PART B - NON-RESIDENT (EXTERNAL) RUPEE ACCOUNTS (NRE Accounts)

General

13B.1 NRE accounts are opened and maintained in terms of Non-Resident (External) Accounts Rules, 1970. Government Notification No.1/9/EC/69 dated 10th February 1970 contains the Rules (see Appendix II in Volume II). These accounts are permitted to be opened in the names of non-resident individuals of Indian nationality or origin (NRIs), overseas companies, firms, societies and other corporate bodies which are owned directly or indirectly to the extent of at least 60% by NRIs and overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons (OCBs).

Repatriation of Balances

13B.2 NRE account holders are permitted to repatriate balances held in such accounts along with interest accrued thereon outside India at any time without approval of Reserve Bank.

Tax Exemptions

13B.3 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.

Likewise, balances held in such accounts are exempt from Wealth-tax in terms of Section 6(ii) of Wealth-tax Act, 1957. Gifts made to close relatives in India from out of balances in such accounts are also free of Gift tax.

NOTE:
Tax exemptions referred to above are available only in respect of NRE accounts maintained by NRIs and not for those maintained by OCBs.

Opening of Accounts in the Names of NRIs/OCBs

13B.4 (i) Authorised dealers may freely open NRE accounts in the names of NRIs/OCBs provided funds for the purpose are transferred to India in an approved manner in freely convertible foreign currency. While opening an account, authorised dealer should obtain an undertaking from the account holder that he would intimate the authorised dealer about his return to India immediately on his coming to India for permanent residence. This undertaking should be obtained in the account opening form itself. The account should be opened by the non-resident account holder himself and not by the holder of power of attorney in India on behalf of the non-resident.

(ii) Authorised dealers should obtain from OCB, along with the account opening form, a certificate from an overseas auditor/chartered accountant/certified public accountant of OCB in form OAC where the ownership/beneficial interest is directly held by NRIs and in form OAC 1 where it is held indirectly by NRIs. Similar certificates should be called for on an annual basis to ensure that the ownership/beneficial interest held by NRIs continue to be at or above the level of 60%. If the ownership/beneficial interest in OCB is reduced to a level below 60%, authorised dealers should intimate such a change to Reserve Bank immediately after they come to know of it, furnishing the name and address of the corporate body/trust and full particulars of the account maintained including the type of account and balance in it.

NOTE:
Opening of NRE accounts in the names of Pakistani/Bangladeshi nationals though of Indian origin requires Reserve Bank's approval.

Opening of Accounts during Temporary Visits to India

13B.5 Accounts may be opened in the name of any eligible NRI during his temporary visit to India against tender of foreign currency travellers cheques issued in his own name or notes and coins tendered, provided the authorised dealer is satisfied that the person has not ceased to be non-resident. The amount so tendered should be endorsed on the Currency Declaration Form, where applicable (See paragraph 7D.5). Authorised dealers should, however, ensure that the travellers cheques and currency notes tendered by the account holder have in fact been brought by him from abroad and not acquired locally.

Joint Accounts

13B.6 (i) Opening of joint NRE accounts in the names of two or more non-resident individuals is permitted provided all the account holders are persons of Indian nationality or origin. When one of the joint holders becomes resident, authorised dealers may either delete his name and allow the account to continue as NRE account or redesignate the account as a resident/RFC account, at the option of the account holders.

(ii) The Non-resident (External) Accounts Rules, 1970 do not permit opening of such accounts by non-residents jointly with residents.

Operations by Residents under Powers granted by Non-residents

13B.7 Authorised dealers may allow operations on NRE accounts by residents in terms of Power of Attorney or other authority granted in the residents' favour by the non-resident account holders, provided they are restricted to withdrawals for local payments. In cases where the account holder or a bank designated by him has been granted permission by Reserve Bank to make investments in India, the Power of Attorney holder may be permitted by authorised dealers to operate the account to facilitate such investments. The resident power of attorney holders should not, however, be allowed to repatriate outside India funds held in the accounts under any circumstances or make payment of gifts on behalf of the account holder.

Free Transferability between NRE and Foreign Currency (Non-Resident) Accounts (FCNR Accounts)

13B.8 Funds held in NRE accounts (other than those in the names of persons resident in the erstwhile bilateral group countries) may be freely transferred to FCNR accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holder.

