Fixed deposits remain a popular investment option for NRIs seeking stable returns with minimal risk. However, deciding between an NRE FD and an NRO FD requires understanding how each aligns with different financial goals, tax regulations, and repatriation requirements. Evaluating your income sources, investment tenure, and long-term plans helps determine which fixed deposit option best meets your needs.
What is an NRE FD?
An NRE FD allows NRIs to deposit foreign-earned funds in India for a fixed tenure and earn fixed interest. The deposit is maintained in Indian Rupees, with foreign currency converted at the current exchange rate when the deposit is made.
Leading banks offer NRE fixed deposits with tenures ranging from 1 year to 10 years. You can fund an NRE FD through foreign currency remittances from your overseas bank account or transfers from existing NRE or FCNR accounts held with any Indian bank.
What is an NRO FD?
An NRO FD is designed for NRIs who wish to invest income earned in India. Rental income, dividends, pensions, or proceeds from asset sales within India can be deposited into an NRO FD to earn fixed returns over a specified period.
NRO fixed deposits accept deposits in Indian Rupees. Tenures typically range from 7 days to 10 years, offering flexibility for both short and long-term investment goals.
Tax treatment between NRE and NRO FD
Tax implications represent a primary differentiator between these deposit types.
- Interest earned on NRE FD: Interest earned on this deposit is completely exempt from Indian income tax. This tax-free status means you retain the full interest amount, with no deductions. The principal is also exempt from wealth tax, providing tax benefits for foreign earnings invested in India.
- Interest on NRO FD: Interest earned is taxable under Indian income tax laws. A 30% TDS plus applicable surcharge and cess is deducted before interest is credited. While this reduces net returns in comparison to NRE deposits, Double Taxation Avoidance Agreements can be claimed if applicable.
Understanding repatriation policies
Repatriation rules determine how easily you can transfer your fixed deposit funds and earnings back to your overseas account.
- NRE FD: Its earnings, including both principal and interest, are fully and freely repatriable. You can transfer the entire maturity amount to your overseas bank account without restrictions. This unrestricted repatriation is well-suited for people looking to move funds abroad.
- NRO FD: Its repatriation is permitted up to USD 1 million per financial year, subject to applicable taxes. While this limit accommodates most personal requirements, it imposes a ceiling that NRE deposits do not.
Interest rates and returns
Leading banks provide competitive interest rates on both NRE and NRO fixed deposits, with rates varying by tenure. Longer deposit periods typically offer higher interest rates. Interest can be compounded quarterly or paid out at regular intervals, depending on your preference.
For NRE fixed deposits, interest is calculated at a fixed rate, with options for simple or compound interest. Monthly or quarterly payouts are available for simple-interest FDs, while compound-interest deposits pay accumulated interest at maturity.
NRO FDs follow similar interest calculation methods, with the key difference being post-TDS tax returns.
Which deposit should you choose?
| Criteria | Choose NRE FD if | Choose NRO FD if |
| Funds originated | Foreign Income | Income in India |
| Tax | Interest is tax-free | Interest is taxed |
| Repatriation | Fully repatriable | Up to USD 1 million per year |
| Future Use | Move funds abroad | Use money in India |
| Aim | Maximise returns | Fixed returns |
Premature withdrawal provisions
Both NRE and NRO fixed deposits permit premature withdrawal, though penalties may apply. Typically, the bank calculates interest at the applicable rate for the actual period the deposit remained with the bank, based on rates prevailing at the time of booking.
Opening your fixed deposit
To open an NRE FD, an active NRE savings account is mandatory. Similarly, an NRO FD requires an NRO savings account. Once your savings account is operational, you can book fixed deposits through internet banking, mobile banking, or by contacting your bank. The minimum deposit amount for both NRE and NRO fixed deposits is typically ₹ 1,000.
For individuals with both foreign and India-sourced incomes, maintaining both NRE and NRO fixed deposits allows you to maximise tax benefits while being in compliance with regulatory requirements as per Indian banking laws.
This article is paid content. It has been reviewed and edited by the Eastern Eye editorial team to meet our content standards.
