Nris: Smart Guide To Fd Deposits In India

Non-resident Indians (NRIs) can invest in fixed deposits (FDs) in India, which are a popular investment option due to their guaranteed interest rates, stability, and security. There are three types of NRI fixed deposit accounts: Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Foreign Currency Non-Resident (FCNR). NRE and FCNR accounts are tax-free, while NRO accounts are taxable in India. NRIs can open FDs with Indian banks or Non-Banking Financial Companies (NBFCs), offering attractive interest rates. The minimum deposit amount is INR 20,000, and premature withdrawals may result in penalties. FDs can be opened online or offline, with tenors ranging from 7 days to 10 years.

Types of fixed deposit accounts for NRIs

Non-resident Indians (NRIs) have several fixed deposit options to choose from, with the most common being:

Non-Resident External (NRE) Fixed Deposit

The NRE Fixed Deposit is used for parking funds that NRIs earn outside India. This type of FD allows an NRI to deposit their earnings in the bank account as savings or investments and earn high rates of interest. The interest earned on NRE deposits is tax-free in India, and both the principal amount and interest can be repatriated completely. Deposits are accepted in Indian currency only. The tenure ranges from one year to above five years.

Non-Resident Ordinary (NRO) Fixed Deposit

The NRO Fixed Deposit is used to maintain the income for an NRI that is generated in India, such as rental income, pension, dividend income, or any other income earned in India. The interest rates of NRO deposits are the same as domestic deposits, and the money deposited is subject to tax. The tenure ranges from 7 days to above 5 years.

Foreign Currency Non-Repatriable (FCNR) Fixed Deposit

The FCNR Fixed Deposit allows investors to deposit their money in foreign currencies such as the Great Britain Pound, United States Dollar, Euro, Canadian Dollar, Japanese Yen, and the Singapore Dollar. The interest income is not taxable in India, and both the principal amount and interest are completely repatriable. The tenure ranges from 12 months to 60 months.

RFC Fixed Deposits

This type of NRI fixed deposit can be opened by NRIs who wish to move back to India soon. The United States Dollar, Great Britain Pound, and the Euro are accepted, and the interest earned is fully repatriable. The tenure ranges from less than 29 days to 3 years.

Tax benefits of fixed deposits for NRIs

Non-resident Indians (NRIs) can take advantage of several tax benefits when investing in fixed deposits (FDs) in India. Here is an overview of the tax advantages offered by the three main types of NRI FDs:

NRE (Non-Resident External) FDs

NRE FDs are a popular choice for NRIs as they offer tax-free returns on both the principal amount and interest earned. This is because the funds deposited are considered income earned outside of India. NRE FDs also offer high-interest rates, flexible tenures, and full repatriation of the principal and interest.

FCNR (Foreign Currency Non-Resident) FDs

FCNR FDs are term deposit accounts that accept deposits in various foreign currencies, such as USD, GBP, EUR, JPY, CAD, SGD, and HKD. The interest income earned on FCNR FDs is not taxable in India, and both the principal and interest can be fully repatriated. This type of FD provides protection against currency fluctuations.

NRO (Non-Resident Ordinary) FDs

While NRO FDs are subject to taxation in India, there are still some tax advantages. The principal amount can be repatriated without any tax implications. Additionally, NRIs can claim a tax refund while filing their taxes as per their tax slab. NRO FDs are ideal for NRIs who have sources of income in India, such as rent or pension.

Overall, NRI FDs offer a safe and secure investment option with competitive interest rates and the flexibility to choose from different types of accounts based on individual needs and financial goals.

How to open an NRI fixed deposit account

Non-resident Indians (NRIs) can open fixed-deposit (FD) accounts in India, which can be a great way to invest money and earn interest. There are several types of NRI fixed deposits to choose from, each with its own benefits and features. Here's a step-by-step guide on how to open an NRI fixed deposit account:

Step 1: Choose the Type of NRI Fixed Deposit Account

The first step is to decide on the type of NRI fixed deposit account that best suits your needs. The three main types of NRI fixed deposit accounts are:

• Non-Resident External (NRE) Account: This type of account is used for depositing funds earned outside India. NRE fixed deposits offer tax-free interest rates in India, and both the principal amount and interest can be fully repatriated.
• Non-Resident Ordinary (NRO) Account: The NRO fixed deposit is used for income generated in India, such as rent or pension. The interest earned on NRO deposits is taxable in India, and the account holder can later claim a tax refund.
• Foreign Currency Non-Resident (Bank) [FCNR(B)] Account: The FCNR(B) fixed deposit is a term deposit account that accepts various foreign currencies, such as USD, GBP, EUR, JPY, AUD, CAD, SGD, and HKD. The interest income on these accounts is not taxable in India, and both the principal amount and interest can be fully repatriated.

