Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts help NRIs to manage their finances in India. These Indian Rupee denominated accounts allow you to benefit from the high interest rates on Indian bank deposits in a stable banking environment.
The suitability of NRO vs NRE Fixed Deposits (FD) can be determined based on how you wish to fund the principal amount and where you’d like to eventually use the money. If you are investing your Indian income, NRO FDs would be more suited. If you’re looking to invest your foreign income in Indian bank deposits, NRE FDs would be ideal.
NRE FDs also allow you to freely repatriate your principal as well as interest back to your foreign country of residence. NRO FDs, however, come with some limitations of how much money you are allowed to transfer out of India. Let’s discuss both these options in more detail below, including how they are taxed.
What is a Non-Resident Ordinary (NRO) Fixed Deposit?
NRO FDs are typically linked to your NRO Savings Accounts in India. These deposits are held in India and in Indian rupees. They are tailored to help you grow your Indian income, such as rent from property, dividends, or any interest income. Indian banks offer attractive rates of interest on NRO FDs and the interest rate varies depending on the desired tenure.
Key Features of NRO Fixed Deposits
- Available NRO FD tenure options can range from 7 days to 10 years depending on the bank.
- NRO FDs can be booked using existing funds in your NRO bank accounts. You can also transfer funds from your NRE to your NRO account for this purpose.
- NRO FDs can be jointly held with another NRI and also with a Resident Indian (on ‘’former or survivor’’ basis)
- Overdraft facility can generally be availed against NRO FDs in an NRO (savings/current) account.
- NRO FDs can be repatriated abroad within the limit of USD 1 million per financial year for all NRO funds, as set by FEMA (Foreign Exchange Management Act).
Tax Implications of NRO Fixed Deposits
The interest earned on NRO FDs is subject to income tax in India. The interest earned is fully taxable as per the applicable tax slab. The bank will deduct TDS (Tax Deducted at Source) of 30% (plus applicable surcharge & cess) on the interest earnings. Any excess TDS deduction can be claimed as a refund by filing your Income Tax Return (ITR) in India.
Depending on the specific DTAA (Double Taxation Avoidance Agreement) between India and your country of residence, you may qualify for a special rate. For this you need Tax Residency Certificate (TRC) from your country of residence. You will have to submit the TRC along with Form 10F while filing your IT returns.
What is a Non-Resident External (NRE) Fixed Deposit?
Similar to NRO FDs, NRE FDs are also held in Indian rupees. They differ significantly, however, in their repatriability and tax treatment. These are typically funded through your foreign income, although you may also fund it using your NRO account income (with certain restrictions on the source of such income, and within the annual limit of USD 1 million).
These deposits offer attractive rates of interest, often at par with domestic deposits, and are a great addition to your debt/fixed income portfolio in India.
Key Features of NRE Fixed Deposits
- NRE FD tenure ranges from a minimum of 1 year to a maximum of 10 years depending on the bank. The minimum of 1 year is set by the RBI.
- NRE FDs can be set up by remitting your foreign income to your NRE savings account with the corresponding bank. You can also fund it using money from your NRO account (up to USD 1 million per year, post payment of applicable taxes, across all your accounts), provided that money falls under the ‘current income’ category which includes, rent, interest, dividend and pension.
- NRE FDs can also be held jointly with another NRI or a Resident Indian who is a ‘close relative’ (parent, sibling, spouse, child etc).
- Overdraft facility is typically also available for NRE FDs.
- NRE FDs are fully repatriable (both principal and interest) abroad without any limitations.
Tax Implications of NRE Fixed Deposits
NRE FDs (both principal and interest) are fully exempt from income tax in India. There is no applicable TDS either. They may, however, be taxed in your foreign country of residence. Make sure to check the compliance requirements with a tax professional, including any applicable DTAA provisions.
You can check out the latest interest rates offered by Indian banks on NRE and NRO FD with Belong's FD Comparison Tool
Learn about FD Taxation for NRIs – Understand how FD taxation for NRIs affects your interest earnings.
Which is Better: NRE or NRO FD?
NRO fixed deposits are a great option for growing your income earned in India, and NRE deposits are well suited to invest your foreign earnings in India. NRO FDs come with attractive rates of interest and greater flexibility in tenure options, but with some tax implications and limits on repatriation.
On the other hand, NRE deposits offer similar lucrative rates and the benefits of tax exemption in India and no limits on repatriation abroad, but with a longer term tenure commitment.
