NRE Account Closure Rules After Returning to India

An NRE account is a bank account that NRIs can open to park their income earned outside India. It enables foreign income to be maintained in Indian rupees, provides tax-free interest in India, and also allows repatriation of the principal and interest. These accounts can be opened only by those non-residents who meet the eligibility criteria prescribed under the Indian laws.

The NRE account holder cannot maintain the NRE account once they permanently return to India and become a resident. It should be closed or converted into a resident account as per FEMA directives and RBI guidelines.

This article details NRE account closure rules, the options available after returning, the NRE account closure process, and crucial compliance concerns for NRI account holders.

Why NRE Account Closure/Conversion is Required

As per the RBI, an individual is a resident Indian if they spend 182 days or more in India in a financial year and have the intention to stay in India for the foreseeable future. Once this criterion is satisfied, the person is deemed to be a resident.

According to RBI guidelines on NRE account closure rules, the NRE account holder is mandated to close their NRE account or redesignate the status of the NRE account immediately on a change of residential status. It is because NRE accounts have certain benefits like tax-free interest and repatriation without any restriction, which can be availed only by non-residents.

The RBI/FEMA ruling is that on becoming a resident in India, the NRI should close their NRE account or convert it to a resident savings account or Resident Foreign Currency (RFC) account.

While there is no specific statutory time limit prescribed in the regulations, financial experts advise that the NRE account closure in India must be done within a few months after returning to avoid non-compliance with the regulations.

Related Reading: Opening an NRE account

Closure of NRE Account vs. Conversion Options

NRIs have several compliant choices after coming back to India under the NRE account closure rules, which vary according to their financial situation and plans.

NRE Account Closure India 

NRE account closure is the formal closure of the complete working of the account. The deposit balance may either be transferred to a resident savings account in India or it can be transferred overseas.

This is for those individuals who have come back permanently and have no need for an NRI banking facility anymore. It is the easiest and simplest way for NRE account closure.

Conversion to Resident Account

An NRE account can also be re-designated as a resident savings account instead of closing it. One can continue with the same bank with ease and at the same time comply with resident banking regulations.

Alternatively, funds can be moved to your Resident Foreign Currency (RFC) account. RFC accounts, which allow individuals to hold foreign currency funds in India, are useful for people who travel or work abroad.

Treatment of Fixed Deposits

NRE and FCNR(B)FDs can also be permitted to run until maturity based on a bank’s internal policy. But the rules for taxation of interest and terms of deposits might differ upon becoming a resident.

Quick Comparison

How to Close Your NRE Account

Knowing the NRE account closure process facilitates speedy and trouble-free account closure.

1. Notify Bank of Change of Residence: Your first step is to notify your bank in an official capacity that you have become a resident Indian. Banks will require you to make that declaration.

2. Transfer or Withdraw Remaining Funds: The funds in the NRE account is fully repatriable. Alternatively, you may send the balance to a resident account in India, or you may remit it abroad. NRE account funds are not impacted by the USD 1 million repatriable limit for NRO accounts.

3. Send Closure or Conversion Request Forms: Banks have NRE account closure and conversion forms. You can send that form in person, by post, or even via email through the bank's NRI desk.

4. KYC Update: You would have to submit fresh KYC documents as a resident, with proof of address in India, etc.

5. Receive Acknowledgement: After it’s done, get it in writing or a final account statement as confirmation of your NRE account closure or conversion.

Document Requirements for Closing NRE Accounts 

The following are the NRE account closure documents that are required:

• NRE account closure or conversion form

• Passport copy with entry/exit stamps or visa cancellation pages

• Proof of address in India (Aadhaar, utility bill, etc.)

• PAN card

• Complete the updated KYC documents and, if required, FATCA/CRS declarations 

• Unused chequebooks or debit cards, if any are required 

Compliance, timelines, and penalties

Non-fulfillment of the NRE account closure norms on coming back to India may be treated as a FEMA violation. Having the wrong type of account could also attract regulatory risk.

Fines vary based on the type and period of default, but non-compliance under FEMA could attract a heavy monetary penalty. Financial institutions and insurers warn that compliance-related issues left unresolved could also affect banking and investment transactions down the line.

To reduce risk, NRI should do the NRE account closure in India soon after returning, preferably within a few months.

Additional Considerations for NRE Account Closure

Many banks now provide NRE account closure without coming to India. Forms and documents may be submitted via post or email, along with notarised copies. Some banks may require additional validation or may need you to visit a branch.

Demat and trading accounts should also be updated for resident status. Also, insurance and investment accounts might need separate KYC updates.

Some NRE fixed deposits can continue to maturity under revised resident terms, though the tax treatment of interest may change.

Conclusion

NRE accounts need to be closed or converted when the NRI returns to India, becoming a resident as per the RBI and FEMA guidelines. Although this is a procedural formality, the account closure process is straightforward. Early planning, being aware of the NRE account closure process, and having the paperwork ready will help you avoid any disruption in your access to banking services in India.

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FAQs

​​1. What happens with NRE account after returning to India?

NRE accounts need to be closed or converted on a change in residential status under FEMA and RBI guidelines, as an NRE account is applicable only for non-residents

2. Can I complete NRE account closure after returning from abroad?

Yes. Many banks permit you to submit NRE account closure requests by email or mail, and often expect the documents to be notarised.

3. What are the documents required for NRE account closure?

Typical NRE account closure documents: closure/cancellation/conversion form, copy of passport, Indian address proof, PAN card, and any updated KYC details

4. What is the difference between NRE account closure and conversion?

Closure terminates the account entirely, whereas conversion reclassifies it as a resident savings or resident foreign currency account, thereby retaining your banking relationships and relationship with the bank as a whole.