Are you looking for options to keep your savings in foreign currency? You have two pretty solid choices in India – GIFT city deposits and FCNR deposits. GIFT city deposits are relatively new in comparison to FCNR deposits that are known to all.
The main part of GIFT City is its financial services focused SEZ which contains India’s first International Financial Services Center (IFSC). The GIFT City IFSC has been set up with the primary objective of “on-shoring the offshore” transactions into and out of India. It offers significant tax benefits, including a 10-year tax holiday, exemptions on securities transaction tax and no capital gains tax for certain investments.
GIFT City deposits are quite similar to FCNR which allows you to invest in major foreign currencies, but they are part of this international financial hub in India.
Here is a detailed comparison of GIFT city deposits and FCNR (Foreign Currency Non-Resident) deposits.
Comparison of GIFT City Deposits and FCNR Deposits
GIFT City Deposits | FCNR Deposits | |
Currency | These are offered in all major foreign currencies such as USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dhiram) etc. without any currency conversion risk. | These deposits are also available in all major foreign currencies like US Dollars (USD), Euro (EUR), British Pound (GBP), UAE Dhiram (AED), Canadian Dollars (CAD), Japanese Yen (JPY), etc., allowing NRIs to keep their deposits in foreign currency without currency fluctuation risk. |
| Tenure | Deposits are offered for a duration ranging from seven days to ten years, depending on the IBU. | Deposits are offered for a duration ranging from one year to five years depending on the offering bank. |
Taxation | Interest earned on foreign currency fixed deposits in GIFT City is fully tax-exempt in India for NRIs. However, it is important to check the tax laws applicable in the country of residence and any DTAA benefits available. | Interest from FCNR deposits is exempted from income tax in India as long as you are a non-resident (NRI and RNOR) under FEMA (Foreign Exchange Management Act). It is advisable to check for potential taxability in foreign country of residence. |
Repatriation | Both principal and interest are fully repatriable, making it flexible for NRIs to transfer funds globally without restrictions. | Both principal and interest on FCNR deposits are fully repatriable, which provides the same level of flexibility as GIFT City deposits. |
Interest Rates | Interest rates vary depending on the bank, currency, tenure, and the amount of deposit. The interest rates offered are linked to corresponding lending rates and forex conversion rates in international markets. | Interest rates vary depending on the bank, currency, tenure, and the amount of deposit. The interest rates offered are linked to corresponding lending rates and forex conversion rates in international markets. |
Premature Withdrawal | Premature withdrawal is generally allowed, but penalties may apply. Applicable interest for the period held, and penalties may vary based on the specific currency and the withdrawal clause. | Premature withdrawal is allowed, but the interest rate may be adjusted depending on the actual period in which the deposit was held. Banks may also levy penalties depending on the premature closure clause. |
Regulatory Environment | Deposits are regulated by IFSCA (International Financial Services Centres Authority), a specialised regulatory framework designed for the fintech hub GIFT city in India, which is more streamlined and tailored for international transactions. | Operate under the regulations set by the Reserve Bank of India (RBI) for all Indian banks, offering a stable and well-established investment option. |
Both deposit options offer similar benefits to NRIs. GIFT City deposits might be more lucrative for those looking for slightly higher returns and a more flexible, globally oriented financial environment. On the other hand, FCNR deposits are backed by a long-standing and trusted Indian banking regulatory framework with well-known terms and conditions.
Conclusion
To conclude, GIFT City Foreign Currency Deposits (offshore deposits) offer tax-efficient, fully repatriable investment options for NRIs with competitive interest rates. The unique benefit of GIFT city deposit is, that it becomes a platform for NRIs to access a wide range of global financial services. This includes deposits, loans, and other investment products, all within a specialised regulatory framework that is designed for international financial transactions. On the other hand, FCNR deposits are tax-efficient investments with full-repatriation benefits, widely available across all major banks in India, backed by the RBI's robust regulatory framework. Both options have broadened the scope for NRIs to invest in different currencies and grow their wealth.
