When it comes to opening and operating bank accounts in India, the non-resident Indians (NRIs) have a lot of options to choose from. The two most popular accounts to invest surplus cash are NRE fixed deposit and NRO fixed deposit accounts. As an NRI, you would want to know what type of fixed deposit account you should choose to park your surplus cash. Both NRE fixed deposit and NRO fixed deposit accounts serve different purposes.
Let’s explore the difference between NRE and NRO FD accounts:
- NRE and NRO FD definition: An NRO fixed deposit is a rupee account that allows NRIs to manage the income earned in India. The income can be in the form of pension, property rent, or dividends. On the other hand, an NRE fixed deposit account is a foreign currency account that allows NRIs to deposit money overseas and remit the same in an Indian account. NRIs mostly hold this account to transfer foreign earning to India.
- Repatriation of funds: In terms of NRE deposits, both principal amount and interest earnings are freely repatriable. There is no limit or restriction on the transfer of funds. In the case of the NRO FD account, only interest earnings are freely repatriable, while the repatriation of the principal amount is subject to a specified limit.
- Tax benefits on NRE & NRO: There is a difference between the two-term deposits when it comes to taxation. As per the current tax laws, the interest earnings on NRE deposits are not taxable in India. However, no such tax benefits can be availed for NRO accounts. The interest earnings are taxable in the hands of the NRO depositor. Considering the taxability of interest income for NRO deposits, the interest accrual on such deposits are also subject to Tax Deduction at Source (TDS).
- Joint account holding: The NRE fixed deposit account cannot be jointly held as it is a foreign account, while you can create an NRO fixed deposit jointly with a resident of India or someone who is also an NRI.
- Transfer of Closure Proceeds: As an NRI, if you want to close the NRE deposit account, then the proceeds can be transferred into the NRE savings account as well as the NRO savings account. It is important to note that the transfer of funds into the NRO account will lead to loss of repatriation benefits. Hence, it is always best to transfer the funds to the NRE account. This will help you retain the repatriation benefits. Since NRO FD is a rupee account, you can transfer the proceeds of the closure only to the NRO account.
- Suitability of the accounts: You should open an NRE fixed deposit account if you want to hold or maintain foreign currency and look to get complete repatriability on the foreign earnings. On the other hand, the NRO fixed deposit account is suitable for those earning income in India and looking to park the Indian earnings. You will be able to earn a higher interest rate by opening an NRO FD account in India.
Now that you know the difference between the FD accounts, you would know which one to pick the next time you want to park surplus cash. Both NRE and NRO fixed deposits have their own advantages. You should opt for one as per your requirement as both accounts offer attractive interest rates. NRE and NRO FD accounts can be opened with a minimum deposit of Rs.25,000 with ICICI Bank.