Non-Resident (External) Rupee Account Scheme (NRE)
The amount (principal as well as interest) is freely repatriable. Transfer from/to FCNR(B) account is freely permitted.
Statutory provisions are contained in schedule 1 of Foreign Exchange Management (Deposit) Regulations, 2000. The provisions are summarised below—
Form of account – The accounts may be maintained in any form, e.g. savings, current, recurring or fixed deposit account etc. Term deposit shall be for minimum one year and maximum three years. It is a rupee account but funds are repatriable.
Nomination– Nomination facility is available, if account is in name of individual. Repatriation of funds to non-resident nominee is permissible in case of death of account holder.
Disadvantage of account – The only disadvantage of NRE (rupee) account is that if rupee depreciates, savings of person, counted in US $ reduces.
4.2-1 Who can open NRE account
The account can be opened and maintained by Non-resident Indians (NRIs) with authorised dealers, and with authorised banks. The account should be opened by the non-resident account holder himself and not by the holder of the power of attorney in India. – – Opening of NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ownership will require approval of Reserve Bank.
Joint account– Joint account with another NRI or Indian resident who is close relative is permissible.
NRI can have a NRE/FCNR(B) account in India with Indian resident who is Close relative, as a joint account holder/s. ‘Relative’ has same meaning as under Companies Act. The account should be on ‘former or survivor’ basis. The Resident close relative is eligible to operate the account as Power of Attorney Holder – RBI circular No. 13 dated 15-9-2011.
Joint accounts in the names of two or more non-resident individuals may be opened provided all the account holders are persons of Indian nationality or origin.
Addition or deletion of joint holder is permitted.
Opening of account during temporary visit – An account may be opened in the name of an eligible NRI during his temporary visit to India against tender of foreign currency travellers cheques or foreign currency notes and coins tendered, provided the authorised dealer is satisfied that the person has not ceased to be a non-resident.
4.2-2 Permitted Credits to NRE account
The account can be credited by—
(a) Proceeds of remittances to India in any permitted currency.
(b) Proceeds of personal cheques drawn by the account holder on his foreign currency account and of travellers cheques, bank drafts payable in any permitted currency including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency, deposited by the account holder in person during his temporary visit to India.
(c) Proceeds of foreign currency/bank notes tendered by account holder during his temporary visit to India, provided (i) the amount was declared on a Currency Declaration Form (CDF), where applicable, and (ii) the notes are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that account holder is a person resident outside India.
(d) Transfers from other NRE/FCNR accounts.
(e) Interest accruing on the funds held in the account.
(f) Interest on Government securities and dividend on units of mutual funds, provided the securities/units were purchased by debit to the account holder’s NRE/FCNR account or out of inward remittance through normal banking channels.
(g) Maturity proceeds of Government securities including National Plan/Savings Certificates as well as proceeds of Government securities and units of mutual funds sold on a recognised stock exchange in India and sale proceeds of units received from mutual funds, provided the securities/units were originally purchased by debit to the account holder’s NRE/FCNR account or out of remittances received from outside India in free foreign exchange.
(h) Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/FCNR account of the account holder or by remittance from outside India through normal banking channels.
(i) Refund of application/earnest money/purchase consideration made by the house building agencies/seller on account of non-allotment of flat/plot/cancellation of bookings/deals for purchase of residential/commercial property, together with interest, if any (net of income tax payable thereon), provided the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transaction. [RBI circular No. 44 dated 12-11-2002]
(j) Credit of current income like rent, interest, pension, dividend etc. after deduction of tax (TDS) and obtaining CA certificate that the funds are eligible for remittance and applicable tax has been paid/provided for. – RBI circular No. 5 dated 15-7-2002.
(k) Demand draft/bankers’ cheque/account payee cheques issued by FFMC to NRE account holder supported by encashment certificate issued by AD Category I/II – RBI circular No. 45 dated 30-5-2008 as amended vide circular No. 34 dated 10-11-2008 [as per RBI Circular No. 14 dated 17-10-2007, FFMC are permitted to encash foreign currency and make cash payment only upto USD 3,000. Amount exceeding this amount is to be paid by way of DD/bankers’ cheque].
(l) Sale proceeds of foreign investments in India where purchase consideration was paid by NRI/PIO out of inward remittance or funds held in their NRE/FCNR(B) accounts and subject to applicable taxes – RBI circular No. 16 dated 15-9-2011.
(m) An individual resident can borrow upto US $ 2,50,000 or equivalent from his close relatives outside India. The repayment can be credited to NRE/FCNR(B) account of the lender if the loan to resident individual was extended by inward remittance of by debit to NRE/FCNR(B) account – RBI circular No. 95 dated 21-3-2012.
(n) Transfer from NRO account to NRE account within overall ceiling of USD one million per financial year subject to payable of tax as applicable if funds were remitted abroad are permissible – RBI circular No. 117 dated 7-5-2012.
(o) Any other credit if covered under general or special permission granted by Reserve Bank.
In short, only foreign exchange amounts or amounts which can be remitted/obtained in foreign exchange can be credited to NRE account.
4.2-3 Permitted debits to NRE account
The amount to credit can be utilised for
(a) Local disbursements.
(b) Remittances outside India.
(c) Transfer to NRE/FCNR accounts of the account holder or any other person eligible to maintain such account.
(d) Investment in shares/securities/commercial paper of an Indian company or for purchase of immovable property in India provided such investment/purchase is covered by the regulations made, or the general/special permission granted by the Reserve Bank.
