Contents
Definition
NEFT (National Electronic Funds Transfer) is a nation-wide electronic funds transfer system operated by the Reserve Bank of India. It enables one-to-one fund transfers between accounts at any two NEFT-enabled bank branches across India. Unlike real-time systems (RTGS, IMPS), NEFT uses a deferred net settlement (DNS) mechanism — transactions are batched and settled in groups at defined intervals. The RBI made NEFT available 24x7 on all days including Sundays and public holidays with effect from 16 December 2019.
How It Works Mechanically
The originating bank batches outward NEFT instructions and sends them to the NEFT Service Centre at the RBI. Batches are processed in hourly settlement cycles (48 half-hourly cycles per day since August 2021 upgrade, effectively half-hourly settlement). The RBI's NEFT system calculates the net inter-bank position of all participating banks and settles the net debit/credit positions via accounts held at the RBI. Post settlement, the destination bank credits the beneficiary's account. Regulation (RBI circular DPSS.CO.EPPD.No.1/04.03.01/2019-20) requires the destination bank to credit the amount within 2 hours of settlement. Rejected transactions must be returned to the originator within 2 hours of the next settlement cycle. NEFT supports transfers from ₹1 upward (no minimum); the maximum per transaction is determined by individual bank policies, not an RBI cap.
Tax Treatment / Fees / Limits
The RBI waived NEFT charges for savings account customers at bank branches with effect from 1 January 2020 (circular DPSS.CO.EPPD.No.13/04.03.01/2019-20). Banks may still charge for NEFT initiated via internet/mobile banking; many waive these fees competitively. There is no minimum transaction amount; some banks impose their own per-transaction ceiling. NEFT transfers are not subject to TDS or transaction tax at the point of transfer. For cross-border variants, RBI's SFMS (Structured Financial Messaging System) underpins the network.
Common Use Case
An investor setting up a monthly SIP via NEFT push from savings account to the AMC's collection account, when NACH mandate is not yet active or for top-up purchases above the NACH limit. NEFT is also used for large one-time transfers (e.g., ₹5–10 lakh property advance payments) where IMPS's ₹5 lakh limit is a constraint and RTGS's ₹2 lakh minimum is met but real-time finality isn't required.
Worked Example
Vikram initiates a NEFT transfer of ₹3,50,000 from his savings account at 14:20 IST on a weekday.
- His bank batches the instruction and submits to RBI NEFT at the 14:30 cut-off.
- RBI settles the 14:30 batch → net credit posted to destination bank by ~14:35.
- Destination bank must credit Vikram's beneficiary within 2 hours → credit by ~16:35 at latest.
- In practice, most major banks credit within 20–30 minutes of settlement.
- Bank fee for Vikram (savings account, branch-initiated): ₹0 (RBI-mandated waiver).
See Also
- RTGS (Real-Time Gross Settlement)
- IMPS (Immediate Payment Service)
- UPI (Unified Payments Interface)
- Fund Transfer Methods in India
- Reserve Bank of India
Primary Source
RBI Master Direction on Electronic Fund Transfer (NEFT) — DPSS.CO.EPPD
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