NRE Full Form | What is NRE Account?

NRE stands for Non-Resident External. As per the RBI guidelines, every Non-residential Indian (NRI) depositing their foreign earnings in India need to have an NRE account. The benefit of an NRE account is that it has high liquidity and enables total money restoration to the NRI’s home country when necessary. 

Besides the NRE account, an NRI can also have another saving account called NRO (Non-Resident Ordinary) Account as per Foreign Exchange Management Act Guidelines allowing an NRI to deposit in their local currency.

Why To Have NRE Account?

Foreign currency earners can utilize NRE accounts to transfer their earnings and utilize them in India. Non-commercial foreign currency exchange transfers in India have increased dramatically, from 2 billion USD in 1991 to 87 billion USD in 2021, comparable to 2-3 percent of the country’s GDP.

Significant remittances to India have been received from the Middle East and Western countries. In 2017, the United States, the United Arab Emirates, and Saudi Arabia contributed over $35 billion in remittances to India. Money is transferred to India electronically (e.g. SWIFT) or via DD. Many banks have begun to offer money transfers in recent years, and this has evolved into a massive industry. Andhra Pradesh, Uttar Pradesh, Punjab, Tamil Nadu, and Kerala receive nearly half of all remittances to India.

How Does NRE Works?

Interest on money in your account, earnings from the sale of FDI ( Foreign Direct Investment) investments, and royalty and profits from other assets can all be remitted to an NRE account conveniently. You can also withdraw funds from this account for local payments, transfers outside India, share trading, property acquisition, or transfers to other NRE/FCNR (Foreign Currency Non-Resident) accounts.

The key difference between an NRE account and an NRO account is that the former is intended to store foreign revenue generated outside of India, whilst the latter is utilized to keep and manage income earned in India. NRE accounts have no repatriation constraints, and the income generated is tax-free in India.

An NRO account, on the other hand, has a $1 million ceiling on transfers outside India every budget year. People frequently inquire about what happens to an NRE account when they return to India. The NRE account must be converted to a resident or Resident Foreign Currency (RFC) account. If the account holder is in India for a brief visit, the account may be maintained as an NRE account throughout his stay.

A combined NRE account can be opened by two or more Non-Resident Indians as long as all account holders are of Indian ancestry or nationality. If one of the joint account holders becomes a resident Indian, the banks have the option of deleting his or her name and continuing the account as an NRE account. Another alternative is to remove the NRI holder’s name from the account and convert it to a resident Indian account. Please keep in mind that an NRI can only create a joint NRE account with a local Indian under the former or survivor mode of operation.

To summarize the benefits of having an NRE account for individuals who qualify are:

• Good interest rates
• Joint account holding
• Easy remittance
• Tax exemption
• Free transferability
• Useful for investment in India