Managing one’s income and taking the necessary step for its growth is a crucial affair. Financial decisions should not be made in haste and should be dealt with utmost care and knowledge. Managing wealth is a complex matter already, but for an NRI, it is a tad bit more complex.
An NRI may have several sources of income from the country. It could be business profit, rent, interest from fixed deposits or mutual funds. But how can an NRI manage this money staying far away and with limited bank access? The answer is NRE (Non-Resident External) account. NRE accounts were crafted keeping in mind the needs and financial transactions of the NRI group. It is not just an obligation to the people of that category, but it also benefits them in several ways.
What is an NRE Account?
According to the guidelines set by FEMA (Foreign Exchange Management Act), Indians abroad cannot have savings account in their names. It is mandatory to convert the foreign currency earned/saved into INR. Since they cannot maintain a savings account, they are given the option to open a Non-Resident External account. Failing to open an NRE account and continuing with savings account gets penalised; therefore, it is important that one opens an NRE account to save money and to be able to continue transactions in the country.
An NRE account can be used as savings account, current account, and can also be used for recurring and fixed deposits. Whatever foreign currency you put into this account, automatically gets converted into INR. The interest earned from this account is not taxable and transferring money into this account is not chargeable. This account offers an international debit card enabling you to withdraw and transact 24*7. Also, you can easily carry out your mutual fund investments if you link them with the NRE account.
Features of an NRE Account
- It allows you to remit your earnings to India and converts them into INR, without any additional charge.
- You can maintain your savings in INR and continue investing in Mutual Funds too.
- An NRE account allows you to maintain a joint account with another NRI.
- Rupee savings are easily repatriated.
- An NRE account is tax-free. No income tax, wealth tax or gift tax is charged in India.
- Repatriation is allowed everywhere and in any currency.
Difference between NRO and NRE accounts
Repatriation – NRO account has put a cap on the repatriation at 1 million USD inclusive of taxes. But NRE accounts have no such limitations, and one can repatriate freely.
Tax Liabilities – NRE is a tax-free account you can keep the interest you earn, while an NRO account is subject to tax payment as per the allotted slab.
INR Deposit – The funds generated in INR can be deposited in NRO account but not in an NRE account.
Joint Account – NRE account holder, can share their account with another NRI. An NRO account holder can share the account with an Indian resident.