Banking

The Rules and Regulations Applicable to Non-Resident Rupee Accounts

Non-Resident (External) Rupee Account Accounts opened and maintained with authorized dealers in the names of persons resident outside India in pursuance of the Non-resident (External) Account Rules, 1970, are known as ‘Non-resident (External) Accounts’ (NRE Accounts).

Advantages of Non-Resident Rupee Accounts :

NRE accounts are designed to provide some special benefits which are not available under Ordinary Non-resident Accounts. The main benefits available under NRE accounts are:

1. Interest earned on the account is exempt from income-tax.

2. Gift made in India out of the balance in the account is exempt from Gift tax.

3. Balance held in the account is exempt from Wealth Tax.

4. The balance in the account, including interest, is repatriable abroad without reference to Reserve Bank of India.

1. Opening of Accounts. The account can be opened in the names of non-residents of Indian nationality or origin by: (a) remittance of foreign exchange from abroad; (b) foreign exchange tendered by the non-resident in the form of travelers cheques, etc., during his temporary visit to India; (c) transfer from non-resident (external) account or FCNR account in the name of the account holder.

Conversion of an ordinary non-resident account into NRE account requires prior approval of the Reserve Bank. While opening the account, the account holder should give an undertaking in the opening form that he would intimate the bank about his return to India on his coming to India for permanent residence. On receipt of the information, when the account holder returns to India, the bank should convert the account into a resident account.

2. Joint Accounts. Accounts may be opened in the names of two or more non-residents provided all the account holders are persons of Indian nationality or origin and they reside in the same country or in different countries in the external group. Joint accounts with resident account holders are not permitted. However, the account may be operated for local withdrawal by resident power of attorney holders.

3. Impersonal Accounts. Accounts can be opened in the names of overseas companies, partnership firms, societies and other corporate bodies which are owned to the extent of at least 60% by non-residents of Indian nationality or origin, and overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. While opening accounts, along with the application form, the account holder should submit a certificate from an overseas Auditor/Chartered Accountant/Certified Public Accountant in form OAC1.

The certificate should be submitted subsequently on an annual basis. Further, the account holder should give an undertaking that if the ownership interest or the irrevocable beneficial interest held by the persons of Indian nationality/origin falls below the level of 60% at any time in the future, the applicant would immediately intimate such a change to the bank.

4. Type of Account. Non-resident (external) account can be opened under any scheme of the bank—current, savings, recurring, fixed deposit, etc.

5. Interest. The rate of interest payable on NRE accounts is announced by Reserve Bank of India from time to time.

6. Operations in the account—Credits. The following credits are permitted in NRE accounts. A report of the transaction should be submitted to Reserve Bank in form A4 if the transaction is for Rs. 10,000 or above.

(a) Foreign remittance received in approved manner. (b) Foreign exchange tendered by the account holder during his temporary visit to India, the instrument tendered should be drawn payable to the account holder and not endorsed to him. (c) Maturity proceeds of government securities like NSC, proceeds of government securities sold on a stock exchange, sale proceeds of units of Unit Trust of India, interest on government securities and dividend on units of Unit Trust of India, provided securities were purchased by debit to the account holder’s NRE or FCNR account.

(d) Transfer from other NRE account of the account holder or transfer from NRE account of another account holder if it is made for bona-fide personal purposes. (e) Refund of share/debenture subscriptions to new issues of Indian companies if the subscription was made from NRE/FCNR account of the account holder or by foreign remittance. (J) Interest accruing on the deposit account. (No report in form A4 need be sent). (g) Any other transaction covered by general or special permission of Reserve Bank.

7. Operations in the account—Debits. The following debits are allowed: (a) Local disbursements/payments. (b) Remittances abroad. (c) Transfer to NRE/FCNR account of the account holder. (d) Transfer to NRE accounts of others for bona-fide personal purposes. (e) Any other transaction covered by the general or special permission of Reserve Bank. A report of the transaction should be submitted to Reserve Bank in form A4 if the transaction is for Rs. 10,000 or above and is for the purpose of investment in shares/securities/commercial paper of Indian companies or for purchase of immovable properties in India.

7. Loans. Loan/Overdraft can be granted in India to the account holder himself for purposes other than investment observing the normal margin, interest etc. Subject to the conditions stipulated in the Exchange Control Manual, loan can be granted to him for direct investment in India on non-repatriation basis and for acquisition of flat/house in India. Loan/Overdraft may be granted to a resident against the collateral of NRE account provided there is no direct or indirect foreign exchange consideration for the non-resident depositor to pledge his deposit.

The loan can be repaid by fresh remittance from abroad or maturity proceeds of the NRE deposit or out of local resources held in their respective NRO accounts in India. Temporary overdrafts can, be allowed in NRE saving accounts up to Rs.1,000 to be adjusted within two weeks by fresh remittance or transfer from NRE/FCNR account.

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