What are the Benefits of NRE Bank Accounts and Fixed Deposits?

 NRIs are not permitted to hold regular savings bank accounts. As a result, only specific types of bank accounts can be opened, namely Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Foreign Currency Non-Resident Account (FCNR). While different accounts provide several different features and benefits, they also differ in terms of account operating limits. NRE accounts emerge as a better option for NRIs in terms of ease and other benefits associated with such accounts. The NRE account can be opened as a savings account, current account, recurring deposits, or fixed deposit.

What is NRE Account?

NRIs can open and maintain Non-Residential External or NRE accounts with profits originating in the respective individual's country of residency, but they must be held in Indian rupee denominations.

Consider the following example for a better understanding - Ms Avantika works in Paris, France, but her mother, who is dependent, lives in Mumbai. Every month, she deposits 2,000 euros in her NRE account for her mother, which is denominated in Indian rupees. Given that the prevalent exchange rate in that month was 1 EUR = 80 INR, her remittance of 2000 Euro will be kept in her NRE account as Rs. 1,60,000.

What is NRE Fixed Deposit?

An NRE Fixed Deposit is a term deposit in which an NRI transfers funds from a foreign country and money to his Indian account, where the funds are converted into Indian rupees. An NRE term deposit is often used to transfer foreign earnings or income that is tax-free. In order to attract consumers, certain banks provide the best NRE account interest rates.

According to NRI services, the NRE account also provides the benefit of freely repatriable capital and interest earned to the account holder's place of residency. NRI interest rates are also higher than those offered by other deposit plans. It can also be opened in conjunction with other Non-Resident Indian(s).

Benefits of NRE Accounts and Fixed Deposits

The following are the benefits of NRE accounts and fixed deposits:

Foreign Currency Remittances

You can receive foreign currency remittances with an NRE account. As a result, one can effortlessly remit money to his/her NRE account while remaining outside India, without the need for a financial intermediary such as money transfer and exchange services. Furthermore, there are no restrictions regarding the use of NRE account funds for both corporate and personal activities. As a result, one can easily transfer cash from outside India and use them for investments, etc., within India.

Denomination in Indian Rupees

NRE accounts are only available in Indian rupees. As a result, once the funds are transferred to the NRE account in equal Indian currency, the account balance is protected against international currency fluctuations. Furthermore, even though such accounts and deposits only allow foreign currency remittances from outside India, the account holder has the option of withdrawing funds in Indian currency. Thus, such accounts can be used to meet fund requirements while in India. At the bank branches, money can be withdrawn using an international debit card or a cheque.

Funds are Fully Repatriable

When it comes to repatriating funds outside of India, such accounts provide complete flexibility. To put it simply, there are no restrictions on sending funds outside of India. The money in the NRE account can be transferred back to the person's home country. This benefit applies not just to NRE accounts, but also to NRE deposits. The depositor has the right to freely repatriate the maturity proceeds of NRE deposits held outside of India, including principal and interest. This is one of the most important NRE account characteristics, while NRO accounts only permit free interest and principal repatriation up to certain restrictions.

No Income Tax on Interest Income

This is another benefit of the NRE account, as current tax laws exempt interest income from NRE accounts and fixed deposits. As a result, the account holder is exempt from paying income tax on such earnings. Because interest income is tax-free, it does not qualify for tax deduction at source (TDS). This contributes to depositors receiving higher tax-adjusted yields.

When You Return to India, You Will be Able to Convert Your RFC Account

If you return to India, you can convert your NRE accounts and deposits into Resident Foreign Currency (RFC) accounts. Returning NRIs can use RFC accounts to maintain account balances in foreign currency and convert such funds to NRE/FCNR accounts if they become non-residents again.

Apart from fulfilling their normal banking needs, NRIs prefer NRE accounts because of the tax and repatriation benefits. Because such accounts are denominated in Indian currency, NRIs can use them to park their savings and assets in India.