Step 2: Gather the Required Documents

To open an NRI fixed deposit account, you will need to provide certain documents to the bank. The specific documents required may vary, but generally, you will need:

• A valid Indian PAN card or Form 60.
• Your Indian passport.
• Documents to prove your NRI status, such as a work or residence permit, or an employment/residence visa.
• A recent passport-size colour photograph.
• Address proof for your overseas and Indian addresses.
• For seafarers: FEMA declaration, current work contract, and a copy of CDC with the disembarkation stamp.

Step 3: Choose a Bank and Contact Them

Once you have decided on the type of NRI fixed deposit account and gathered the required documents, you can choose a bank that offers the specific type of account you are interested in. Contact the bank to understand their account opening process, which may vary between banks. Some banks allow you to open the account online, while others may require you to visit a branch.

Step 4: Provide Documents and Complete the Account Opening Process

Provide the bank with the required documents and follow their instructions to complete the account opening process. This may include filling out account opening forms and providing additional information as required by the bank.

Step 5: Deposit Funds and Start Earning Interest

After your NRI fixed deposit account is successfully opened, you can deposit funds into the account and start earning interest at the specified rates. The process of depositing funds may vary depending on the type of account and the bank, but it generally includes transferring funds from abroad, presenting foreign currency notes or traveller's cheques, or remitting the amount directly to the bank.

Interest rates on NRI fixed deposits

Non-resident Indians (NRIs) can choose from several fixed-deposit options, including NRE, NRO, and FCNR FDs. These accounts enable NRIs to invest their money in India and earn interest on it.

NRE fixed deposits are similar to regular term deposits, opened using NRE accounts. They are virtually tax-free, and the interest earned is exempt from income tax in India. The interest rates offered on NRE fixed deposits vary, with some banks offering up to 8% per annum or more. The accounts can be held jointly and offer flexible tenures ranging from one to ten years.

NRO fixed deposits are used to maintain the income for NRIs generated in India, such as rent or pension. The interest rate offered on these accounts can be up to 7.30%, but the interest earned is taxable in India at 30% along with surcharge and cess.

FCNR (B) fixed deposits are term deposit accounts in various foreign currencies, including USD, GBP, EUR, JPY, AUD, CAD, SGD, and HKD. The interest rate offered on these accounts can be up to 3%, and the interest income is not taxable in India. The principal amount and interest are fully repatriable.

The interest rates offered on NRI fixed deposits vary across banks and depend on the type of account chosen. It is essential to compare the interest rates offered by different banks before opening an NRI fixed deposit account.

Advantages of NRI fixed deposits

Fixed deposits are a popular investment option for Non-Resident Indians (NRIs). NRI fixed deposits are term deposits that offer higher interest rates and secure investment options compared to regular savings accounts. Here are some advantages of NRI fixed deposits:

High Interest Yields

NRI fixed deposits typically offer more attractive interest rates than savings accounts, ensuring better returns on your investment. The interest rates vary across banks and the type of NRI fixed deposit account chosen.

Tax Efficiency

Certain types of NRI fixed deposits, such as those opened through an NRE account, are not taxable in India. This means that NRIs can enjoy tax-free interest income on their investments.

Flexibility in Repatriation

Most NRI fixed deposits allow for easy transfer of funds back to the depositor's country of residence. NRI fixed deposits are generally fully repatriable, allowing NRIs to repatriate both the principal amount and the interest earned.

Safe and Secure Investments

NRI fixed deposits are considered safe and secure investments. These deposits are ideal for NRIs looking to deposit and save money earned abroad. The risk of loss is relatively low compared to other investment options.

Credit Facilities

Loans against NRI fixed deposits are commonly available, providing financial flexibility to NRIs. Overdraft and loan facilities can be availed using the NRI fixed deposit as collateral.

Nomination Facility

NRI fixed deposits allow for a nomination facility, which means that the account holder can nominate an individual to be the beneficiary of the deposit in case of their untimely demise.

Frequently asked questions