00% |
| Indian Overseas Bank (IDB) | 6.50% | 6.50%-7.25% | 6.80% | 6.50% |
Benefits of NRE Account
There are multiple benefits to investing in an NRE account. Here are some of the following for your reference.
- An individual can use Internet banking to register for an NRE account.
- Investment in the NRE FD account can be done in Indian rupees.
- NRE deposits are completely tax-free. It means there will be no tax applicable on both the principal amount and the interest rate.
- NRI is eligible for a tax break under the law of Internal Revenue Code Section 80C.
- The capital, along with interest, can be repatriable to the depositor’s home country.
- The interest rates on NRE FD accounts are higher when compared to regular savings accounts.
- NRI can choose the tenure ranges from 1 to 10 years.
- In case of financial emergencies, NRE depositors are permitted for early closure of the account.
- Loans against fixed deposits of NRE accounts are available for investors.
- NRE FDs can be automatically renewed while reaching maturity and thus reinvested back into the account.
- In case of any fraud, NRE deposits are insured with INR 5 lakhs by DICGC.
- Depositors have options to nominate their family members, whether NRI or Indian residents.
Conclusion
NRE accounts play a vital role in NRI's financial stability. They can stabilise their income and can get numerous benefits and even loans at lower interest rates against their deposit. An NRE deposit tenure ranges from 1 to 10 years. Different banks offer variable interest rates on different terms. However, terms and conditions keep on upgrading over the years. It is important to go through the details before registering for an NRE account for specific terms.
What is an NRO account?
A Non-Resident Ordinary or NRO account can be opened by a NRI to manage the income that they have earned in India. The income can be of any form, such as pension or rent. However, the interest earned on the deposits in the NRO account is taxable.
State a difference between NRE and NRO accounts in terms of fund transfer.
Fund transfers for NRE deposits are allowed in both NRE and NRO accounts. In contrast, individuals with NRO accounts can transfer their funds to only NRO accounts.
What are the sources of funds in the NRE and NRO accounts?
NRE accounts can be opened with the money earned from foreign and converted into Indian currency. In contrast, NRO accounts can be opened with the funds earned within the country.