Comparison: GIFT City FD vs FCNR Deposits

We recently published a comprehensive comparison of the various term deposit options available to NRIs, i.e. GIFT City FD, FCNR Deposit, NRO FD, and NRE FD. Here we’ll do a head to head comparison of GIFT City FDs with the other type of foreign currency deposit offered by Indian banks, i.e. FCNR Deposits.

What is GIFT City?

GIFT City (Gujarat International Finance Tec-City) has been at the forefront of financial news in the past few years for a host of reasons, such as fintech innovation, a novel regulatory framework, and even its sustainable design.

GIFT City IFSC is envisioned as a global financial and IT services hub, comparable to financial centres like Singapore and Dubai. It is designed to be investor-friendly and offers a simplified process for setting up businesses, with quick approvals and minimal bureaucratic hurdles.

GIFT City Fixed Deposits

These are the fixed deposits offered to NRIs by banks (both Indian and foreign) located in GIFT City. These IFSC Banking Units (IBUs) operate under the regulatory framework of the International Financial Services Centres Authority (IFSCA), an umbrella banking, insurance, investments and PF regulator established by Indian law specifically for GIFT City. IFSCA regulations are designed to offer world-class international financial infrastructure and act as a global gateway for the domestic Indian financial markets.

Key features and benefits of GIFT City Deposits

1. Duration: Deposit tenure typically ranges from 7 days to 10 years, depending on the offering bank.
2. Currency: Available in major global currencies like USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc. depending on the specific bank.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside GIFT City, without any restrictions or permissions required.
4. 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 for the same.
5. Premature withdrawal: Premature withdrawal is typically allowed. It is important to refer to the specific clauses of the respective banks to understand the penalties, terms, and conditions applicable. There are also non-callable GIFT City FDs offered by the banks which do not offer premature withdrawal facility.
6. Interest rate: 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. For USD, the current rate ranges from 1.70% to 6.80%.
7. Key benefits: Globally competitive interest rates without currency fluctuation risk, zero tax dues in India, and ease of repatriation.

FCNR Deposits

FCNR deposits are the term deposits tailored for NRIs to park their foreign earnings in their familiar currency without converting to Indian rupees. These deposits are offered by banks in India and are regulated by the Reserve Bank of India (RBI), ensuring security and trust in these foreign currency savings instruments.

Key features and benefits of FCNR Deposits

1. Duration: Deposit tenure typically ranges from 1 year to 5 years, as mandated by RBI.
2. Currency: Available in major global currencies like USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc. depending on the specific bank.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside India, without any restrictions or permissions required.
4. Taxation: 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 your foreign country of residence.
5. Premature withdrawal: Premature withdrawal is typically allowed, though no interest will be paid on withdrawal before 1 year. It is important to refer to the specific clauses of the respective banks to understand any other penalties, terms, and conditions applicable.
6. Interest rate: 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. For USD, the current rate ranges from 3.30% to 6.00%.
7. Key benefits: Choice of favored currency to dial out currency fluctuation risk, option of availing loan against deposit, zero tax dues in India, and ease of repatriation.

Conclusion

GIFT City Fixed Deposits are a great option if you are looking to avail flexible tenures, special tax treatment, and full repatriation, while avoiding currency depreciation risk. FCNR deposits are the traditional option to grow your foreign earnings in foreign currency in India, while earning repatriable and tax-free interest. Each deposit option can accordingly be chosen to fit the relevant income source and your overall financial goals.