Benefits of NRE Bank Accounts and Fixed Deposits

Benefits of NRE Bank Accounts and Fixed Deposits

Regular Savings Account is not allowed to be held by the NRIs. As such, one may open only specific types of bank accounts, namely, Non-Resident External (NRE), Non-Resident Ordinary (NRO) Accounts and Foreign Currency Non-Resident Account (FCNR). While different accounts offer different features and benefits, they also differ in terms of the restrictions in the account operations. Amongst the available options to NRIs, NRE Accounts emerge as a preferable option in terms of convenience and other benefits linked with such accounts. One can open the NRE Account as a Savings Account, Current Account, Recurring Deposits or a Fixed Deposit. 

Benefits of NRE Accounts and Fixed Deposits

Here are some benefits of NRE Bank Accounts and Fixed Deposits:

1. Foreign Currency Remittances – NRE Account allows you to receive foreign currency remittance. As such, one can remit funds to his/her NRE Account while staying outside India conveniently, without any financial intermediary like money transfer and exchange services. Further, there is no restriction on account of the usage of the NRE Account balances and use such accounts for business as well as personal purposes. As such, one may transfer the funds from outside India and use such funds for making investments, etc. within India conveniently. 

2. Denominated in Indian currency – NRE Accounts are denominated in Indian Rupees. As such, once you transfer the money to the NRE Account in equivalent Indian currency, the account balance stays insulated from the foreign currency fluctuations. Further, even while such accounts and deposits only accept foreign currency remittances from outside India, it allows the account holder to withdraw the funds in Indian currency. One can, thus, use such accounts to meet the fund requirements while in India. One can withdraw money through the International Debit Card issued or through a cheque at the bank branches. 

3. Full Repatriability of Funds – Such accounts offer complete flexibility when it comes to repatriability of funds outside India. In simple terms, there is no restriction on transferring funds outside India. One can remit the amount lying in the NRE Account back to his/her country of residence. This benefit is limited not only to the NRE Account, but also applicable to NRE Deposits. The depositor can freely repatriate the maturity proceeds of NRE Deposits outside India, including principal and interest. This is one of the significant NRE Account features, since NRO Accounts, in contrast, only allow free interest and principal repatriation only up to specified limits.  

4. No income tax on interest income – This is another advantage of the NRE Account, as the current tax laws provide an exemption in respect of interest income on NRE Accounts and Fixed Deposits. As such, the account holder does not have to pay any income tax on such income. Such interest income, being tax-exempt, does not attract any Tax Deduction at Source (TDS) as well. This helps in providing better tax-adjusted yields to the depositors. 

5. Conversion into RFC Account upon return to India - NRE Accounts and Deposits can be converted into Resident Foreign Currency (RFC) Accounts if one returns to India. RFC Accounts can be used by returning NRIs to hold the account balance in foreign currency and reconvert such amounts to NRE/FCNR Accounts if one becomes a Non-Resident again.

Conclusion

Apart from meeting the regular banking needs, NRIs prefer NRE Accounts due to its repatriation and tax benefits. Being denominated in Indian currency, such accounts can also be used by the NRIs to park their savings and investments in India. 

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