Frequently asked questions on NRE Fixed Deposits (NRE FD): the complete guide
This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).
Frequently asked questions on NRE Fixed Deposits (NRE FD): the complete guide
Posted on 31 May 2023
Author: Sayan Sircar
9 mins read
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This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).
FAQ: Nre Fixed Deposit (30 items)
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What is the NRE Fixed Deposit investment product?
NRE Fixed Deposit is a fixed deposit created in rupees in a bank in India by an NRI. An NRI’s foreign earnings fund these FDs and are tax-free in India. The NRE FD principal and interest are fully repatriable. Many banks offer loans on NRE FD as well.
Are NRE FDs better than debt mutual funds?
NRE FDs offer a known and fixed return without tax. Debt mutual funds offer a fluctuating return with capital gains tax. If the objective is to invest in the debt asset class in India, then NRIs should choose the NRE FD over debt mutual funds since NRE FDs offer guaranteed tax-free (in India) returns.
Can an NRE FD be automatically renewed?
NRE FDs, depending on the bank, may be automatically renewed at the time of maturity. The current interest rate, at the time of maturity, will be applicable for the new FD.
Can an NRI create NRE FD using funds from NRO account?
An NRI can directly transfer funds from their NRO account to their NRE account and then create NRE FD. The limit of such NRO to NRE transfer is $1 million, post payment of taxes due in India, per financial year (April to next March).
Can any currency be used to fund the NRE FD?
The NRE FD must be funded in any convertible currency like USD, EUR, GBP, AED, SGD, and JPY amongst others. Therefore, NRIs should check with their bank if the currency of their resident country is allowed or not.
Can loan be taken on NRE FD?
Depending on the chosen bank, loans up to 90% may be taken on the NRE FD by the NRI.
Can NRE FD be created jointly?
NRE FDs can be opened jointly with one or more NRIs. In addition, NRE FDs may be opened jointly with a resident Indian who are relatives in Former or Survivor mode.
Can NRE FD be created using NRO account?
NRE FD cannot be created using an NRO account. The NRO account is used to keep Rupee earnings from India, while the NRE account is for foreign earnings from India.
Can NRE FDs be broken?
NRE FDs, just like all other FDs, can be broken immediately upon giving the proper instruction to the bank. A premature withdrawal penalty of 1% on the interest rate applicable for the duration you are breaking the FD will be applicable. For example, you made a 5-year FD at 7% and on the same date, you see that the bank offers a 5% rate for a 2-3-year FD. If you break the FD after 3 years, your effective interest rate will be 5-1% = 4%
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Can NRE FDs be opened jointly with a resident Indian?
NRE FDs may be opened jointly with a resident Indian who are relatives. The NRE FD account is then operated in Former or Survivor mode.
Can NRE FDs have a nominee?
NRE FDs can have a nominee. It is a good idea always to have nominees for your bank, mutual fund and demat accounts.
Can NRO account funds be used to open an NRE FD?
NRO account funds cannot be used to open an NRE FD. In the same way, NRO accounts cannot be used to open an FCNR FD.
Can the money in NRE FD be taken out of India?
For an NRE FD, both the principal and interest are fully and easily repatriable i.e. can be sent back from India to the foreign country.
Can you deposit rupees into NRE FD?
NRE FDs cannot be funded using Rupees. Instead, NRE FDs can be funded only using foreign exchange from the NRI’s foreign income.
Does NRE FD have TDS?
NRE FD is tax-free in India for both principal and interest and there is no TDS.
Does the NRI pay any tax on NRE FDs?
While NRE FDs are tax-free in India, NRI investors might have to pay tax on their global income as per the laws of their country of residence. However, there is no tax on NRE FDs at all if the NRI resides in zero-tax countries like the UAE.
How are NRE FDs taxed?
NRE FDs do not have any tax in India. There is no TDS as well. However, the NRI investor might have to pay tax on global income as per the laws of their country of residence.