(e) Any other transaction if covered under general or special permission granted by the Reserve Bank.
(f) Repatriation of funds to non-resident nominee is permissible in case of death of account holder.
4.2-4 Loans against security of NRE account
Loans against security of funds held in the account can be given to account holder for (i) personal purposes or for carrying on business activities except for the purpose of re-lending or carrying on agricultural/plantation activities or for investment in real estate business (ii) the purpose of making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/companies subject to compliance with the provisions of the FEMA regulations (iii) the purpose of acquisition of flat/house in India for his own residential use subject to the provisions of the relevant Regulations made under the Act.
Loans against security of funds can be given to third parties, i.e. resident individuals/firms/companies in India against the collateral of fixed deposits held in NRE account. There should be no direct or indirect foreign exchange consideration for the non-resident depositor agreeing to pledge his deposits to enable the resident individual/firm/company to obtain such facilities. The loan should be utilised for personal purposes or for carrying on business activities other than agricultural/plantation activities or real estate business. The loan should not be utilised for re-lending.
The rupee loan or foreign currency loan can be granted against deposit either to depositor or to third parties, subject to usual margin requirements. There is no ceiling on amount of loan that can Banks should not artificially slice the loans to circumvent the ceiling — RBI circular No. 29 dated 31-1-2007 as amended by RBI circular No. 66 dated 28-4-2009 and No. 44 dated 12-10-2012 [The limit was Rs 100 lakhs upto 12-10-2012].
Loans outside India – Any type of fund based and/or non-fund based facilities can be granted to or in favour of non-resident depositor or to third parties at the request of depositor for bona fide purpose against the security of funds held in the NRE accounts in India and also agree to remittance of the funds from India, if necessary, for liquidation of the outstandings.
4.2-5 Non-resident becoming resident
In case of change of resident status of the account holder, NRE accounts should be re-designated as resident account or the funds held in these accounts may be transferred to the RFC accounts (if the account holder is eligible for maintaining RFC account) at the option of the account holder immediately upon the return of the account holder to India for taking up employment or for carrying on business or vocation or for any other purpose indicating intention to stay in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in India.
4.2-6 Operations of NRE account
Separate cheque books– For easy identification and quicker processing of cheques drawn on NRE accounts, authorised dealers/banks shall issue cheque books containing a special series of cheques to their constituents holding NRE accounts.
Operation of NRE account by holder of power of attorney – Operations on an NRE/FCNR(B) account can be permitted in terms of Power of Attorney or other authority granted in favour of a resident by the non-resident account holder. Such power of attorney is restricted to withdrawals for local payments only. Power of Attorney holder can operate account to facilitate investment by non-resident, if the non-resident is eligible to make investment. The power of attorney holder can remit funds out of balance in NRE/FCNR(B) account only to non-resident account holder through normal banking channels, provided specific powers for this purpose have been given. However, he cannot remit fund outside India to others. He cannot give gift to a resident on behalf of account holder. He cannot transfer funds to another NRE account – RBI circular No. 37 dated 15-3-2005 and Notification dated 1-4-2005.
In cases where the account holder or a bank designated by him is eligible to make investments in India, the Power of Attorney holder may be permitted by authorised dealers to operate the account to facilitate such investment. The resident Power of Attorney holder is not allowed to repatriate outside India funds held in the account or make payment by way of gift to a resident on behalf of the account holder or transfer funds from the account to another NRE account.
Overdrawal – Authorised dealers/authorised banks can allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, upto a limit of Rs. 50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within the said period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.
Premature withdrawal of deposits – Penalty can be levied for pre-mature withdrawal of term deposit. However, no penalty will be levied for converting NRE account to RFC account – RBI directive BC 46/13.03.00 dated 4-11-2000.
Overdue deposits and account of deceased depositor – Policy in respect of interest on overdue deposits and interest on deposit account of deceased depositor will be decided by Board of Directors of each Bank on non-discretionary and non-discriminatory transparent basis – RBI circular DBOD No. DIR.BC. 68/13.3.0/2003-04 dated 13-2-2004.
4.2-7 Interest on NRE deposits
RBI has issued master circular DBOD No. Dir. BC. 10 /13.03.00 /2014-15 dated 1-7-2014 on ‘Interest rates on rupee deposits held in domestic, NRO and NRE accounts’ [earlier DBOD No. Dir. BC. 10 /13.03.00 /2013-14 dated 1-7-2013] giving consolidated guidelines.
Interest rates on NRE and NRO savings and term deposits have been deregulated. Banks can fix their own interest rates NRE and NRO savings deposits and term deposits. Individual branch should offer uniform rates – RBI circular No. DBOD.DIR.BC. 64/13.03.00/2011-12 dated 16-12-2011.
Interest on savings account shall be 4% (This rate is freed by RBI for domestic savings account, but interest rate on NRE account will continue to be 4% only – RBI circular No. RPCD.CO.RRB.BC.33/03.05.33/2011-12 dated 23-11-2011).
Interest rate could be rounded off to nearest decimal point. Interest can be paid on overdue deposits. Additional interest upto 1% can be paid to retired bank staff or his spouse or association of members, Chairman and MD/ED of the Bank, but interest should not exceed ceiling stipulated by RBI.
Bank should not mark any lien on NRE savings bank account, as the amount can be withdrawn anytime. Banks can provide advance against term deposit.
4.2-8 Income tax provisions in respect of NRE account
Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax to NRI who are individuals. [section 10(4)(ii) of Income-tax Act]. Likewise balances held in such accounts are exempt from wealth tax.