General

Persons of Indian nationality or origin resident abroad may open, with authorised banks in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees. These accounts can be maintained in the form of savings, current or term deposit accounts. Opening of NRE Accounts jointly in the names of two or more non residents is permitted provided all the account holders are persons of Indian nationality or origin. For opening these accounts, the funds are required to be remitted to India through (a) proceeds of foreign exchange remittances from abroad through banking channels in an approved manner.

(b) proceeds of foreign currency notes and traveler cheques brought into India by the non-resident while on a temporary visit to India.

(c) transfer from an existing Non-Resident (External) FCNR account of the same person.

The account holder has to furnish an undertaking on the account opening form that he would promptly send an intimation to his bank if and when he returns to India for permanent residence.

Proceeds of remittance arranged by the account holder through banking channels from any country can be credited to this account. Similarly, income from the account holder’s investment from the funds in the account can be credited to it, except in cases where the investments are permitted on non-repatriable basis. Remittances from the account to the country of residence of the account holder or any other country are freely allowed.

Authorised dealers may allow operations on NRE Accounts by persons resident in India in terms of Powers of Attorney (Annexure 14.5) or other appropriate authority granted in their favour of non-resident account holders, provided the powers are restricted to withdrawals for local payments.

Type of Account

All types of accounts ie. current, savings and term deposit etc. can be opened under

Non-Resident (External) Accounts Scheme. A Non-resident can open joint account with other non-resident provided all the account holders are persons of Indian nationality or origin. Opening of a joint account by a non-resident person with a person resident in India is not permitted under NR (E) Scheme.

Non-resident account can grant power of attorney or such other authority to residents in India for operating their NR (E) Accounts in India. Such authority, is however, restricted to withdrawals for local payments only. The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.

Account can also be opened by an eligible non-resident Indian during his temporary visit to India, against tender of foreign currency traveler cheques/currency notes, provided the bank is satisfied that the prospective account holder has not ceased to be a non-resident. The amount so tendered would be endorsed on the Currency Declaration Form CDF where applicable, before crediting the rupee equivalent to the account.

Operation of NRE Accounts

There are certain restrictions on operation of NR (E) accounts and Form A2 / Form A4 is to be completed for few transaction. These forms may be completed either by the resident party to the transaction or by the bank after obtaining necessary information from the resident party account holder. The undernoted transactions of debits/credits are permitted in NR(E) accounts:

Credits in the account

Transaction where Form A4 is not to be completed.

(i) Transfer from FCNR accounts of the same accounts holder.

(ii) Interest accruing on balances in Non-resident (External) or FCNR accounts of the account holder.

Transactions where Form A4 is to be completed.

(i) Proceeds of foreign exchange remittances, drafts, personal cheques etc. in the name of the account holder.

(ii)Proceeds of foreign currency travellers cheques, drafts and personal cheques drawn by account holder on a foreign currency account maintained abroad by him deposited by account holder during his temporary visit to India, provided authorised dealer is satisfied that the account holder is still normally resident abroad, the travellers cheques/drafts are standing in the name of account holder and have not been endorsed in his favour and in the case of travellers cheques, they are discharged by the account holder in the presence of the bank officials.

(iii)  Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that the account holder is still normally resident outside India.

Debits in the account

Transactions where Form A4 is not be completed.

i) All local payments except for the purpose of investment.

ii) Transfer to any other NR (E) of FCNR account of the same person.

iii) Transfer to NR (E) accounts of persons other than the account holder for bona file personal purpose.

Transactions where Form A4 is required to be completed.

i) Payments for permissible investments by the account holder.

ii) Payments towards purchase price of immovable property by account holder. However, if the account holder is not an Indian national, declaration to Reserve Bank of India for acquisition of property under section 31 of Foreign Exchange Regulation Act, 1973 is to be obtained.

iii) Any other transaction if covered under general or special permission granted by Reserve Bank.

Transaction required to be reported on Form A2

i) Remittance abroad.

ii) Sale of foreign currency traveller cheques etc. to account holder himself or his dependants provided that they hold a ticket showing journey date which should not be later than thirty days from the date of sale.

All other transactions of credit/debit to these accounts not covered under the above provisions required prior approval of Reserve Bank. Form A4 is to be completed in duplicate in such cases and forwarded to Reserve Bank through the bank with whom the account is maintained. The transactions will be put through the account only after a copy of Form A4 duly approved by Reserve Bank is received back.

Change of Status from Non-resident to Resident

Immediately upon return of the account holder to India and on his becoming resident in India, NR (E) account will be redisignated as resident rupees account or converted to RFC account as per the option of the account holder.

However, if the account holder is only on a short visit to India, the account will continue to be treated as NR (E) account even during his stay in India.

In respect of funds held in fixed deposits in NR(E) Accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full even after conversions into resident account.

Advantages of NRE Account

Non-residents can enjoy the following advantages by maintaining NRE Accounts:

1. Term deposits for one year and above made by non-residents carry interest at rates higher than those available to residents in India.

2. The interest on deposits and any other income accruing on the balance in the accounts are free of Indian Income-tax.

3. The balances in the accounts are free of Wealth-tax.

4. Gifts to close relatives in India from out of balances in the accounts are free of Gift-tax, when gifted before 1^st October, 1998, thereafter there is no gift tax in India.

5. The entire credit balance (inclusive of interest earned thereon) can be repatriated outside India at any time without reference to the Reserve Bank.

6. Local disbursement from the accounts can be made freely.

7. Purchases of Units of Unit Trust of India (UTI), Central and State Government Securities and National Plan/Savings Certificates can be made freely from the balances in these accounts.

8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or certificates originally purchased out of the funds in the account can be freely credited to these accounts by banks, without reference to the Reserve Bank.

9. Account holders are supplied special series of cheques forms for operations on these accounts.

10. Account holders can avail of loans/overdrafts from banks against security of fixed deposits in their NRE accounts.

Disadvantages of NR(E) Accounts

NR (E) accounts are opened in Indian rupees and all foreign exchange remittances received for credit of those accounts are first converted to Indian rupees at the buying rates by the banks. Any withdrawal in foreign currency will be permitted by the bank by converting Indian rupees in the account to foreign currency at the selling rate. This conversion loss is to be borne by the account holder.

Exchange rates are subject to fluctuation on day to day basis and Indian rupee has depreciated against all major foreign currencies in recent past. Balances held in Indian rupees in NR (E) accounts are thus exposed to exchange fluctuation risk.