How do NRE FDs pay interest?
NRE FDs can be either cumulative (i.e. interest and principal paid at the end) or with regular (like quarterly) payout.
How much money can NRIs transfer from NRO to NRE account to create NRE FD?
NRIs can transfer up to $1 million, after payment of taxes due in India, to their NRE account every financial year which runs from April to next March. This amount can then be used to create NRE FDs.
How much returns do NRE FDs give?
NRE FDs give fixed returns determined by the bank when creating the FD. The proceeds are fully repatriable and therefore impacted by the movement of the rupee against the currency of the NRI’s country of residence.
For example, a US-based NRI invests $1,000 at 10% for 10 years in an NRE FD. When they invest, the rupee is at 40/dollar, and when they repatriate on maturity, it is 60/dollar. So their FD grows to 104,000 (1.1^10 * 40 * 1000), but in dollar terms, it is 104000/60 = 1733, which implies a return of only 5.6% (1733/1000 ^ 0.1 - 1).
Click here to read the related article.
Is PAN card necessary for NRE FD?
NRIs must submit either PAN Card or Form 60 instead of a PAN Card while applying for an NRE FD. PIOs do not need a PAN card but a PIO/OCI card or other equivalent identity proof.
Should NRE FDs be made because they are tax free?
Many banks pitch NRE FDs to NRIS using the tax-free angle. NRE FD interest is tax-free in India and, based on the bank chosen, is quite safe. There are two things to be kept in mind.
Firstly, the NRE FD is tax-free only in India. So unless you stay in a tax-free country like the UAE, you are liable to pay tax on the FD based on the taxation of global income rules in your country of residence like the US.
Secondly, if the purpose of making the NRE FD is to get higher interest rates from India and then repatriate the amount, then you need to remember the rupee mont against foreign currency impacts the returns. . This point is covered in detail here: Should NRIs invest in India for higher returns and later repatriate?.
What are the limits on the amount invested in NRE FD?
Banks usually offer NRE FDs from 25,000 onwards. There is generally no upper limit.
What happens to NRE FD in case the NRI returns to India?
The NRE FD continues until maturity if the NRI returns to India.
What is the biggest disadvantage of NRE FDs?
NRE FDs give fixed returns as determined by the bank when creating the FD. The return is impacted by the rupee movement against the currency of the NRI’s country of residence.
For example, a US-based NRI invests $1,000 at 10% for 10 years in an NRE FD. When they invest, the rupee is at 40/dollar; when they repatriate on maturity, it is 60/dollar. So their FD grows to 104,000 (1.1^10 * 40 * 1000), but in dollar terms it is 104000/60 = 1733, implying a return of only 5.6% (1733/1000 ^ 0.1 - 1).
Click here to read the related article.
What is the difference of NRE FD with NRO FD?
NRE FD offers a few benefits compared to NRO (Non-Resident Ordinary) FD. These points are:
- NRE FD is tax-free in India, while NRO FD is not
- NRE FDs have higher interest rates compared to NRO FDs
- NRE FDs offer full repatriation vs. the restricted repatriation of NRO FDs
What is the duration of NRE FDs?
Banks generally offer NRE FDs for 1 year to 10 years. Ten years is the typical maximum duration for all types of FDs.
Which banks are the best for NRE FDs?
While most banks offer attractive interest rates on NRE FDs, generally the banks like SBI, HDFC or ICICI (due to their SIFI status) are the best options from a safety perspective. You can rest assured with the SIFI banks that your principal and interest are the safest compared to any other bank in India. You need to look for easy online access to making and breaking FDs and general customer service levels on offer.
Which currency is the NRE FD denominated in?
NRE FDs are denominated in Indian Rupees. They are funded by an NRI’s foreign income, which can be in any currency.
Who can open NRE FD?
NRIs of either Indian origin (PIO) or Indian nationality (NRI) can create an NRE FD.
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