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Taxation and Benefits of NRE Account

Created on 04 Apr 2023

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Updated on 05 Apr 2023

Taxation and Benefits of NRE Account

Until a few years ago, individuals outside India found it hard to send funds home due to several paper checks and long transfer periods. However, with modern NRI accounts, they can easily save and transact money in international currencies and invest in India easily. NRI accounts serve numerous purposes, such as saving money earned abroad or in India, investing in various opportunities, and making money readily available for your family.

An NRI or a PIO (Person of Indian Origin) can open NRO and NRE accounts for convenient and easy fund transfers to and from India.

What features should you look for before opening an NRI account?

Read on to learn more about the parameters to consider while looking for the best NRI account in India

  • You must ensure that the financial institutions you have zeroed in on are authorised by the RBI (Reserve Bank of India).

  • Before you open an NRI account online or offline, you must factor in parameters like minimal average balance (MAB) requirement and the involved fees in operating the account by fetching the account’s most essential terms and conditions (MITC) from the selected financial institution’s website.

  • Check out the distinct privileges and facilities financial institutions provide to ensure ease of operations. Features like a dedicated relationship manager, 24X7 customer support, net banking facilities, a customer-friendly mobile app, etc., can make a massive difference to your overall banking experience.

For instance, IDFC FIRST Bank offers convenient fund transfer options 24/7, without charging any fee. The interest on this account is calculated based on the daily balances and is paid out at the end of each month.

Key Benefits of NRI Account in India

The following are the key benefit of opening an NRI account: 

1. Convenient transfer of funds to India

Whether you have opted for an NRE or NRO account, you can deposit the income you earn overseas in these accounts, whereas Indian income can be deposited in the NRO account. Afterwards, your deposited funds in the account may be accessed via any financial institution branch in India. Opening an NRI account is a more straightforward route for remitting funds to India from an international location. 

You can avail the benefit of a competitive exchange rate on your fund transfers to India. If you choose IDFC FIRST Bank to open an NRI account, you can get a free feature-rich Visa Signature debit card! 

2. Flexibility in fund repatriation

The present Indian regulations permit flexibility in balance repatriation in an NRE bank account for both the interest and principal amount. In simpler terms, the balance in your NRE bank account may be transferred back to the international country where you reside without any restrictions.
 However, if you opt for an NRO bank account, you may transfer the interest constituent earned in such an account without any restriction on the limit. 

Maximising the Benefits of NRE Accounts: A Guide for Non-Resident Indians

Looking for a hassle-free way to earn tax-free income on your savings while staying connected to your roots back home? If so, then you'll want to know all about the amazing benefits of opening an NRE account as a non-resident Indian. Here are some of the benefits the NRE account offers.

  • Tax Benefits: One of the main benefits of NRE accounts is that the interest earned on these accounts is completely tax-exempt in India. This means that NRIs can earn interest on their savings without paying any tax on the earnings. This can result in significant savings over the long term and help NRIs achieve their financial goals faster.

  • Easy Repatriation: Another advantage of NRE accounts is that they allow NRIs to easily repatriate their funds to their country of residence. They can transfer funds from their NRE accounts to any other bank account outside India held in their name or to another NRE account. This flexibility helps NRIs manage their finances more effectively and access their money when needed.

  • Investment Opportunities: NRE accounts give NRIs access to various investment opportunities in India. They can invest in mutual funds, stocks, and real estate, among other asset classes, using their NRE accounts. This helps NRIs build a diversified investment portfolio and earn attractive returns on their savings.

  • Joint Account Facility: NRE accounts also offer the option to open joint accounts with other NRIs. This can be helpful for families or business partners who want to manage their finances together. However, joint accounts can only be opened with another NRI and not with a resident Indian.

  • Convenient Banking: NRIs can easily manage their NRE accounts anywhere in the world using online banking, mobile banking, or visiting an Indian bank branch. This convenience allows NRIs to stay on top of their finances and make transactions easily. 

Taxation on NRE Account

An NRE account is a popular choice among NRIs as the interest earned on it is completely tax-exempt in India. This means that NRIs won't have to pay any taxes on the interest earned on their NRE account, which can increase their overall returns. The tax benefits on NRE accounts are due to the fact that they help increase India's foreign currency reserves, leading to an appreciation of the domestic currency. As a result, the relative demand for INR rises, corresponding to standard benchmark currencies.

 Suppose an NRI returns to India and becomes a resident. In that case, the NRE account will be converted into a regular resident account, and the tax benefits will no longer be applicable. Also, income tax will be levied on the global income of individuals under their residence or domicile if they do not bear tax liability in any other country.

NRIs need to stay informed about the changing tax laws and regulations to make informed decisions about their investments in India. By keeping track of the latest developments and seeking professional advice, NRIs can maximize the benefits of their NRE accounts and manage their finances efficiently.

The Bottom Line

Remember those Western Union ads? There was a time when fund transfer was difficult, even within the domestic confines of a country, but things have changed with time.
Similarly to the case above, transferring funds abroad too was more of a hassle at one point in time. However, NRE accounts have brought a massive paradigm shift. Non-resident Indians can now avail the benefits of being able to freely transfer funds in and out of the country.

NRO and NRE accounts are convenient options if you are an NRI. All you need to do is visit the IDFC FIRST Bank website or visit your nearest branch to get started.

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