By Manu Rao | Updated March 2026
What Is an NRE Account?
An NRE (Non-Resident External) account is a bank account in India maintained in Indian rupees by NRIs and OCI cardholders. The "External" in the name refers to the source of funds — money deposited into an NRE account must come from outside India (foreign earnings).
The defining feature of an NRE account is full repatriability. Both the principal and any interest earned can be freely transferred back to the account holder's country of residence without RBI approval and without any repatriation limit.
Legal Basis
NRE accounts are governed by:
- FEMA Notification No. FEMA 5(R)/2016-RB — Foreign Exchange Management (Deposit) Regulations, 2016
- RBI Master Direction — Deposits by NRIs (FED Master Direction No. 3/2015-16, updated periodically)
- Paragraph 3 of Schedule 1 of FEMA 5(R) specifically covers NRE accounts
Key Features
| Feature | Detail |
|---|---|
| Currency | Indian Rupees (INR) |
| Account types | Savings, Current, Fixed Deposit (1-3 years), Recurring Deposit |
| Who can open | NRIs and OCI cardholders (Persons of Indian Origin) |
| Source of funds | Foreign remittances, transfers from other NRE/FCNR accounts, maturity proceeds of FCNR deposits |
| Joint account | With other NRIs/OCIs only (not with a resident Indian) |
| Repatriability | Both principal and interest — fully and freely repatriable |
| Tax in India | Interest is exempt from Indian income tax under Section 10(4)(ii) of the IT Act |
| Interest rate (savings) | Same as domestic savings rate (typically 2.5-3.5% p.a.) |
| Interest rate (FD) | Slightly lower than domestic FD rates; varies by bank and tenor |
| Exchange rate risk | Yes — deposits are in INR, so the repatriated amount depends on the exchange rate at the time of withdrawal |
What You Can Do With an NRE Account
Credits (Money In)
- Inward remittances from abroad (salary, business income, savings)
- Transfer from another NRE or FCNR account in India
- Maturity proceeds of FCNR deposits
- Refund of investments made on a repatriation basis
Debits (Money Out)
- Remittance outside India (no limit, no RBI approval needed)
- Transfer to another NRE or FCNR account
- Transfer to NRO account (one-way — you cannot transfer back from NRO to NRE)
- Local payments in India (utility bills, EMI payments, insurance premiums)
- Investment in Indian companies on a repatriation basis — counted as FDI
- Purchase of property in India (residential and commercial, not agricultural)
What You Cannot Credit to NRE
- Income earned in India (salary from an Indian employer, rental income, business income from India)
- Transfer from an NRO account (not permitted)
- Sale proceeds of property (must first go to NRO, then repatriated from NRO within the $1 million annual limit)
NRE Account for Business Investment
When an NRI or OCI cardholder invests in an Indian company through their NRE account, the investment is treated as FDI on a repatriation basis. This means:
- Subject to sectoral FDI caps (automatic route or government route)
- FC-GPR must be filed within 30 days of share allotment
- Shares must be valued at or above Fair Market Value
- The invested amount and returns (dividends, capital gains) are freely repatriable
This is the preferred route for NRIs who want to maintain the flexibility to send their money back abroad.
Tax Treatment
NRE account interest enjoys a rare triple benefit:
- Exempt from Indian income tax — Section 10(4)(ii) of the Income Tax Act exempts interest on NRE deposits from tax in India. This applies to both savings and fixed deposit interest.
- No TDS — Since the interest is exempt, banks do not deduct tax at source.
- No wealth tax — NRE account balances are not subject to wealth tax (though wealth tax was abolished in 2015, it historically exempted NRE balances).
However, the interest may be taxable in your country of residence. US tax residents, for example, must report worldwide income including Indian NRE interest on their US tax return. The tax exemption is India-specific, not global.
NRE vs NRO vs FCNR — Quick Comparison
| Feature | NRE | NRO | FCNR |
|---|---|---|---|
| Currency | INR | INR | Foreign currency (USD, GBP, EUR, etc.) |
| Source of funds | Foreign earnings only | Indian + foreign earnings | Foreign earnings only |
| Repatriability | Fully repatriable | Up to $1M per year | Fully repatriable |
| Tax on interest | Exempt (Section 10(4)(ii)) | Taxable at 30% + surcharge | Exempt (Section 10(4)(ii)) |
| Exchange rate risk | Yes | Yes | No (held in foreign currency) |
| Joint with resident | No | Yes (former or survivorship basis) | No |
What Happens When an NRI Returns to India?
When an NRI returns to India permanently and becomes a resident under FEMA:
- NRE savings account must be redesignated as a regular resident savings account or an RFC (Resident Foreign Currency) account
- NRE fixed deposits can continue at the existing interest rate until maturity, but no new NRE FDs can be opened
- After maturity, the NRE FD proceeds move to the resident account
- The tax exemption on NRE interest continues until the account is redesignated or the FD matures
Many returning NRIs forget this step. Continuing to operate an NRE account after becoming a FEMA resident is a contravention.
Common Mistakes
- Depositing Indian income into NRE. Rental income, salary from an Indian employer, or business income earned in India cannot be credited to NRE. These must go to NRO. Banks sometimes miss this, creating compliance issues during RBI inspections.
- Transferring from NRO to NRE. This transfer is not permitted under FEMA. The only way to move money from NRO to outside India is through a separate outward remittance with Form 15CA/15CB, subject to the $1 million annual limit.
- Ignoring exchange rate risk. NRE accounts hold INR. If the rupee depreciates from 82 to 85 against the dollar between your deposit and withdrawal, you lose approximately 3.6% of your dollar value — even if the rupee balance earned interest.
- Not converting accounts on return. Returning NRIs must convert NRE to resident accounts. Operating NRE as a resident is a FEMA violation that surfaces during tax assessments or bank audits.
- Opening NRE for investment without understanding FDI implications. Money invested from NRE is FDI. If you invest in a sector with a cap (say insurance at 74%), your investment counts toward that cap. If total foreign ownership already exceeds the cap, your investment is not permitted.
Practical Example
Anita, an Indian citizen working as a doctor in the UK, earns GBP 90,000 annually. She opens an NRE savings account and an NRE fixed deposit with SBI's London branch (which facilitates the account opening with the Indian branch).
She remits GBP 2,000 monthly to her NRE savings account. The bank converts it to INR at the prevailing rate. After accumulating Rs 20 lakh, she opens a 2-year NRE FD earning 6.5% interest. The interest is tax-free in India.
Anita also wants to invest Rs 10 lakh in a friend's software startup in India. She transfers from NRE to the startup's AD bank account. This is FDI on a repatriation basis (IT allows 100% FDI automatic route). FC-GPR is filed. Two years later, the startup is acquired. Anita's Rs 10 lakh has grown to Rs 25 lakh. The full Rs 25 lakh is repatriable — she sends it back to her UK bank account after paying capital gains tax in India (claiming India-UK DTAA benefits).
Key Takeaways
- NRE accounts hold Indian rupees funded from foreign earnings
- Both principal and interest are fully repatriable — no limits, no RBI approval
- Interest is tax-exempt in India under Section 10(4)(ii)
- Investments from NRE are treated as FDI on a repatriation basis
- Cannot credit Indian-source income; cannot transfer from NRO to NRE
Need help setting up NRE accounts for your Indian investment? Beacon Filing assists NRIs with banking and FDI compliance.