Is NRE FD a good option for investment for the NRIs?

August 07, 2020

The World is experiencing a falling interest rate scenario, and residents of a few countries are even witnessing negative interest rates. In such a dismal scenario for the savers, one is often searching for better investment options for their surplus funds. NRIs can open NRE savings accounts, and NRE fixed deposits to park their foreign income into such accounts which certainly come to the rescue of the NRIs. This is because NRIs can enjoy the better returns, preferential tax treatment as well as flexibility to repatriate funds back to the USA through such accounts. Let us discuss these benefits in detail:

  1. Better Interest Rates – The interest rates for NRE fixed deposits in India are deregulated and are not subject to the approval of the Central Bank, Reserve Bank of India. As such, different banks can provide different interest rates for NRE fixed deposits. Currently, ICICI Bank offers interest rates ranging from 6.70% to 7.10% per annum for different tenors of NRE Fixed Deposits (Source - https://www.icicibank.com/nri-banking/RHStemp/rates.page) and thus, can be considered for investment by NRIs for generating better and guaranteed returns.
  2. No Income Tax on Interest Income – The current Income Tax laws consider the interest income from NRE accounts, including NRE, fixed deposits as exempt as per the provisions of Section 10(4) of the Income Tax Act 1961 (as amended). Consequently, due to this exemption, the bank is also not required to deduct any tax in respect of such interest income on NRE savings account or NRE Fixed Deposit. As such, the NRIs do not need to worry about any taxation related compliances, including tax payment and return filing, while they are remitting funds to their NRE account or making an investment in NRE FD.
  3. Flexibility of Repatriation of Funds – As per the extant regulations, the balance outstanding in NRE accounts, both the savings as well as fixed deposits, is freely repatriable outside India. In other words, it means that the non-residents can transfer the balance back to the USA without any restrictions. This is applicable not only for the actual fund inflow into the NRE account in foreign currency but also applicable to the interest income earned on such amounts. As such, the non-residents can enjoy the flexibility to transfer the funds to India in NRE accounts, invest the money in NRE fixed deposits and even transfer it back to the USA without any limit.
  4. Maintenance in Indian Currency – Once the credit in NRE account is received in foreign currency, the amount is converted in domestic currency at prevailing exchange rates. Thereafter, the balances are maintained in Indian currency and hence, the deposits stay insulated from the foreign currency risk if the funds are meant to be used within India at a later stage.

Make the most of these benefits by investing in NRE FD right away.

The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules for you, as tax benefits are subject to changes due to change in tax laws.

 

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