NRE vs NRO Fixed Deposits: What is the difference?

Many NRIs, therefore, seek out safe and profitable means of repatriating their money in India. In this context, Fixed Deposits are the most popular investment options for NRIs, as they are dependable and offer a good return. However, there is a difference between NRE (Non-Residential External) and NRO (Non-Residential Ordinary) Fixed Deposits which needs to be known for wise investment decisions. In this article, we will discuss the differences between NRE and NRO FDs, including the features, benefits, and implications of both for NRIs.

NRE Fixed Deposit:

NRE FDs are kept in Indian Rupees and are drawn for NRIs to invest in their foreign money or funds that can be remitted back. The money invested in NRE accounts can be easily remitted along with the interest accrued.

NRO Fixed Deposit:

NRO FDs are maintained in either Indian Rupees or the currency of the foreign country. They are intended for NRIs to deposit income earned in India, such as rent, dividends, or pension. The principal amount is not repatriable, but the interest earned can be repatriated up to a certain limit as per RBI guidelines.

Read our related article - What are NRI Fixed Deposits | Benefits of NRI FD

NRE Fixed Deposit:

The funds in NRE FDs, including both the principal and interest, are fully repatriable. NRIs can freely transfer the funds back to their country of residence without any restrictions.

NRO Fixed Deposit:

While the principal amount in NRO FDs is not repatriable, the interest earned can be repatriated up to a certain limit as per RBI regulations. Any amounts exceeding the prescribed limit require specific approval from the RBI.

Read our related article - Types And Benefits Of Nri Savings Account

NRE Fixed Deposit:

The money deposited in NRE accounts must be brought from outside, say, from abroad, remittances or from any other NRE/NRO account. The account holder cannot put money earned in India into an NRE account.

NRO Fixed Deposit:

An NRO account pertains to income earned in India such as rent, dividend, pension, or other Indian income. One can place this income into NRO accounts and subsequently invest in an NRO FD.

Read our related article - What is an NRI Account? Types, Opening Process & Benefits

NRE Fixed Deposit:

The interest that the NRE FDs earn is not taxed in India. Moreover, it is not even susceptible to wealth or income tax. This makes NRE FDs very good investments for NRIs because here, too, they can earn returns without paying taxes on foreign earnings.

NRO Fixed Deposit:

The interest earned on NRO fixed deposits (FDs) attracts taxes in India. The tax is deducted directly (TDS) based upon the then prevailing income tax rates. NRIs can benefit from double taxation avoidance treaty, if applicable, signed between India and their country of residence.

NRE and NRO Fixed Deposits have some distinct benefits and considerations specifically for NRIs. The NRE FDs can be used for repatriable funds, allowing tax-free returns and full reparability. On the other hand, NRO FDs can be utilized for income earned in India with limited reparability and tax as applicable under Indian Income Tax laws. Any of the two options- NRE or NRO FDs-have to be chosen keeping in mind the financial objectives of the NRI, what he wants to send back home and tax implications. For ascertaining apt investment, NRIs can seek advice from a financial advisor or banking consultant.