Fixed Deposits (also called ‘Term Deposits’) are one of the safest and most familiar investment options for NRIs to grow their money in India. If you are an NRI investing in Indian bank deposits, it is vital to know the available options and the right kind of deposit for you. There are four main types of fixed deposits available for NRIs to invest in:
1. GIFT City FD
2. FCNR deposit
3. NRO FD
4. NRE FD.
You might already be familiar with NRO and NRE FDs, which are the more traditional, bread and butter deposit options available for NRIs. FCNR (Foreign Currency Non-Resident) deposits allow you to park your foreign earnings in the foreign currency familiar to you and earn globally competitive interest rates in India’s stable banking environment.
New in the scene are GIFT City Deposits offered by the Global Financial Hub, Gujarat International Finance Tec-City (GIFT) which is also a tax haven for investors. Each of these deposit options comes with its unique benefits and features.
Whether it is managing your finances efficiently, growing your wealth, or reducing the tax outgo on investments, choosing the right option comes down to your financial goals. Understanding each of these deposits in detail can help you make a rational choice.
Comparison of Various Deposit Options for NRIs
Here is a comparison of GIFT City FD, FCNR deposit, NRO, and NRE deposit on various parameters:
GIFT City FD | FCNR Deposits | NRO Deposits | NRE Deposits | |
What is it? | These are the fixed deposits offered to NRIs by banks (both Indian and foreign banks) located in the Gujarat International Finance Tec-City (GIFT City), India's upcoming financial hub. These banking units operate under the regulatory framework of IFSCA (International Financial Services Centres Authority) to offer world-class international banking services with more liberalised tax and investment policies compared to regular Indian banking. | These 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 governed by the Reserve Bank of India (RBI) guidelines, ensuring security and regulation in foreign currency holdings. | These are the deposit accounts designed for NRIs to manage their income earned in India, such as rent, dividends, pensions, etc. These RBI regulated deposits are offered by most major banks in India. Repatriation of these deposits is regulated as per FEMA (Foreign Exchange Management Act. | These are the deposit accounts offered to NRIs to park their foreign earnings in India in Indian currency. These RBI regulated deposits are offered by most major banks in India
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Duration | Tenures typically vary from 7 days to 10 years. | Tenures typically range from 1 to 5 years. | Tenures can vary from 7 days to 10 years. | Tenure can vary from 1 to 10 years. |
Currency | USD (US Dollars), | USD (US Dollars), | INR | INR |
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 sae | 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. | Banks will deduct TDS (Tax Deducted at Source) of 30%+surcharge & CESS on the NRO deposit interest. However, you can reduce the tax burden if there are any benefits available under DTAA between India and your country of residence. Also, any excess TDS deduction can be reclaimed by filing Income Tax Return in India for the corresponding financial year. | Interest earned is tax-free in India. It is advisable to check for potential taxability in foreign country of residence. | |
Transferability to Country of Residence | Fully repatriable (both principal and interest) | Fully repatriable (both principal and interest) | Repatriation is subject to the limits set by FEMA (up to USD 1 million per financial year), post payment of any taxes due in India on funds received in the NRO account | Fully repatriable (both principal and interest) |
Premature Withdrawal | Allowed | Allowed | Allowed | Allowed |
| Note: Though all deposits come with a premature withdrawal facility, it is important to refer to the premature withdrawal clauses of the respective banks for each type of deposit to understand the penalties, terms, and conditions applicable. There are also non-callable GIFT city deposits, NRO, and NRE deposits offered by the banks which do not offer premature withdrawal facility. | ||||
Key Benefits | Globally competitive interest rates without currency fluctuation risk, zero tax dues in India and ease of repatriation. | Grow your foreign earnings in all major foreign currencies without currency fluctuation risk, avail loan against deposit/overdraft facility, zero tax dues in India and ease of repatriation. | Convenient to grow Indian source of income at competitive interest and avail loan against deposit/overdraft facility. | Major benefits include zero tax dues in India, ease of repatriation, avail loan against deposit/overdraft facility and high interest rates. |
Limitations | Only banks having GIFT city IBUs located in Gujrat offer this with specific regulatory conditions applicable. | Interest rates are typically lower than INR deposits. | Partially repatriable and subjected to income tax in India and involves currency fluctuation risk. | Involves currency fluctuation risk |
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. For USD, the current rate ranges from 1.70% to 6.80%. | 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%. | Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 2.85% to 8.00%. | Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 3.00% to 8.00%. |
Conclusion
In conclusion, GIFT city fixed deposits are a great option if you are looking to benefit from tax-free returns, full repatriation, and unique benefits available under a global fintech hub without any currency risk.
FCNR deposits are your go-to option to grow your foreign earnings in foreign currency without conversion while earning repatriable and tax-free interest in India.
NRO deposits can help you manage your Indian income.
NRE deposits from your foreign earnings can earn your tax-free interest in India with full repatriation benefit. Hence, the suitability of each deposit type depends on your financial goal and income source.
