What Is An NRE Account?

It can be hard to take care of family back home in India while pursuing employment opportunities abroad. Especially if you’re working in a country far away like America. Sending money back to help with finances shouldn’t add to your load. 

If you’re an Indian citizen working abroad – officially known as a Non-Resident Indian (NRI) – you can use a Non-resident External (NRE) account to send money seamlessly without losing to taxes and high admin costs. 

With tax benefits on interest, freedom to move your money where you need it, and making it easier to access your money in your home country, an NRE account is the best way to ensure your family is easily taken care of. 

What is an NRE Account? 

As an Indian working and living abroad, you might want to manage your money in your home country instead of your adopted one. The best way to do this is by transferring your earnings to India with an NRE account. The main currency on the account is Indian rupees. Two of the main benefits of an NRE account are that the interest earned and principal balance in the account is tax-free.

How does it Differ from an NRO Account?

Another legal option for an NRI is to open a Non-Resident Ordinary (NRO) account. 

While you can deposit foreign earnings into an NRO account like with an NRE account, you can also deposit earnings you accumulate from inside India from passive income like investments, rent, pension, and other sources into an NRO account. This kind of income cannot be deposited into an NRE account.

Another main difference between the two is that the interest earned in an NRO account is taxable at 30%, according to India’s Income Tax Act. It’s also not as sensitive to fluctuations in exchange rates if you only deposit and withdraw in rupees. An NRO account can be shared with a resident Indian. 

If all your income is generated outside of India, an NRE account is probably more preferable for you. But if your income is a mix of local and foreign income it’s a good idea to have both an NRE and NRO account that’s linked.

Who is Eligible for an NRE Account?

You have to be an NRI to qualify for an NRE account. An NRI is typically an Indian citizen who has resided in India for less than 182 days in a financial year, living the majority of the year abroad for the purpose of employment. 

If you are looking to open an NRE account, however, you’ll have to make time to do it yourself when you’re back in India. According to the Reserve Bank of India’s regulations, an NRI has to open their NRE account themselves – it can’t be opened by a resident Indian with powers of attorney on behalf of the NRI.

Why do You Need a Separate Account?

Why is it important to have two different accounts – one for foreign money earned and one for local money earned? 

As we explained above, the main reason is for taxation purposes. Your money in your NRE can’t be taxed while money in your NRO can. So it’s best to keep as much funds as possible in your NRE account.

The principal balance and interest in an NRE account can also be easily repatriated to any foreign account. With an NRO account, only the interest can be fully repatriated without restrictions. The principal balance can only be remitted up to USD 1 million in a financial year. 

So if you have two separate accounts, you can deposit your foreign earnings into an NRE account. You can then make payments to your linked NRO account that you share with your parents. This will enable them to make their own withdrawals. 

Depositing and Withdrawing Money

The NRE account allows deposits – electronic transfers, cheques, or bank drafts – to be made in a foreign currency, as long as you submit proof of your NRI-status with it. You can also transfer money from another NRE or Foreign Currency Non-Resident (FCNR) bank account. You can even make your NRE account the one to be credited with interest and dividends from foreign investments and other assets.  

You can only withdraw money from your NRE account in the local currency – Indian rupees. But the money can be remitted to anywhere outside of India. This can, however, put you at risk of exchange rate fluctuations. The exchange rate can count in your favor or work against your financial interest. So be careful and keep this in mind at all times. 

Joint Accounts

Need to share your financial management with a spouse, business partner, or another relative? It’s important to remember only two or more NRIs that are of Indian origin or nationality can open a joint NRE account. If you need to create a joint account with a resident Indian, you’ll have to opt for an NRO account instead. 

An NRI can only open an NRE account with a resident Indian in the case where the main account holder dies. 

If one of the joint NRE account holders’ status changes to be a resident Indian, the bank can just remove their name as a joint account holder and the account can continue as normal. The account can also be converted into a resident Indian account by removing the NRI’s name instead and making the resident Indian the only account holder.  

Becoming a Resident Indian Again

Life happens, and you might just find yourself back on home soil again for whatever reason. What happens to your account then? 

Similar to the joint accounts scenario mentioned above, when you move back to India permanently, your NRE account has to be converted by the bank into a resident account or a Resident Foreign Currency (RFC) account. 

This, however, doesn’t apply if you are only in India for a short visit. In such a case your NRE account can stay as-is for easy withdrawals on your trip so you can spoil your loved ones. 

Conclusion

Whether you’re earning money in India or overseas, for an NRI choosing the right financial services is important to get the most out of your money when managing it back at home. 

An NRE account facilitates a smooth transfer of foreign income to your home country without getting taxed again in India. The freedoms it offers far outweigh any of its downsides. 

Chat to your financial consultant to get it set up and see what’s the right fit for you.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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