The personal finance world for a non-resident Indian who is navigating through different regulatory environments can get very complicated so Connected to India would like to re-introduce you to some basics.
The first in this Education series is a do and dont's list about the rules governing the opening of a Non-Resident External Rupee Account (NRE) for Non-Resident Indians, according to the Reserve Bank of India.
Non-Resident Indian: A person resident outside India who is a citizen of India.
Person of Indian Origin (PIO): A person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:
- Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
- Who belonged to a territory that became part of India after the 15th day of August, 1947; or
- Who is a child or a grandchild or a great grandchild of a citizen of India; or
- Who is a spouse of foreign origin of a citizen of India.
A PIO will include an ‘Overseas Citizen of India’ cardholder. Such an OCI Card holder should also be a person who is a resident outside India.
Non-Resident External Rupee Account (NRE):
- NRIs and PIOs can open this account. Residents of Pakistan and Bangladesh require prior approval from the Reserve Bank of India.
- May be held jointly in the names of two or more NRIs/PIOs. They can hold the account jointly with a resident relative on former or survivor basis. The resident relative can operate the account as a Power of Attorney holder during the lifetime of the NRI/PIO.
- Account only in Indian Rupees. You could open a simple savings account, current account and a fixed deposit. The fixed deposit tenure can range from one to three years. Banks can accept NRE deposits for more than three years.
- Credits to this account are inward remittances from outside India, interest on the account, interest on investment, transfer from other NRE accounts or Foreign Currency Non-Resident (Banks) accounts, maturity proceeds of investments (if such investments were made from this account or through inward remittance)
- Current income like rent, dividend, pension, interest will be considered as permissible credit to the NRE account. Other permissible debits are local disbursements, remittances outside India, transfer to other NRE/FCNR(B) accounts and investments in India.
- All the money in this account is Repatriable. So money in this account can be withdrawn for use in your offshore place of residence.
- No income tax on income earned on these accounts. Balances also exempt from wealth tax.
- NRE account holders can get loans in India without any limit, subject to usual margin requirements. These loans cannot be repatriated outside India and can be used in India only.
- If loans are taken for a third party, there should be no direct or indirect agreement to pledge the NRE deposit holder to enable the resident Indian individual, firm, company to get the loan.
- Loan taken by NRE account holder can be repaid by adjusting deposits or through inward remittances from outside India through banking channels or out of balance held in the Non-Resident (Ordinary) account of the same account holder.
- You cannot prematurely withdraw fixed deposits if loans are taken against them
- Power of Attorney on an NRE account can only do withdrawals for local payments or for remittances to the account holder through normal banking channels
- NRE accounts should be designated resident accounts if the NRI returns to India to take up employment or changes his residential status.