The world is experiencing a falling interest rate scenario, with some countries even witnessing negative interest rates. In such a dismal environment for savers, many seek better investment options for their surplus funds. For Non-Resident Indians (NRIs), NRE savings accounts and NRE fixed deposits (FDs) offer a secure and rewarding solution. These accounts not only provide attractive returns but also offer preferential tax treatment and the flexibility to repatriate funds back to countries like the USA.
NRE FD Benefits
Better Interest Rates
Interest rates on NRE fixed deposits in India are deregulated, meaning they are not subject to approval by the Reserve Bank of India. As a result, different banks offer different rates. For instance, ICICI Bank currently offers attractive interest rates for various NRE FD tenors. This makes NRE FDs a viable investment option for NRIs looking to earn guaranteed returns.
No Income Tax on Interest Income
Under Section 10(4) of the Income Tax Act, 1961 (as amended), interest earned on NRE accounts, including fixed deposits, is fully exempt from tax. Consequently, banks are not required to deduct tax at source (TDS) on this income. This eliminates the need for NRIs to worry about tax compliance or filing returns in India on such earnings.
Did You Know?
The interest earned on NRE FDs is completely tax-free in India. Plus, there's no cap on the amount you can repatriate back to your country of residence.
Flexibility of Repatriation of Funds
Balances held in NRE accounts—both savings and FDs—are freely repatriable outside India. This means NRIs can transfer both the principal and the interest earned back to their home country without restrictions. This applies to the initial foreign currency funds deposited as well as the interest income accrued.
Maintenance in Indian Currency
Once credited in foreign currency, funds in an NRE account are converted to Indian Rupees at prevailing exchange rates. The balance is then maintained in Indian currency. This shields your deposit from foreign exchange rate risk if the funds are intended to be used within India later.
Conclusion
For NRIs looking to grow their foreign income safely and efficiently, NRE Fixed Deposits offer a compelling mix of benefits—high interest rates, tax-free returns, full repatriability, and freedom from currency risk (if used in India). Whether you’re planning for future expenses in India or simply want a secure investment avenue, NRE FDs can be a smart addition to your portfolio. Evaluate the current rates and terms offered by leading banks, and consider investing in an NRE FD to make the most of your hard-earned money.
Disclaimer:
The information provided in this article is for informational purposes only. Please consult a tax professional for specific guidance, as tax benefits are subject to change with amendments to tax laws.