Fixed Deposits for NRIs: Features And Benefits
December 03, 2024
As an NRI, you may be looking for secure and lucrative investment options to grow your savings. One such option is investing in Fixed Deposits specifically designed for NRIs. Such FDs offer seamless money management in India from overseas.
However, such accounts greatly differ from each other in terms of purpose and functionalities. In this article, we have explored the various types of NRI Fixed Deposits, their benefits, eligibility criteria, rules and regulations associated with such accounts, and more.
Types of NRI Fixed Deposits
The four major types of NRI deposits are:
1. NRE Fixed Deposits
NRE (Non-Residential External) Fixed Deposits allow NRIs to deposit their earnings from abroad in India (the account is managed in Indian Rupees. Any foreign currency deposit is converted to Indian Rupees based on prevailing exchange rates).
These deposits offer higher interest rates compared to Savings Account and are fully repatriable. The interest earned on such FDs is also exempt from tax in India. However, there could be tax-related obligations in the NRI's country of residence.
2. NRO Fixed Deposits
NRO (Non-Residential Ordinary) Fixed Deposits are maintained in Indian currency and are primarily used to manage income earned in India. Unlike NRE deposits, the deposit is not fully repatriable. As per FEMA rules, you can transfer up to 1 million USD in a financial year, subject to tax compliance.
Additionally, the interest income is taxable (TDS up to 30% plus applicable surcharge and cess) as per the Income Tax Act, 1961. However, NRIs can avail tax credit in their country of residence provided the country has a DTAA (Double Taxation Avoidance Agreement) with India.
3. FCNR (Foreign Currency Non-Repatriable) Fixed Deposits
FCNR fixed deposits are maintained in foreign currency, such as USD, GBP, JPY, Euro, CAD, SGP, or AUD. These deposits offer attractive interest rates and are fully repatriable. FCNR deposits are a good option for NRIs who want to avoid currency conversion risks.
4. RFC (Residential Foreign Currency) Deposits
RFC deposits are designed for NRIs who have returned to India permanently or plan to do so. These deposits allow you to maintain your foreign currency earnings in Indian banks. RFC accounts can be opened in USD, JPY, Euro, or GBP.
Key Features of NRI Fixed Deposits
Feature | NRE FD | NRO FD | FCNR(B) FD | RFC FD |
Eligibility | NRIs, PIOs | NRIs, PIOs | NRIs, PIOs | Returning NRIs who have become residents |
Currency | Indian Rupee | Indian Rupee | Foreign Currency (USD, GBP, EUR, etc.) | Foreign Currency |
Source of Funds | Foreign earnings | Income earned in India | Foreign earnings | Foreign earnings brought back to India |
Interest Taxability | Tax-free in India | Taxable in India | Tax-free in India | Taxable in India |
Repatriation | Fully repatriable | Up to USD 1 million per financial year | Fully repatriable | Fully repatriable |
Tenure | Generally 1-10 years | 7 days to 10 years | 1-5 years | Varies by bank, typically 1-3 years |
Joint Account | With other NRIs/PIOs | With other NRIs/PIOs or resident Indians | With other NRIs/PIOs or resident Indians | With resident family members |
Nomination | Permitted | Permitted | Permitted | Permitted |
Premature Withdrawal | Allowed (with penalty) | Allowed (with penalty) | Allowed (with penalty) | Allowed (with penalty) |
Loan Facility | Available | Available | Available | May be available (check with bank) |
Currency Risk | Exposed to INR fluctuations | Exposed to INR fluctuations | Protected against INR fluctuations | Protected against INR fluctuations |
Interest Rates | Competitive | Competitive | Linked to international benchmark rates | Linked to international rates |
Benefits of NRI Fixed Deposits
Some of the benefits are:
Final Thoughts
Fixed deposits for NRIs provide a secure and lucrative investment option for those living abroad. With various types of FDs available, NRIs have multiple choices based on their specific requirements. By opening an NRI fixed deposit account, you can grow your savings while enjoying the convenience and security provided by these investments.
Additionally, you can open an NRI Savings Account with Ujjivan SFB. Our Savings Accounts for NRIs offer higher interest rates compared to traditional banks, no minimum average balance requirement, competitive exchange rates, and more.
FAQs
1. Can I prematurely withdraw my NRI fixed deposit before the completion of the tenure?
Yes, premature withdrawal is possible for NRI fixed deposits. However, banks may charge a penalty for early withdrawals.
2. Is NRI FD tax-free?
The tax implications vary depending on the type of FD. For instance, NRE FDs are completely tax-free whereas the interest earned on NRO FDs are taxable in India..
3. Are there any tax implications with earnings from fixed deposits?
As per the Foreign Exchange Management Act (FEMA), NRIs are not allowed to hold/operate resident FDs. It's mandatory to convert resident FDs to NRI FDs once you become an NRI. Not adhering to the guideline may incur heavy penalty charges.
4. What is the maximum tenure for NRI FD?
You can open an NRI FD for a tenure of up to 10 years. Ujjivan SFB offers two types of NRI FDs - callable and non-callable. The callable NRI FD comes with a maximum tenure of 10 years and allows premature withdrawal of funds subject to terms and conditions. The non-callable FD offers higher interest rates but comes with a lock-in period of 5 years.
5. Which forms should I submit to avoid TDS on FD?
Senior citizens can submit Form 15G and regular depositors can submit Form 15H to avoid TDS only if their income is below the minimum taxable limit.
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