NRIs can have many options when opening bank accounts in India. The many different types of NRI accounts are, of course, suited to meet certain requirements of NRIs. You may wish to open a fixed deposit NRI account in order to earn returns while saving your funds. When it comes to fixed deposit accounts, NRIs have two main options: an NRE FD account or an NRO FD account. What is the difference between the two, and which one must you go for? Let’s find out.
NRO FD Account
- An NRO or Non-resident Ordinary fixed deposit account is most suitable to NRIs who have a regular stream of income from Indian sources, for example, rent from property, dividends from shares, commissions, fees etc.
- The principal amount in the account is not repatriable, which means it cannot be moved outside the country. The interest, however, can be transferred abroad up to a certain limit.
- NRO FD accounts can be held jointly with an Indian resident.
- Interest rates for NRO FD accounts are quite attractive as compared to savings account rates.
- Interest from an NRO FD account is fully taxable in the hands of the NRI.
NRE FD Account
- NRE FD accounts are most suitable for NRIs who want to deposit their foreign currency income.
- NRE FDs can be used by NRIs to earn interest and save funds on foreign income.
- Funds in NRE FD accounts are fully repatriable, which means both the principal and interest can be moved outside India.
- NRE FDs can be opened with flexible tenures from 1 to 10 years.
- Interest from NRE accounts is completely tax-free.
Which one is better: NRE FD or NRO FD?
The question isn’t really which one is better, but which one suits you best. The pros and cons of each type are evident from the above information. If you’re still confused about which one you should go for, read the following summary.
Choose NRO FD if:
- You’re looking to park income from Indian sources in your account
- You do not need to move funds outside India
- You want to open a joint account with an Indian resident
Choose NRE FD if:
- You’re looking for an account to deposit income earned abroad in foreign currency.
- You need to move funds from the account outside India on a regular basis
- You do not have any income sources in India and hence do not need to deposit income from Indian sources.
- You want your overseas income and interest to be tax-free.
Conclusion
Thus, choosing one FD account over the other is a matter of your own specific requirements and situation. Both NRE and NRO FDs offer attractive interest rates and can be used to accumulate funds over the long term. Both have their own sets of rules that you have to adhere to. The ultimate deciding factor when choosing an NRO or NRE FD account is the income flow of the NRI. If the income flow is predominantly Indian, go for an NRO account. But if Indian income is negligible or nil, then there is really no need for an NRO account, and NRE would be better suited.
