If you an NRI and wondering how a fixed deposit works as an investment option in India, read this brief guide to have all your queries answered.
First things first, an NRI cannot have a standard savings account opened in Indian banks. As per the Foreign Exchange Management Act (FEMA), NRI status in the context of taxation and investment is determined based on intent. So, once you have shifted base across the shores, this is an intentional step, thus changing your residential status.
The following are the three most popular types of bank accounts for NRIs.
- Non-Resident Ordinary (NRO) – If you are moving abroad, after having worked in India, the savings bank account in India has to converted to an NRO account. A savings bank account for the NRI, it is funded in rupees or foreign currency. Fixed or recurring deposits for less than a year or more can be invested through this account. For those NRIs, who have sources of income back in India, this account is suitable and has a host of other benefits too.
You can invest directly in shares and mutual funds, and there are no limitations on the types of credits you make to this account. You cannot repatriate money from this account; hence, it is best to meet expenses in India only. Or else, you can choose an NRO fixed deposit. Learn all you can about what a fixed depositisand let these funds accumulate for a longer period.
Use an online calculator to know how much you gain after paying a surcharge of 30%, and cess (as TDS) levied on the earnings from this account.
- Non-Resident External (NRE)– An NRE account has to be opened by the person who is going to the account holder. He/she can only use foreign exchange to fund it. No power of attorney can be used to open this account. The minimum maturity period for recurring or fixed deposit is one year.
NRE accounts are freely repatriable in any currency and no tax on the interest earned makes these accounts a preferred choice in the NRI community. However, always calculate interests rates on fixed depositsor Mutual Fund earnings before starting your investment or savings.
- Foreign Currency Non-resident (FCNR (Banks))– Choose an FCNR account if you want to open a new bank account in order to start investing in fixed deposits in India. This account can be closed prematurely, but interest on fixed deposit can only be earned after a year’s lock-in period. A notable advantage of an FCNR account is that any currency, other than Indian Rupees can be used to run this account, thus minimizing the effect of currency fluctuations.
PIOs and can NRIs can also open joint FCNR accounts with resident Indians, and if required, the latter can operate the bank account as power of attorney holders. There is no upper limit on transferring funds to any NRE account for making payment in India. In case your residency status changes from non-resident to a resident, you can still hold FCNR accounts up till maturity.
It is advised to use a fixed deposits interest rates calculator and get an idea of how much profit you will earn before investing in fixed deposits in any types of savings account for the NRIs.