Can I Transfer Money From NRE to Savings Account?

Non-Resident Indians (NRIs) manage their financial affairs in India through specialized bank accounts. Among these, the Non-Resident External (NRE) account is commonly used for funds earned abroad. A frequent inquiry for many NRIs involves the transfer of money from their NRE account to a standard resident savings account in India. Understanding the distinct characteristics of these account types and the regulations governing such transfers is important for effective financial management.

Understanding NRE and Resident Savings Accounts

An NRE account, or Non-Resident External account, serves as a banking facility in India for Non-Resident Indians to deposit their foreign earnings. These accounts are denominated in Indian Rupees, meaning foreign currency is converted at the prevailing exchange rate. A defining feature of an NRE account is its complete repatriability; both the principal amount and the interest earned can be freely transferred back to an overseas account. Furthermore, interest income generated within an NRE account is exempt from Indian income tax.

Conversely, a resident savings account is intended for individuals residing in India, primarily for managing income generated within the country. These accounts facilitate daily banking needs, such as receiving salaries, making payments, and saving funds. Unlike NRE accounts, funds held in a resident savings account are not freely repatriable to foreign countries. The Reserve Bank of India (RBI) mandates that Non-Resident Indians are not permitted to maintain standard resident savings accounts.

Regulatory Framework for Transfers

The Reserve Bank of India (RBI) governs financial transactions for Non-Resident Indians, including transfers between account types. Funds held in an NRE account can be transferred to a resident savings account. This allows NRIs to move foreign-sourced funds to a resident account for various purposes within India.

However, a significant consequence is the change in the funds’ status. Once money moves from an NRE account to a resident savings account, it loses its repatriable characteristic. This means funds can no longer be freely transferred back outside India without specific approvals.

There are no explicit limitations on the amount or frequency of transfers from an NRE account to a resident savings account for an existing NRI. If an NRI returns to India and changes residency, they are required to convert their NRE account into a resident savings account or a Resident Foreign Currency (RFC) account. Non-compliance can lead to penalties and account operational issues.

Executing the Transfer

Initiating a transfer from an NRE account to a resident savings account is a straightforward process, typically facilitated through various banking channels. Most Indian banks offer online banking portals and mobile applications for fund transfers.

Customers can log into their net banking account, select the NRE account as the source, and specify the resident savings account as the destination. The necessary information includes the beneficiary’s account number and the Indian Financial System Code (IFSC) of the recipient bank branch. Some banks may also require the beneficiary’s name. After entering details and confirming the amount, the transaction is authorized, often through a one-time password (OTP).

Individuals can also visit a bank branch to complete the transaction by filling out a transfer request form. Processing times are usually immediate or within a few business hours.

Tax Considerations and Reporting

When funds are transferred from an NRE account to a resident savings account, the principal amount typically does not incur additional income tax in India. This is because NRE account funds represent earnings from outside India, and their interest is already exempt from Indian tax for the NRI.

However, once funds move into a resident savings account, any future interest income generated will be subject to Indian income tax for the resident recipient. If the transfer constitutes a gift from the NRI to a resident individual, gifts to close relatives are generally not taxable for the recipient.

If a gift to a non-relative exceeds INR 50,000 in a financial year, the entire amount is taxable for the recipient. For NRIs who are also U.S. tax residents, a gift exceeding $100,000 to a U.S. person may require filing Form 3520 with the Internal Revenue Service (IRS).