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 on the scene are GIFT City Deposits offered by the IFSC Banking Units (IBUs) of Indian and global banks in GIFT City (Gujarat International Finance Tec-City), a tax haven established to ‘onshore the offshore’ in India.
Each of these deposit options comes with its unique set of benefits and features. Whether it is managing your finances efficiently, growing your wealth, or reducing the tax outgo on investments, the right option will depend on your financial goals. Understanding each of these options in detail can help you make an informed choice.
Comparison of Various Deposit Options for NRIs
Here is a summary comparison of GIFT City FD, FCNR deposit, NRO, and NRE deposit on various parameters:
GIFT City FD | NRO FD | NRE FD | FCNR Deposits | |
Currency? | USD, EUR, GBP etc | INR | INR | USD, EUR, GBP etc |
Tax on interest? | Tax free in GIFT City and India | Fully taxable in India | Tax free in India | Tax free in India |
Repatriation? | Freely repatriable outside GIFT City and India | Subject to FEMA limit ($1mn per FY) | Freely repatriable outside India | Freely repatriable outside India |
Tenure? | 7 days - 10 years | 7 days - 10 years | 1 year - 10 years | 1 year - 5 years |
What is it? | |||
GIFT City FDs: These are the fixed deposits offered to NRIs by banks (both Indian and foreign) located in the Gujarat International Finance Tec-City (GIFT City), India's upcoming global financial services hub. 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. | |||
FCNR Deposits: 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 and are regulated by the Reserve Bank of India (RBI), ensuring security and trust in these foreign currency savings instruments. | |||
NRO Deposits: 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) rules. | |||
NRE Deposits: These are the deposit accounts offered to NRIs to park their foreign earnings in India in Indian Rupees. These RBI-regulated deposits are offered by most major banks in India. |
Duration | |||
GIFT City FDs: 7 days to 10 years | |||
FCNR Deposits: 1 year to 5 years | |||
NRO Deposits: 7 days to 10 years | |||
NRE Deposits: 1 year to 10 years |
Currency | |||
GIFT City FDs: USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc | |||
FCNR Deposits: USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc | |||
NRO Deposits: INR (Indian Rupees) | |||
NRE Deposits: INR (Indian Rupees) |
Taxation | |||
GIFT City FDs: 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. | |||
FCNR Deposits: 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. | |||
NRO Deposits: Banks will deduct TDS (Tax Deducted at Source) of 30% (plus surcharge & cess) on the NRO deposit interest. However, you can reduce the tax burden if there are any benefits available under the DTAA between India and your country of residence. Any excess TDS deduction can be reclaimed by filing an Income Tax Return in India for the corresponding financial year. | |||
NRE Deposits: Interest earned is tax-free in India. It is advisable to check for potential taxability in your foreign country of residence. |
Repatriation/Transferability to Country of Residence
GIFT City Fixed Deposits: Fully repatriable (both principal and interest) |
FCNR Deposits: Fully repatriable (both principal and interest) |
NRO Deposits: Repatriation is subject to the limits set by FEMA (not more than USD 1 million for the financial year, including interest on all NRO funds) |
NRE Deposits: Fully repatriable (both principal and interest) |
Premature Withdrawal
| All 4 types of deposits allow premature withdrawal. Generally with FCNR and NRE deposits, no interest is paid if the deposit is withdrawn before 1 year. Some additional penalty may also be applicable. 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 FDs offered by the banks, which do not offer premature withdrawal facility. |
Key Benefits | |||
GIFT City FDs: Globally competitive interest rates without currency fluctuation risk, zero tax dues in India, and ease of repatriation | |||
FCNR Deposits: 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 | |||
NRO Deposits: Convenient to grow Indian income at competitive interest rates, and option of availing loan against deposit | |||
NRE Deposits: Zero tax dues in India, ease of repatriation, option of availing loan against deposit, and competitive interest rates |
Limitations | |||
GIFT City FDs: Offered only by banks with an IBU branch in GIFT City | |||
FCNR Deposits: Interest rates are typically lower than INR deposits | |||
NRO Deposits: Limits on repatriation, taxable in India, and subject to currency fluctuation risk | |||
NRE Deposits: Subject to currency fluctuation risk |
Interest Rates | |||
GIFT City FDs: 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%. | |||
FCNR Deposits: 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%. | |||
NRO Deposits: 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%. | |||
NRE Deposits: 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
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.
NRO deposits can help you grow your Indian income with flexible tenures.
NRE deposits allow you to grow your foreign earnings in Indian Rupees and earn tax-free interest in India with full repatriation benefit.
Each deposit option can accordingly be chosen to fit the relevant income source and your overall financial goals.
