NRE Account: Rules for CCFE
A rupee account that behaves like foreign money: fully repatriable, tax-free interest, NRIs and PIOs only.
An NRE account is a rupee account in India that behaves like foreign money. The balance is in rupees, but everything in it is fully repatriable, the interest is exempt from income tax, and the account exists so that NRIs can park overseas earnings in India without losing the right to take them back out.
It is governed by Schedule 1 of the Foreign Exchange Management (Deposit) Regulations, 2016 (FEMA 5(R)), and RBI's Master Direction on Deposits and Accounts summarises the working rules. CCFE tests those rules line by line: who can open it, what may be credited, who may operate it and what happens when the holder comes home.
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NRE Account at a Glance
- Who can open
- NRIs (Indian citizens resident outside India) and PIOs, which includes OCI cardholders. A foreign national of non-Indian origin cannot.
- Currency
- Indian rupees. The deposit is converted from foreign currency on credit and back on remittance, so the depositor carries the exchange risk.
- Forms
- Savings, current, recurring or fixed deposit. Term deposits have a minimum tenor of one year under RBI's interest-rate directions.
- Repatriability
- Fully repatriable, principal and interest.
- Tax
- Interest is exempt from income tax while the holder qualifies as a non-resident under FEMA.
What Can Go In and What Can Come Out
The test for every credit is simple: has the money kept its repatriable character? If it has, the NRE account can take it.
Inward remittance from outside India
Side
Credit
Condition
Through banking channels
Interest on the account and on investments
Side
Credit
Condition
None beyond normal rules
Transfer from another NRE or FCNR(B) account
Side
Credit
Condition
None
Maturity proceeds of investments
Side
Credit
Condition
Only if the investment was made from this account or by inward remittance
Current income in India (rent, dividend, pension, interest)
Side
Credit
Condition
Bank must be satisfied it is current income and tax is deducted, paid or provided for
Transfer from the holder's NRO account
Side
Credit
Condition
Within the USD 1 million per financial year facility
Local disbursements
Side
Debit
Condition
None
Remittance outside India
Side
Debit
Condition
None
Transfer to another NRE or FCNR(B) account
Side
Debit
Condition
None
Investments in India
Side
Debit
Condition
As per the relevant FEMA rules
| Entry | Side | Condition |
|---|---|---|
| Inward remittance from outside India | Credit | Through banking channels |
| Interest on the account and on investments | Credit | None beyond normal rules |
| Transfer from another NRE or FCNR(B) account | Credit | None |
| Maturity proceeds of investments | Credit | Only if the investment was made from this account or by inward remittance |
| Current income in India (rent, dividend, pension, interest) | Credit | Bank must be satisfied it is current income and tax is deducted, paid or provided for |
| Transfer from the holder's NRO account | Credit | Within the USD 1 million per financial year facility |
| Local disbursements | Debit | None |
| Remittance outside India | Debit | None |
| Transfer to another NRE or FCNR(B) account | Debit | None |
| Investments in India | Debit | As per the relevant FEMA rules |
Joint Holding, Power of Attorney and Loans
- check_circleJoint accounts can be held by two or more NRIs or PIOs, or by an NRI or PIO with a resident relative on a 'former or survivor' basis. The resident relative can operate only as a Power of Attorney holder while the NRI is alive.
- check_circleA resident Power of Attorney holder may withdraw for local payments or remit to the account holder himself. He may not open an NRE account, repatriate to anyone other than the holder, gift to a resident on the holder's behalf, or transfer to another NRE account.
- check_circleBanks in India can lend against NRE deposits to the holder or a third party in India without any ceiling, subject to usual margins. The loan cannot be repatriated and cannot fund relending, agricultural or plantation activity, or real estate business.
- check_circleOverseas branches or correspondents may also lend to the depositor or a third party abroad against the NRE deposit. Where a loan is taken against a deposit, premature withdrawal of that deposit is not available.
Credit, debit and joint-holding MCQs. No signup.
When the NRI Comes Home
On return to India for employment or any other change of residential status, the NRE account must be redesignated as a resident account, or its funds moved to an RFC account at the holder's option. This is immediate, not at maturity.
RBI's interest-rate directions add two operational points: no penalty is levied when an NRE term deposit is broken for conversion into RFC, and if the deposit has not run for one year, interest is paid at no more than the RFC savings rate.
How CCFE Tests This
Expect credit-and-debit MCQs: four sources of money, pick the one that is not a permitted NRE credit. The trap is local rupee income. Rent or dividends earned in India can reach the NRE account only as current income after tax, and other local funds belong in NRO. The second trap is the resident joint holder: candidates assume he can operate freely, when the regulation limits him to Power of Attorney operations during the NRI's lifetime.
FAQs
Who can open an NRE account in India?expand_more
Non-resident Indians and Persons of Indian Origin, including OCI cardholders, with an authorised dealer or an RBI-authorised bank. A foreign national who is not of Indian origin opens an NRO account instead.
Is NRE account interest taxable in India?expand_more
No. Interest on an NRE account is exempt from income tax in India while the holder is a person resident outside India under FEMA. NRO interest, by contrast, is taxable.
Can a resident be a joint holder of an NRE account?expand_more
Yes, a resident relative can be a joint holder on a 'former or survivor' basis, but during the NRI's lifetime the resident can operate the account only as a Power of Attorney holder.
Can I transfer money from NRO to NRE?expand_more
Yes, within the USD 1 million per financial year facility for remitting NRO balances under the Remittance of Assets Regulations, subject to applicable tax.
What happens to an NRE account when I return to India?expand_more
It must be redesignated as a resident account, or the balance transferred to an RFC account at your option, immediately on your return for employment or on change of residential status.
Next steps
- NRE vs NRO vs FCNRarrow_forward
- NRO Accountarrow_forward
- FCNR(B) Depositsarrow_forward
- FEMA & Trade Finance Conceptsarrow_forward
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