Loans/Overdrafts to NRE Account Holders in India

13B.9 (i) Authorised dealers may grant loans/overdrafts in India to the account holders themselves for purposes other than investment in India, provided that the advances are fully secured by the fixed deposits and regulations relating to normal margin, interest rate, etc. are complied with. Repayment will have to be made either by adjustment of the deposit or by fresh remittances in foreign exchange from abroad. The loan can also be repaid out of local rupee resources held in the NRO account of the borrower subject to the condition that the loan repaid from local resources would be charged interest at commercial rate as in force from time to time.

(ii) Authorised dealers may also grant loans/overdrafts in India to the account holders themselves for purposes of making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/companies engaged in manufacturing/industrial activities, export oriented trading activities, hospitals, hotels of 3 star or higher grades, shipping, development of computer software and oil exploration services subject to compliance with the following conditions:

(iii) Authorised dealers may grant loans to non-resident individuals of Indian nationality and foreign citizens of Indian origin against their NRE deposits in India for the purpose of acquisition of flats/houses in India for their own residential use subject to the following conditions:

NOTE:
The above facility will, however, not be available for OCBs.

Applications not covered by foregoing provisions should be referred to Reserve Bank in form LOV 1 for consideration.

Loans/Overdrafts to Residents against Security of Fixed Deposits in NRE Accounts

13B.10 Authorised dealers may grant any type of fund based and/or non-fund based facilities to resident individuals/firms/companies in India against the collateral of fixed deposits held in NRE accounts subject to the following conditions:-

a) There should be no direct or indirect foreign exchange consideration for the non-resident depositor agreeing to pledge his deposits to enable the resident individual/firm/company to obtain the loan/overdraft facility.

b) The period of the loan shall not exceed the unexpired period of maturity of the fixed deposit accepted as security. In addition, the non-resident depositor should furnish an irrevocable undertaking to the authorised dealer not to withdraw the deposit during the period of the loan/overdraft. There is no objection to the renewal of deposit and the loan at the request of the depositor and borrower subject to compliance with the interest rate directives of Reserve Bank.

c) Regulations relating to margin, interest rate, purpose of loan, etc., as stipulated by Reserve Bank from time to time should be complied with.

d) The loan should be utilised for personal purposes or for carrying on business activities other than agricultural/plantation activities.

e) i) The loan should be granted by the bank against the NRE fixed deposit(s) issued by the same bank (irrespective of its branch) and not by any other bank.

ii) The branch giving the loan should hold the original deposit receipt(s) against which the loan is granted and the branch which has issued the receipt should be advised of the lien.

iii) Loans against NRE deposit(s) to the depositor himself or to a third party is granted only under his specific request/mandate and after verifying the authenticity of the signature of the depositor.

Authorised dealers should apply the usual norms and considerations as they do in the case of advances to trade/industry and satisfy themselves as to the acceptability of purpose, genuineness of credit needs of the borrower and end-use of funds and need not be guided solely by the availability of security.

Loans/Overdrafts to NRE Account Holders outside India

13B.11 Authorised dealers may allow their overseas branches/correspondents to grant any type of fund based and/or non-fund based facilities to or in favour of non-resident depositor or to third parties at the request of the depositor for bona fide purpose against the security of funds held in the NRE Accounts in India. Authorised dealers may also agree to remittance of the funds from India, if necessary, for liquidation of the outstandings, subject to report to Reserve Bank.

Change of Status from Non-resident to Resident

13B.12 NRE accounts should be redesignated as resident rupee accounts or as RFC accounts (if eligible), at the option of the account holder immediately upon the return of the account holder to India if authorised dealer is satisfied that he has returned to India for taking up employment or for carrying on a business or vocation or for any other purpose with the intention of residing in India for an uncertain period. Where the account holder is only on a short visit to India, the account may continue to be treated as NRE account even during his stay in this country. In respect of funds held in fixed deposits in NRE accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full term even after conversion into resident account.

Reserve Requirements

13B.13 In respect of the liabilities representing amounts received under NRE accounts, authorised dealers are required to comply with CRR/SLR requirements as laid down by Reserve Bank from time to time.

Rates of Interest

13B.14 Rates of interest payable on NRE accounts should be in accordance with the instructions issued by Reserve Bank from time to time.

Premature Withdrawal of Term Deposits

13B.15 (i) Wherever a term deposit in NRE account is withdrawn before maturity, directions issued in this behalf by Reserve Bank including directions, if any, about levy of penalty should be complied with, except where it is otherwise provided in this Manual.

(ii) In cases where FCNR deposits are converted into NRE deposits before maturity at the request of account holders, the FCNR deposits should be treated as if they have been withdrawn prematurely for making new deposits in NRE accounts. The rule regarding rate of interest for premature withdrawal of FCNR deposits will be applicable in such cases.

