One of the best ways in which you can make your money work for you, while keeping your investment secure, is to create a fixed deposit. This conventional type of investment allows you to earn an interest rate higher than what you would earn if your savings were parked in a regular savings account. FDs can be opened by both, Resident Indians as well as Non Resident Indians or NRIs. NRIs can open create three types of fixed deposits – Non Resident External Rupee deposit, Non Resident Ordinary Rupee deposit and Foreign Currency Non Repatriable deposits. This article is about NRO FDs.
- What is NRO account and FD?
An NRO account is ideal for NRIs who have moved abroad but still have dependants or income sources in India. You can continue to manage your finances in India through your NRO account and, when you have deposited enough sums in this account, you can open an NRO FD. As such, the sums you earn form your investments in India – be it through share market investments, rent earned from properties leased or inheritance can be invested by creating an FD. This allows you to earn a higher amount on your existing investments.
- You may repatriate the interest earned on deposits
Whether you maintain the sums in your NRO account or create an FD out of it, there are certain rules you must adhere to, with regards to repatriation. In case of NRO FD account, you may repatriate only the interest earned on your deposits (while you are abroad) and transfer the interest amount to your offshore account. The principal amount may not be repatriated to your foreign account.
- The interest rate you can earn
When it comes to this type of NRI fixed deposit, the interest you earn on your deposit is typically the same as that offered to resident Indians. This is because the NRO account is essentially an INR account, from which you can repatriate sums i.e. the principal amount deposited, only when you are in India.
- The interest you earn is taxable
The interest you earn on your NRO fixed deposits is taxable in accordance with the Income Tax Act of India, 1961. This is because the sums parked in the NRO account are sums earned from your investments in India. As such, you need to comply with the taxation laws of India. The tax levied on this FD for NRIs is quite high too. You need to pay 30% interest along with the applicable surcharges and cess taxes. If the interest earned in a financial year exceeds ₹1,000,000; you need to pay an additional surcharge of 10%.
- Investment term and premature withdrawal
Both NRO and NRE FDs can be opened for a minimum period of 7 days and a maximum period of 10 years. You may also withdraw the deposits prematurely, before the term ends. However, the terms of premature withdrawal may differ from one bank to another. While some banks charge a penalty of 1% on the interest earned for premature withdrawals, other banks may not levy any penalties if you’ve maintained your FD for a minimum period of 1 year.
Final word: One of the greatest drawbacks of the NRO deposit is that you cannot repatriate the principal amount to your foreign account. The interest levied is also quite high. As such, it is better to consider the other NRI FDs. The FCNR Deposit is the best type of NRI deposit as you do not have to worry about currency fluctuations.
