NRE Fixed Deposit

Persons of Indian nationality or origin resident abroad may open, with authorised banks
in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees.
These accounts can be maintained in the form of savings, current or term deposit
accounts. Opening of NRE Accounts jointly in the names of two or more non residents is
permitted provided all the account holders are persons of Indian nationality or origin. For
opening these accounts, the funds are required to be remitted to India through

(a) proceeds of foreign exchange remittances from abroad through banking channels in
an approved manner.

(b) proceeds of foreign currency notes and traveler cheques brought into India by the
non-resident while on a temporary visit to India.

(c) transfer from an existing Non-Resident (External) FCNR account of the same
person.

The account holder has to furnish an undertaking on the account opening form that he
would promptly send an intimation to his bank if and when he returns to India for
permanent residence.

Proceeds of remittance arranged by the account holder through banking channels from
any country can be credited to this account. Similarly, income from the account holder’s
investment from the funds in the account can be credited to it, except in cases where
the investments are permitted on non-repatriable basis. Remittances from the account to
the country of residence of the account holder or any other country are freely allowed.

Authorised dealers may allow operations on NRE Accounts by persons resident in India in
terms of Powers of Attorney or other appropriate authority granted in their favour of
non-resident account holders, provided the powers are restricted to withdrawals for local
payments.

Type of Account

All types of accounts ie. current, savings and term deposit etc. can be opened under

Non-Resident (External) Accounts Scheme. A Non-resident can open joint account

with other non-resident provided all the account holders are persons of Indian nationality
or origin. Opening of a joint account by a non-resident person with a person resident in
India is not permitted under NR (E) Scheme.

Non-resident account can grant power of attorney or such other authority to residents in
India for operating their NR (E) Accounts in India. Such authority, is however, restricted
to withdrawals for local payments only. The resident power of attorney holder cannot
repatriate funds held in accounts outside India under any circumstances or make
payment of gifts on behalf of the account holder.

Account can also be opened by an eligible non-resident Indian during his temporary visit
to India, against tender of foreign currency traveler cheques/currency notes, provided
the bank is satisfied that the prospective account holder has not ceased to be a non-
resident. The amount so tendered would be endorsed on the Currency Declaration Form
CDF where applicable, before crediting the rupee equivalent to the account.
Advantages of NRE Account

Non-residents can enjoy the following advantages by maintaining NRE Accounts:

1. Term deposits for one year and above made by non-residents carry interest at rates
higher than those available to residents in India.

2. The interest on deposits and any other income accruing on the balance in the
accounts are free of Indian Income-tax.

3. The balances in the accounts are free of Wealth-tax.

4. Gifts to close relatives in India from out of balances in the accounts are free of Gift-
tax, when gifted before 1st October, 1998, thereafter there is no gift tax in India.

5. The entire credit balance (inclusive of interest earned thereon) can be repatriated
outside India at any time without reference to the Reserve Bank.

6. Local disbursement from the accounts can be made freely.

7. Purchases of Units of Unit Trust of India (UTI), Central and State Government
Securities and National Plan/Savings Certificates can be made freely from Securities and
National Plan/Savings Certificates can be made freely from the balances in these
accounts.

8. Sale proceeds/maturity proceeds/repurchase price of Units of UTI, securities or

certificates originally purchased out of the funds in the account can be freely credited to
these accounts by banks, without reference to the Reserve Bank.

9. Account holders are supplied special series of cheques forms for operations on these
accounts.

10. Account holders can avail of loans/overdrafts from banks against security of fixed
deposits in their NRE accounts.

Disadvantages of NR(E) Accounts

NR (E) accounts are opened in Indian rupees and all foreign exchange remittances
received for credit of those accounts are first converted to Indian rupees at the buying
rates by the banks. Any withdrawal in foreign currency will be permitted by the bank by
converting Indian rupees in the account to foreign currency at the selling rate. This
conversion loss is to be borne by the account holder.

Exchange rates are subject to fluctuation on day to day basis and Indian rupee has
depreciated against all major foreign currencies in recent past. Balances held in Indian
rupees in NR (E) accounts are thus exposed to exchange fluctuation risk