Remittance/Transfer of Funds to Non-resident Nominees

13B.16 The Banking Companies (Nomination) Rules, 1985 framed under Banking Regulation Act, 1949 enable banks to pay the amount standing to the credit of the deceased depositor to his nominee. Authorised dealers may allow remittance of funds lying in the NRE/FCNR accounts of the deceased accountholders to their non-resident nominees subject to the following conditions:

(i) Application in form LEG is submitted by the nominee(s);
(ii) A valid nomination has been registered on the bank's records in favour of the nominee/s in conformity with the provisions of the Banking Companies (Nomination) Rules, 1985;
(iii) The nominee continues to be non-resident at the time of the claim/remittance sought for from India and that the deceased depositor was non-resident at the time of his/her death;
(iv) All the legal heirs are non-residents. A signed declaration to the effect duly witnessed may be submitted by the nominee to the authorised dealer.

Application in form LEG together with the documents/particulars mentioned therein received from the nominees should be scrutinised and after satisfying about the legality of the claim as per the internal guidelines, authorised dealers may settle the claim and allow transfer of funds to the nominee to the extent of balances held in the deceased depositor's NRE/FCNR accounts. A copy of the form LEG and the relevant documents should be kept on records for verification by the inspecting officials of Reserve Bank. All other cases which do not fulfil the aforesaid terms and conditions or where the amount in NRE/FCNR account is claimed by a person other than the nominee should be referred to the concerned Regional Office of Reserve Bank for prior approval by authorised dealer in form LEG supported by documents indicated therein together with the legal representation issued by an Indian Court.

Permitted Types of Accounts

13B.17 Authorised dealers may open NRE accounts in any form, e.g. savings, current, recurring or fixed deposit account.

Special Series of Cheques for NRE Account Holders

13B.18 In order to facilitate easy identification and quicker processing of cheques drawn on NRE accounts, authorised dealers have been advised to issue to their constituents holding NRE accounts cheque books containing a special series of cheques with the prefix ';NRE'; printed on them in a different colour. They should ensure that only the special NRE cheques are issued to all constituents holding NRE accounts with them.

Transfer of Funds from One Account to Another

13B.19 (i) Transfer of NRE accounts from one branch of authorised dealer to another branch of same authorised dealer may be freely made. Occasionally, NRE account holders may wish to transfer funds from accounts held with one authorised dealer to another authorised dealer at the same centre or at another centre for opening new NRE accounts or for funding NRE accounts. Authorised dealers may open (or credit) NRE accounts with funds transferred from other authorised dealers in this manner provided :

(a) account is opened (or held) in the name of the same account holder/s;

and

(b) a certificate, issued by the authorised dealer transferring funds confirming the Non-Resident (External) status of the account from which transfer is being made, is produced along with the relative pay order or draft.

(ii) Authorised dealers may allow transfer of funds between NRE accounts of different persons held with themselves or different authorised dealers for any purpose. Where the transfer of funds is by way of gift, it may be allowed 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. In case of transfer of funds between NRE accounts held with different authorised dealers, the authorised dealer transferring the funds should issue a certificate confirming the non-resident status of the transferor.

Temporary Overdrawings

13B.20 Authorised dealers may allow temporary overdrawings in NRE Savings Bank accounts, up to a limit of Rs.20,000 subject to the condition that the overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, either by fresh remittance in foreign exchange from abroad through normal banking channel or out of transfer of funds held in other NRE/FCNR accounts. However, authorised dealers may exercise their own descretion/commercial judgement while allowing overdraft under this provision.

Form A4

13B.21 Form A4 should be completed in respect of operations on NRE accounts which call for either a report to, or approval of Reserve Bank. Forms requiring approval should be completed in duplicate and submitted to Reserve Bank. If the transaction is approved, one copy of the form will be returned to authorised dealer with the approval of Reserve Bank marked thereon. The debit or credit entry in the relative account may be made only after receipt of the approval. However, in all cases where form A4 is required to be filled in/approved, the duly filled in/approved forms should be retained with authorised dealers for scrutiny at the time of audit/inspection.

NOTE: In cases where funds in NRE accounts are remitted abroad or foreign currency notes, travellers cheques, etc. are issued on the instruction of account holder, form A2 covering the sale of foreign exchange should be completed and sent to Reserve Bank along with appropriate R Return. In such cases, form A4 need not be completed.

