All you wanted to know about NRI bank Fixed Deposits
Under the RBI Regulations, an NRI (Non-Resident Indian) can open three types of deposits in India – NRE deposits, NRO deposits and FCNR (B) deposits. All these three types of deposits carry their respective benefits and restrictions and are suitable for different types of investment requirements. The salient benefits and restrictions attached with each category are discussed as below:
- NRE Deposits – Non-Resident (External) Deposits – NRE deposits are one of the relatively popular rupee fixed deposits that an NRI can open. However, such deposits can be opened only from inward overseas remittance or transferred from another NRE account. When the deposit is opened through an inward overseas remittance, the amount is converted into Indian Rupees at the current exchange rates. Such deposits must be opened with a minimum tenure of 12 months. Like NRE bank accounts, such deposits cannot be created through transfer from any resident bank account or NRO account. The amount invested in NRE fixed deposits is freely repatriable. The account holder can transfer the funds outside India without restrictions or limits. Another significant benefit for the NRIs to invest in NRE deposits is the tax exemption available for interest income on such deposits. As such, one can use NRE deposits for earning tax-free returns in India and then also be able to transfer the funds back without any restrictions.
- NRO Deposits – Non-Resident (Ordinary) Deposits – In the case of NRO deposits, banks accept denominations in Indian currency like NRE deposits. However, such deposits are more flexible when compared against NRE deposits in terms of funding restrictions. One can open an NRO deposit through inward remittance from overseas or even through transfer from any other bank account in India, including NRE, NRO or resident bank accounts. It is further necessary to note that when the residential status of individual changes from resident to non-resident, all the existing deposits and bank accounts are converted into NRO accounts. However, NRO deposits are subject to repatriation restrictions, as the principal amount invested in such deposits can only be transferred outside India up to specified limits. However, there is no such restriction on the interest income from such NRO deposits. While NRE deposits enjoy tax benefits on the interest income, there is no tax exemption for the interest income from NRO deposits. NRIs are required to pay tax on such interest income at the regular tax rates as applicable to them. One can hold such deposits solely and jointly with another resident or non-resident.
- FCNR (B) Deposits – Foreign Currency Non-Resident (Bank) Deposits – These are special categories of bank deposits allowed to be opened by NRIs that are denominated in foreign currency. This is unlike NRE or NRO deposits which are denominated in Indian currency. Such deposits must be opened for a tenor ranging from one year to five years. They can be denominated in any specified freely convertible foreign currencies, like US Dollar, Japanese Yen, Pound Sterling, etc. While FCNR deposits can be withdrawn before the completion of the contractual maturity, the bank cannot pay any interest if the investment period has been less than one year. Such deposits carry funding restrictions and repatriation benefits like NRE deposits. FCNR deposits are beneficial when the account holder intends to save and invest money for future foreign expenses since they are insulated from the movements in the foreign currency rates. Further, like NRE deposits, the interest income from FCNR (B) deposits is also exempt from Indian Income tax. An FCNR (B) deposit can be held solely or jointly with another NRI and not with another resident.
- RFC Fixed deposits: The Resident Foreign Currency (RFC) Fixed Deposit – The account allows NRIs who have returned to India, earn high returns on foreign currency. Most banks account allows NRIs to deposit three types of currencies – USD, GBP, and JPY. NRIs who have returned to India can deposit their foreign currency into the RFC Fixed Deposit account and earn good returns without the risk of facing foreign exchange conversion. The interest earned is fully repatriable. In case you decide to change your status to NRI, you have the flexibility to transfer the funds from the RFC account to NRE or FCNR account.
With the above benefits and restrictions associated with different NRI bank deposits, one must take an informed decision as per their investment and repatriation requirements.
The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules, as tax benefits are subject to changes due to change in tax laws.