The rules for a non-resident bank account are different as compared to a resident. A resident can have a current account and savings account in a bank but once the resident becomes a non-resident, these accounts need to be closed or converted into NRE account or NRO account. This is because, under the Foreign Exchange Management Act (FEMA), a non-resident cannot have a bank account in his name. So, there are special NRI bank accounts that need to be opened by the non-resident. It is also possible to convert an existing bank account to a non-resident bank account.
What is the NRE account? It is a type of account that can be opened by any non-resident to bring overseas funds into India. But before you open the best NRE account, let us understand everything about this type of account.
Here are 5 things you need to know:
- Freely repatriable:
- Interest not taxable:
- Deposit and use of funds:
- Account opening:
- Banking features:
1. Freely repatriable:
The funds in an NRE account are freely repatriable. This means they can be withdrawn by the non-resident at any point of time and sent abroad. Since they are freely repatriable, there is no limit on the funds that can be withdrawn from the account. The non-resident can withdraw all the funds available in the account and repatriate them abroad at any point of time. The NRE account is maintained in Indian Rupees but when the funds are repatriated, they will be converted into foreign currency at the prevailing exchange rates.
2. Interest not taxable:
The interest earned on an NRE account are not taxable. The interest amount along with the principal amount can be repatriated abroad. The bank also does not deduct any tax on the interest amount earned on this balance. However, the non-resident needs to consider the taxation impact in his country of residence.
3. Deposit and use of funds:
The funds in an NRE account can be deposited through foreign exchange cash deposited at a foreign branch or local branch. It can also be transferred from a bank account or credit card from abroad. It is also possible to transfer this amount from an existing NRE account. The foreign exchange deposited in this account will be converted into Indian rupees at the prevailing exchange rates. This leaves the NRE account vulnerable to fluctuations in exchange rates.
The use of NRE account funds can be done for making investments in India. The funds can be used to directly invest in the stock market. For making stock market investments, there is a special demat and trading account that has to be opened. The NRE funds can also be transferred to an NRO account for making other investments in the country.
4. Account opening:
It is possible to open three types of account – NRE current account, NRE savings account and NRE fixed deposit. The NRE fixed deposit has a minimum tenure of one year and it can be renewed thereafter. This account can be opened either online or offline. The non-resident can open the account by depositing foreign currency in a local branch in India or a foreign branch.
5. Banking features:
The best NRE account has other banking features such as net banking and mobile banking. This makes it possible for an NRI to access and operate this account from abroad as well. The NRI can also sign a letter of authority giving authority to a resident Indian to manage the account.