Credits to NRE Accounts

13B.22 Undernoted credit transactions may be allowed in NRE accounts by authorised dealers in conformity with conditions, if any, laid down against each item. A report of the transaction should be submitted to Reserve Bank on form A4 only in cases where (i) the transaction is of Rs.1,00,000/- or above and (ii) a specific indication has been given against the relative item.

NOTE:
Funds remitted from abroad in fulfilment of an undertaking given by the account holder should not be credited to the account.

(a) Proceeds of remittances to India in freely convertible foreign currency in an approved manner from abroad. (Report on form A4 should be submitted).

(b) Proceeds of foreign currency travellers cheques, drafts and personal cheques drawn by account holder on a foreign currency account maintained abroad by him (including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency or in rupees from the account of a non-resident bank) deposited by account holder during his temporary visit to India, provided authorised dealer is satisfied that the account holder is still normally resident abroad, the travellers cheques/drafts are standing in the name of account holder and have not been endorsed in his favour and in the case of travellers cheques, they are discharged by the account holder in the presence of the bank officials. (Report on form A4 should be submitted. See Guide to authorised dealers for compilation of R Returns regarding submission of form A2 with R Return for certain transactions).

(c) Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that account holder is still normally resident outside India (Report on form A4 should be submitted).

NOTES :
A. (Purchases of travellers cheques/ currency notes/bank notes made in terms of (b) and (c) above should be endorsed on the reverse of Currency Declaration Form (CDF), wherever applicable (See paragraph 3E.3). A photocopy of CDF should be kept on record by the authorised dealer.

B. Foreign currency notes/bank notes and travellers cheques tendered by the Power of Attorney holder or any person other than the account holder should not be credited to NRE account.

C. Rupee proceeds of foreign currencies/bank notes or travellers cheques tendered to a bank other than the one maintaining NRE account or to a money changer should not be credited to NRE account on the strength of encashment certificate issued by them.)

D. Transfers from other NRE accounts of same/other persons [See paragraph 13B.19]. Report on form A4 should be submitted.

E. Interest accruing on the deposit account.

F. Interest on Government securities and dividend on Units of Unit Trust of India, provided the securities/units were purchased by debit to account holder's NRE account or FCNR account (Report on form A4 should be submitted).

G. Maturity proceeds of Government securities including National Plan/Savings Certificates as well as proceeds of Government securities sold on a recognised Stock Exchange in India and sale proceeds of Units received from Unit Trust of India, provided the securities/units were originally purchased by debit to account holder's NRE account or FCNR account (Report on form A4 should be submitted).

NOTE:
While crediting interest/dividend on securities/units or maturity/sale proceeds thereof in terms of (f) and (g) above, authorised dealers should satisfy themselves that the investments were originally made from out of account holder's funds in NRE/FCNR accounts with them. Suitable notes of the original debits should be taken in the ledger folios to facilitate verification of the transactions by Reserve Bank. While completing form A4 for credits, similar information should be furnished. In the case of units purchased directly from the Unit Trust of India, the payment should be received from the Trust with a confirmation that the units were purchased by the non-resident investor either out of remittances sent from abroad in an approved manner or out of funds in NRE/FCNR accounts.

H. Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof if the amount of subscription was paid earlier from the same account or from another NRE/FCNR account of the account holder or by remittance from abroad through normal banking channels (Report on form A4 should be submitted).


I. Any other transaction if covered under general or special permission granted by Reserve Bank subject to compliance with conditions, if any, laid down by it (Report on form A4 should be submitted).

(j) Refund of application/earnest money made by the house building agencies on account of non-allotment of flat(s)/plot(s), provided that the original payment was made by debit to the NRE/FCNR accounts of the concerned NRI or by direct remittance from abroad to the house building agencies and the authorised dealer is satisfied about the genuineness of the transaction with reference to the documentary evidence such as receipts issued by the house building agency and/or copy of agreement/sale deed/letter from the house building agency indicating non-allotment of flat/plot. Before allowing the credit of such refunds authorised dealers may call for inward remittance certificate evidencing receipt of funds from abroad by the agency concerned or a certificate from the concerned bank with whom the NRE/FCNR account is maintained to the effect that the payment of application/earnest money was made by debit to the FCNR/NRE account of the applicant. A declaration from the account holder to the effect that he continues to be a non-resident with his overseas address should be obtained. The net amount of Interest, (i.e. after payment of tax) if any, paid by the house building agency on the application/earnest money may also be credited to NRE/FCNR account. (Report on form A4 should be submitted).