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The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered

This article looks at the tax and compliance rules to keep in mind for transferring money to an NRE account by resident Indians, from NRO accounts and from abroad.

The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered


Posted on 10 Apr 2024
Author: Sayan Sircar
5 mins read
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This article looks at the tax and compliance rules to keep in mind for transferring money to an NRE account by resident Indians, from NRO accounts and from abroad.

The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered

📚 Topics covered:

What is an NRE account? How does it differ from an NRO account?

To comply with Foreign Exchange Management Act (FEMA) rules, an NRI cannot have a regular savings accounts in India. Therefore, you must convert existing accounts to NRE or NRO accounts. Excess accounts must be closed. This step is important once your status changes from resident Indian to NRI and can be done either online or on your next visit to India.

Non Resident External (NRE) account

An NRE account can be opened only once you are an NRI as a fresh account. Old accounts, which existed when you were a resident Indian, will become NRO and not NRE. You can do the NRI check here: Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts.

This account is used to send money to India. The features and uses are:

  • this is a fresh account that can only be opened by an NRI
  • money deposited in this account must originate outside India
  • interest earned is tax free in India but may be taxable in the country where the NRI is residing
  • you can send both interest and principal out of India without limits
  • deposits can only be made in foreign currency, and withdrawals is in INR
  • joint accounts are allowed only with another NRI
  • you can transfer funds to other NRE or NRO accounts
  • may be used for stock investing but not recommended
  • best option for MF investing
  • cannot be used for investing in RBI/Gilt bonds

Non Resident Ordinary (NRO) account

This account is used for any income and investments in India. The features and uses are: The features and uses are:

  • existing savings accounts are converted to NRO accounts
  • interest earned is taxable in India at current slab rates. The benefit of the Double Taxation Avoidance Agreement (DTAA) is available with most countries so that you do not pay tax twice
  • you can send both interest and principal out of India, but the principal must be within $1 million. A CA must certify that you have paid taxes on this income
  • you can make deposits in foreign currency and INR, and withdrawals is in INR
  • joint accounts are allowed with another NRI or a resident
  • funds can be transferred to only another NRO account and not to an NRE account
  • this account is used to receive income from interest, FD, rent, stock and MF dividend, and proceeds from selling real estate, stocks and mutual funds
  • can be used for both stock and MF investing
  • only NRO account can be used for investing in and for receiving interest from RBI/Gilt bonds from the RBI Retail direct portal

How to transfer money from abroad to an NRE account?

Transferring money from abroad to your own NRE account in India is the reason that the NRE account exists. To transfer the amount, you primarily need:

  • the NRE account details like account number, IFSC code
  • a transfer provider like Wise, Western Union, PayPal etc or your bank (via wire transfer)

The transfer fees and time will depend on the platform chosen and the amount that is being transferred. There is no additional tax in India or abroad since this is your own post-tax money. There is no limit to the amount being transferred (though some platforms have their limits and banks do not).

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How to transfer money from an NRO to an NRE account?

Unlike the previous case, this is money moving within India. An NRE account allows unrestricted repatriation, i.e. money being sent abroad without tax or limits, while an NRO account has limits.

As per the RBI circular from 2012, NRO to NRE transfer is allowed up to $1 million in a financial year (Apr to Mar).

Since income in the NRO account is taxable, only the post-tax amount can be transferred to your NRE account. This means you need to produce a certificate, via CA, that all taxes have been paid before the bank will accept the NRO to NRE transfer.

For doing the NRO to NRE transfer, you must submit:

  • FEMA declaration that essentially says that you are an NRI and eligible to transfer from NRO to NRE
  • Form 15CA is a declaration filed via the Income Tax portal (with a copy to the bank) that the money transferred is post-tax
  • Form 15CB is a certification provided by a CA that the amount being transferred is compliant with all relevant income tax sections (including Section 195 regarding TDS) and any tax paid already (say on interest, capital gains or rent) is DTAA compliant (so that you don’t pay tax twice in your home country on the same income).

How to transfer money from a resident Indian to an NRE account?

You cannot directly transfer money from a resident Indian account to an NRE account. The transfer must be first to the NRO account of the NRI and then from NRO to NRE as above.

Resident to NRO transfers come under RBI’s Liberalised Remittance Scheme (LRS) with 20% TCS applicable for all transfers above ₹7 lakhs/year.

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This post titled The complete guide for transferring money to an NRE account: NRO to NRE and resident to NRE covered first appeared on 10 Apr 2024 at https://arthgyaan.com


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