What is an NRE account?

An NRE Account is an account maintained by a Non-Resident Indian, where payments are credited only from outside India by way of drafts or RTGS. Withdrawals, however, can be made outside India or within India. The difference between a general S/B Account and an NRE Non-Resident External Account is that the account is held by a non resident, as against public Savings accounts which are managed by resident Indians internal payments can be made only from outside India.

The Reserve Bank of India had a few years ago lifted the interest rate cap on NRE FDs, which were linked to the LIBOR (London Interbank Offer Rate). The one good thing of the NRE Savings Account is that the interest income is tax free in the hands of the investors. This is true for NRE Savings Account as well for NRE Fixed Deposits.

Advantages of NRE Accounts

The advantage of having NRE accounts is income earned as interest is exempted from tax (no TDS deduction as in regular savings account which qualifies for TDS if interest income in a FY exceeds Rs. 10,000 from all the savings account with the bank). The funds are repatriable and can be sent to any country outside India.

The funds can be transferred from this account to an NRO account. However, it is advisable not to do so, given the fact that there is a TDS on interest rates on NRO accounts.