What are the debits and credits permitted in NRE account?

Reserve Bank Notification No. FEMA 5/2000-RB, [dated May 3, 2000AP (DIR SERIES) (2002-2003)] 2. RBI circular No. 5 dated 15-7-2002, and 3. A.P. (DIR Series) Circular No. 45, dated May 14, 2002 give guidelines on various debits and credits allowed in NRE accounts. The following are the permitted debits and credits allowed in NRE accounts. Tax Benefits,Operation by resident Power of attorney,eligibility and non eligibility of loans to NRE account are also covered in this post.

Permitted debits:

The balance available in NRE account with interest accrued thereon is permitted to repatriate outside India at any time without approval of Reserve Bank. The Transfer of monies from one NRE account to another NRE account of the same person or different person is also allowed. The amount available in NRE account may be converted into permitted foreign currency and same may be allowed to deposit in FCNR account of the same person. However, the authorised dealer transferring the funds between NRE accounts with different authorised dealers should issue a certificate confirming the non-resident status of the transferor. In the case of  transfer of funds is related to gift, it is allowed only after obtaining an undertaking from the transferee/transferee’s banks that gift tax, if any, payable on the transfer of funds will be paid to the Income-tax authorities in India.

The debit transactions are allowed in NRE accounts to invest monies in shares, securities, commercial papers of Indian Company provided such investment/purchase is covered by the regulations or the general/special permission granted by the Reserve Bank. Any other debit transaction may be  allowed if those transactions are covered under general or special permission granted by the Reserve Bank.

The funds available in NRE account can be used by NRI/PIO to  acquire  immovable  property  in  India  other  than  agricultural  land/ plantation  property  or  a  farm  house . The non-resident Indians can repatriate the sale proceeds of immovable property to the extent of foreign inward remittances or amount drawn from FCNR/NRE account. Excess sale proceeds,  if  any can  be  credited  to  NRO  account,  which will  be eligible  for repatriation abroad up to  USD1  million  per  financial  year, subject  to  payment  of eligible  tax.  In  case  of  Residential  properties,  the  repatriation  of  sale  proceeds  is restricted to maximum two such properties. However, this facility is not available to the cases of inherited property which is agricultural/ plantation property or Farm house.

Permissible credits :

1. Proceeds of inward remittances in any permitted currency may be credited to NRE account.
2. Transfers from FCNR accounts of the account holder and Interest accruing on the funds held in these account can also be credited to NRE account.
3. Collection proceeds of personal cheques drawn by the account holder on his foreign currency account, bank drafts payable in any permitted currency including instruments expressed in Indian rupees for which reimbursement will be received from abroad, may be deposited to NRE account. However, the account holder shall deposit those instruments in person during his temporary visit to India. The authorized dealer shall satisfy that the account holder is still resident outside India.
4. Proceeds of  Foreign  Currency  Notes/Travelers  Cheques personally  deposited by   the   NRI account  holder  on  his  temporary  visit  to  India may be credited to NRE account. The  Travelers’  cheques  should  have  been  issued  outside  India  and  same  to  be discharged by the account holder in the presence of Bank officials concerned. An NRI coming into India from abroad can bring with him foreign exchange without any limit, however, if the amount of foreign currency notes tendered exceeds USD 5000 or its equivalent    or    the    total    amount    tendered    e.  Currency  Notes  and  Travelers Cheques  together  are  more  than  USD  10000  or  its  equivalent,  the  same  should  have been declared to the customs on the Currency Declaration Form (CDF)  at  the  time  of  arrival  in  India and should be submitted to the Authorised Dealer at the time of tendering Currency Notes/ TCs.
5. In the event of NRIs/PIO who does not maintain an NRO account in India, the current income like rent, dividend, pension, interest, etc. can remit the amount directly to NRE account. However crediting such amount to NRE account or remitting abroad is permitted only on the basis of an appropriate certification of a Charted Accountant, that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid or provided for. There is no need of obtaining prior approval of Reserve Bank of India for such remittance.

[In RBI circular No. 5 dated 15-7-2002   [AP (DIR SERIES) (2002-2003)], it is clarified that authorised dealers may credit the current income like rent, dividend, pension, interest, etc. of NRIs to their Non-Resident (External) Rupee Accounts provided they are satisfied that the credit represents current income of the non-resident account holder and income-tax thereon has been deducted/paid/provided for, as the case may be].

1. Refund of application/earnest money made by the house building agencies on account of non-allotment of flat/plot, together with interest, if any (net of income tax payable thereon may be credited to NRE account subject to the condition that the original payment was made out of NRE/FCNR account of the account holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transaction.
2. Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/FCNR account of the account holder or by remittance from outside India through normal banking channels.
3. Maturity proceeds of Government securities including National Plan/Savings Certificates as well as proceeds of Government securities and units of mutual funds sold on a recognised stock exchange in India and sale proceeds of units received from mutual funds, provided the securities/units were originally purchased by debit to the account holder’s NRE/FCNR account or out of remittances received from outside India through normal banking channels.
4. Any other credit if covered under general or special permission granted by Reserve Bank.

Tax Benefits:

 In terms of Clause 4(ii) of Section 10 of Income-tax Act, 1961, any income from interest on monies standing to the credit of NRE accounts is exempt from income-tax. The balance available in NRE account is exempted from wealth tax. Gifts made to close relatives in India from out of balances in such accounts are also free of Gift tax. Tax exemptions mentioned above are available only in respect of NRE accounts maintained by NRIs and not for those maintained by OCBs.

Joint account with resident Indians:

NRI/PIO can open a joint account with a resident close relative (Close relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis.

Operation by resident Power of attorney:

The resident close relative may be allowed to operate the account as Power of Attorney (POA) during the life time of NRI. Operations in the account in terms of Power of Attorney are restricted to withdrawals for permissible local payments or remittance to the account holder himself through normal banking channels. However, such power of attorney cannot either open or close an NRE account. A resident Power of Attorney holder can repatriate the funds held in NRE account to NRI account holder’s account held abroad only and not to third party account. He/ She  cannot  make payment  by  way  of  gift  to  a  resident  or  transfer  funds  from  the account to another NRE account on behalf of the Non-resident account holder.

Note: Persons of Indian Nationality/ origin resident in Nepal / Bhutan can maintain  an NRE  account    provided  the  inward  remittance  for  opening  and  subsequent remittances  to    account  are  remitted  in free  foreign  exchange. Principal/ Interest earned in NRE accounts shall be remitted only in Indian rupee to NRIs/ PIOs resident in Nepal & Bhutan.

Loans  can  be  granted to  account holder  as  well  as  to  third  parties  in  India  against NRE/FCNR deposits without any ceiling subject to usual margin requirements.

Loans cannot be granted to NRIs/PIOs for the following purposes:

1. Re-lending, b. carrying on agricultural/ plantation activities, c. Investment in real estate business. ( Real Estate  business  does  not  include development  of  township,  Construction  of  residential/  commercial  premises, Roads/ Bridges),d. Acquisition of commercial property.