According to a recent United Nations report, the diaspora rate of Indians is greatest in the world. Almost 17.5 million Indians currently reside abroad. It is a common practice for such individuals to invest their earnings in Indian fixed deposit schemes.
If you are planning to invest in NRI FDs, you must consider a few aspects before taking such a decision. One of the first things that come to mind is the interest rate for the scheme of your choice.
NRI FD rates: What you must know?
You have several options when it comes to fixed deposit schemes in India. Reputed financial institutions offer competitive rates, especially to NRI investors. For instance, Bajaj Finance offers up to 8.35% interest per year. However, to avail the maximum FD rate, you need to be over 60 years at the time of investment. For people below 60, the maximum interest rate offered is 8.10%.
Regardless of the scheme you choose, ensure you inquire about the rate of interest beforehand. These rates can differ drastically between one financing company and another.
Factors affecting NRI FD interest rates
Fixed deposit rates are different for everyone. The fixed deposit interest rate on offer tends to differ because of the following factors –
- Tenor – Tenor refers to the period of investment. During the FD tenor, your invested quantum remains locked in. Short-term investments generally result in limited interest earnings. To maximise the returns, you need to invest for greater periods. Some reputed companies allow fixed deposit investments for up to 36 months (3 years).
- Financing institution – Where you invest for higher returns is just as important as the other factors. Some institutions offer greater returns to investors, while others have very limited offerings. A quick comparison of the major FD scheme operators in India should give you an idea about the best scheme for you.
Taxation of NRI FD returns
Another important factor that plays an important role in determining your final earnings from the fixed deposit, besides the FD rate, is the amount of tax you need to pay. To understand the matter of FD taxation, you must first consider the type of account you operate for the investment.
- NRO accounts – NRO accounts are used for non-residents to invest their income earned in the country.
Any interest earned through these accounts is taxable under the Income Tax Act of 1961. Moreover, the taxes applicable amount to 30% of the interest earnings, which is a substantial amount.
- NRE accounts – These accounts only permit foreign currency investment and not INR. The interest earned is free from taxes within India and generally. Those NRIs interested can also avail the option of linking their FD accounts to mutual fund investments.
- FCNR accounts – NRIs can use the FCNR account to deposit earnings in the form of the dollar, pound sterling, euro, Singapore dollar, Canadian dollar, Australian dollar, Hong Kong dollar, and Japanese yen. Both the interest earned and the principal is fully repatriable. Additionally, earnings from FCNR fixed deposits are tax-free in India.
Any earnings along with the principal sum in your NRI fixed deposit accounts are freely repatriable, i.e. you can transfer both to your foreign account after maturity. However, NRO fixed deposit repatriation is strictly limited and monitored by the Reserve Bank of India.
Make sure you understand these factors properly before investing. Otherwise, you may end up with lower returns from your investments that you initially thought.
Another important factor to remember when picking the ideal FD scheme is the availability of DTAA or Double Tax Avoidance Agreement. This lowers your tax burdens drastically, by limiting the taxation on your interest earnings to just one country – either India or your country of residence.
FDs are attractive appreciating assets that you can gift to family members or loved ones. However, ensure you understand each aspect of investing as an NRI before proceeding. Doing so should help you avoid excessive taxes and lead to sizable gains as well.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends.