There are two particular types of accounts that are frequently used by Overseas Indians for their financial transactions in India. The Non Resident Ordinary Account and the Non Resident External Account.
This segment looks at the Non Resident External Account for Overseas Indians – NRI, OCI, PIO. Its purpose and any potential benefits for an Overseas Indian.
Beginning with Non Resident External Account terminology.
Full & short terminology
The full terminology is as follows;
|Full Terminology||Commonly Known As|
|Non Resident External Rupee Account Scheme||NRE Account|
What Is A Non Resident External Account
The NRE account is an account that can be used by any person who is a resident outside of India. It enables the overseas resident to “put through bonafide transactions in rupees.”
What does this mean?
For example, you are an overseas resident of India, ie, you live abroad. You may have capital held in your NRE account which provides you with an income from interest accrued. Depending on your maturity cycle, the funds would be repatriable as per your bank terms. Additionally, the interest earned would be exempt from tax.
Which Currency Can Be Used
Indian Rupees from the account.
However, you can credit foreign funds into your NRE account. More on this below.
What Type Of Account Is The Non Resident External
It is a Savings, Current, Recurring, Fixed Deposit Account. Which means that it can be used for the purpose of financial transactions that fall within those categories.
Yes, a Non Resident External Account is fully repatriable.
Joint Non Resident External Account
Equally important, as well as a sole individual holding an NRE account, you can also hold a joint NRE account. This can be quite useful. For example, you and another person have collective foreign funds held in the NRE, the account can be operated by the other person in India if required. Being a joint account, either named holder can operate the account within the allowed parameters. This can be beneficial in terms of flexibility. Some of our clients have also considered joint investments in NRE due to beneficial interest rates.
In specific you will find outlined below the parameters allowed for joint NRE account ownership;
- An NRE account can be held jointly in the names of two or more NRIs/PIOs and,
- NRIs/PIOs can hold an NRE account jointly with a resident on ‘former survivor’ basis (relative as defined in Companies Act 2013). The resident relative can operate the account as a Power of Attorney holder during the lifetime of the NRI/PIO account holder.
What type of credits are acceptable
- Inward remittances from outside India.
- Interest occurring on account.
- Interest on investment.
- Transfer from NRE/FCNR)(B) accounts.
- Maturity proceeds of investments.
- Current income such as rent, dividen, pension, interest and similar financial transactions.
Two Key Benefits of Non Resident External
- Any income earned in the account is exempt from income tax.
- Any balance in the account is exempt from wealth tax.
For instance; you hold GBP 100,000 in your NRE account, any interest that you accrue on base capital would not be taxable.
Operation of Account by Power of Attorney
What is the correlation of an Indian Power of Attorney and NRE account?
Firstly, it depends on your specific purpose. For example, you have an NRE account and reside in the United States. You may want to appoint someone to act on your behalf to operate your NRE in India. A Power of Attorney would serve this purpose. There are certain activities a POA can do on your behalf.
Reserve Bank allows the following;
- A Power of Attorney in favor of a resident/representative in India can be used to operate the account on your behalf (subject to allowed categories of operation & guidelines).
- Operations in the account for Power of Attorney will be restricted to;
- Permissible local payments
- Remittance to the account holder himself/herself through normal banking channels.
This means as per points 2(1) & 2(2) your resident/representative can operate your account under the allowed scope.
You may find our previous segment on what mistakes you should avoid for your Indian Power of Attorney helpful.
Example(s) – Documents For Non Resident External
The documents required to open your NRE account can vary from bank to bank. However, some of the common documents and other proof’s required to open an account are, PAN Card, Proof of Identity such as Passport, Proof of address, OCI card. These are some examples.
Banks that provide Non Resident External
Most major Indian banks offer NRE accounts. For instance, State Bank Of India, ICICI Bank, HDFC, Axis, Yes, Bank of Baroda and a number of others.
Change Of Resident Status
You may wish to change your Non Resident Status to Resident at some point. Upon notification to your bank, it would designate the NRE account as a resident account (subject to bank terms). Or the funds held in account may be transferred to a Resident Foreign Currency account (RFC) as per your preference(s). You would do this immediately upon updating your status ie; you returned to India for employment or when change of residential status.
NRE Account Eligibility Restrictions
As outlined by the Reserve Bank there are some nationalities/citizens that require prior approval of RBI in relation to any financial activity in India. This includes NRO/NRE account approvals.
NRE V NRO Account for Overseas Indian – Your Assets
To summarize, detailed below we’ve selected three key comparisons between NRE & NRO in terms of their potential benefits.
1.The NRO account allows balances of up to USD 1 million (approx GBP 840,000 as of today’s date) repatriation abroad for NRIs and PIOs only, subject to conditions specified by FEMA 2016. Up to this amount can also be transferred to your NRE account from the allowed quota. It is taxable. As an example, the proceeds of (Overseas Indian) Indian Property sale would be credited to your NRO account.
2. NRE is non taxable but it does not specify the same specific limit as NRO. Further, the funds held in NRE are repatriable, the account allows an Overseas Indian to credit foreign earnings. However, interest accrued on base capital is tax free. Ie; if you hold an NRE account of over £100,000, you may earn interest on capital held depending on bank product.
3. A Power of Attorney for NRO can allow for making remittances to the account holder, the limits and conditions of repatriation will apply. Providing another example, your Indian property is sold and you have a Power of Attorney in place, they can make remittance to you subject to the set parameters. You may not have to be in India to do so.
Lastly, if you’re struggling with your Power of Attorney for your affairs in India. Our Clients have found our POA services beneficial. You can find out more here – POA Service.
Mr/Ms.KB – “I received a professional service. Including professional opinion which I requested in Indian law context. This helped me to appreciate the vulnerabilities I and my siblings faced.” London
Frequently Asked Questions
Resident and Non-resident acquirers can open Escrow Account in INR with an AD bank in India as the Escrow Agent, for acquisition/transfer of capital instruments/convertible notes in accordance with FEMA.
An NRO (current/ savings) account can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.
The balance in the NRO account may be paid to the account holder at the time of his departure from India provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.
(This article is for information purposes only)
- Transfer of property in India
- Indian Property disputes
- Sell property in India
- Power of Attorney Service
- NRI OCI PAN Card
We can also assist with the following NRI Services in London:
- Illegal occupation of property in India
- Family Settlements and partition of NRI Indian property
- Ancestral real estate and inheritance advisory under Indian law
- NRI Property Transfer
- Possession of NRI Property
- Recovery of NRI money under Indian Law
- NRI Succession Certificate in India
- Injunction against alienation of NRI property in India
- Developer Claims under the Consumer Protection Act in India
- NRI property disputes
- Visas to India
- Indian Power of Attorney
- NRI PAN Card
- Overseas Citizenship of India (OCI)
- Inter-Country Adoption
- Divorce proceedings under Indian Law for parties settled abroad