What is NEFT and How Does it Work?

byMehak BaglaLast Updated: June 21, 2024

NEFT stands for National Electronic Funds Transfer. It is an electronic payment system in India that enables individuals, companies, and organizations to transfer funds from one bank account to another. NEFT transactions are processed in batches and settled in hourly intervals throughout the day. It is a secure and convenient method for transferring money, widely used for various purposes such as salary payments, bill payments, and online purchases.

Features and Advantages of NEFT

  • NEFT allows individuals, corporations, and organizations to easily transfer funds electronically between bank accounts.
  • NEFT transactions are processed in batches throughout the day, ensuring prompt processing and transfer of funds.
  • You can initiate NEFT transactions through internet banking, mobile banking, or by visiting the bank branch, providing flexibility and convenience.
  • NEFT allows transfers of any value, making it suitable for both small and large transactions.
  • NEFT transactions have strong security measures and authentication mechanisms to keep your funds safe during the transfer process.
  • You receive a confirmation message after a successful NEFT transfer, ensuring transparency and providing peace of mind.
  • NEFT transactions do not involve any fees, making it a cost-effective option for transferring funds compared to other methods.
  • NEFT is accepted by banks across India, making it accessible and reliable for fund transfers within the country.
  • NEFT transactions are usually processed within the same day, ensuring quick and timely fund transfers between bank accounts.

Note: Starting from January 2020, the Reserve Bank of India (RBI) has instructed banks not to charge any additional fees for online transactions made through NEFT. This decision aims to promote digital transactions and provide users with a cost-effective and convenient method of transferring funds.

How does NEFT Work?

NEFT (National Electronic Funds Transfer) is a payment system that allows individuals and organizations in India to electronically transfer funds between bank accounts. Here’s how NEFT works:

  • Initiation: The sender initiates an NEFT transaction by providing the necessary details such as the beneficiary’s account number, bank branch, and the amount to be transferred. This can be done through various channels such as internet banking, mobile banking, or by visiting the bank branch.
  • Beneficiary Addition: If the beneficiary is not already added to the sender’s account, they need to add the beneficiary’s details, including the account number and bank branch, to their account. This is a one-time process and ensures that future NEFT transfers to the beneficiary can be made easily.
  • Transaction Processing: Once the NEFT transaction is initiated, the sender’s bank sends the transaction details to the NEFT clearing center. The clearing center then sorts and batches the transactions received from various banks.
  • Settlement in Batches: NEFT transactions are settled in hourly batches throughout the day. The clearing center processes the transactions in the batches and sends the settlement files to the respective banks.
  • Fund Transfer: After the settlement files are received by the beneficiary’s bank, the funds are credited to the beneficiary’s account. This usually happens on the same day or on the next working day, depending on the timing of the transaction.
  • Confirmation and Tracking: Both the sender and the beneficiary receive confirmation messages or notifications from their respective banks once the NEFT transfer is successful. This provides assurance and transparency in the transaction. Additionally, the sender can track the status of the NEFT transaction through their banking channels.

It’s important to note that NEFT transactions are subject to the working hours of the banks and the cut-off times for initiating transactions. NEFT is a safe, secure, and widely used method for fund transfers in India.

How to Initiate NEFT Transaction?

To initiate an NEFT transaction, follow these steps:

  • Log in to your internet banking account or mobile banking application using your credentials.
  • Navigate to the section for fund transfers or payments. This may be labeled differently depending on your bank’s interface, but it is typically found under the “Transfers” or “Payments” tab.
  • Select the option to initiate an NEFT transaction. This may be listed as “NEFT Transfer” or “Add Beneficiary for NEFT.”
  • Add the beneficiary’s details. You will need to provide the beneficiary’s account number, name, bank name, and branch details. Ensure that the information is accurate to avoid any issues with the transfer.
  • Once the beneficiary is added, select the option to initiate an NEFT transfer to that beneficiary.
  • Enter the amount you wish to transfer and select the account from which the funds will be debited.
  • Review the transaction details and ensure everything is correct.
  • Authenticate the transaction using the provided method, such as an OTP (One-Time Password) sent to your registered mobile number or through your internet banking password.
  • After authentication, submit the NEFT transaction for processing.
  • You will receive a confirmation message or reference number for the transaction. Keep this information for future reference.

Information Required to Transfer Funds through NEFT

The necessary details for remitting funds through NEFT include:

  • Beneficiary’s Name
  • Beneficiary’s Branch Name
  • Beneficiary’s Bank Name
  • Beneficiary’s Account Type
  • Beneficiary’s Account Number
  • Beneficiary’s Branch IFSC Code
  • Sender and Beneficiary Legal Entity Identifier (for eligible transactions)

NEFT Timings

The NEFT system is available round the clock, every day of the year, ensuring that you can initiate transactions at any time. NEFT operates in regular intervals throughout the day, processing transactions in batches. If, for any reason, NEFT is not available, the Reserve Bank of India (RBI) will communicate this to all system participants through appropriate notifications.

Read More: NEFT Transfer Time: When to Transfer Money through NEFT?

NEFT Transfer Limit

There is no set limit by the RBI for the amount of money you can transfer through the NEFT system. However, each bank may have its own limits based on their own risk assessment and approval from their board. This means that the limit for NEFT transfers can vary from one bank to another. To know the exact limit applicable to your NEFT transactions, it’s best to check with your bank directly.

Maximum Charges for Outward Transactions through NEFT

The originating bank can charge its customers for outward transactions based on the following maximum charges:

  • For transactions up to ₹10,000: The charge should not exceed ₹2.50 (+ applicable GST).
  • For transactions above ₹10,000 up to ₹1 lakh: The charge should not exceed ₹5 (+ applicable GST).
  • For transactions above ₹1 lakh and up to ₹2 lakhs: The charge should not exceed ₹15 (+ applicable GST).
  • For transactions above ₹2 lakhs: The charge should not exceed ₹25 (+ applicable GST).

Read More: How Much Extra do you Need to Pay on NEFT Transactions?

Disclaimer: This blog is written to make it easy for readers to understand complicated processes. Some information and screenshots may be outdated as government processes can change at times without notification. However, we try our best to keep our blogs updated and relevant.

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What is the full form of NEFT?

The full form of NEFT is the National Electronic Fund Transfer.

What are the timings for NEFT transactions?

NEFT transactions can be performed 24/7, at any time and on any day. If the transaction is done during banking hours, the receiver will receive the amount within those hours. If you need instant transfer, you can choose to pay a minimum amount set by the bank.

Who can make NEFT transactions?

Any individual, firm, or company can carry out NEFT transactions as long as their bank account is NEFT-enabled.

Can I make a NEFT transaction on the weekend?

Yes, you can initiate a NEFT transaction on weekends.

Do I need to add a beneficiary to send money through NEFT?

Yes, it is necessary to add a beneficiary to your internet banking account before transferring money through NEFT. Adding a beneficiary takes around 1-4 hours.

Are NEFT transactions chargeable?

From January 2020 onwards, RBI has instructed banks not to charge any additional fees for online transactions made through NEFT.

What is NEFT?

NEFT stands for National Electronic Funds Transfer. It is an electronic fund transfer system maintained by the Government of India and the RBI. NEFT allows funds to be transferred from one NEFT-enabled bank account to another.

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