NRE Fixed Deposit (FD):

An NRE Fixed Deposit (Non-Resident External Fixed Deposit) is a term deposit account specifically designed for Non-Resident Indians (NRIs) to invest their foreign earnings in India. It allows NRIs to convert their overseas income into Indian Rupees and earn guaranteed returns while enjoying significant tax benefits.

What is NRE FD?

NRE FD is a fixed deposit opened by NRIs using funds earned abroad. The money is transferred from overseas, converted to Indian Rupees at prevailing exchange rates, and deposited for a fixed tenure ranging from 1 year to 10 years.

Key Characteristics:

• Only foreign-earned income can be deposited
• Minimum deposit: ₹1,000 (varies by bank)
• Minimum tenure: 1 year for most banks
• Both principal and interest are fully repatriable
• Joint accounts allowed with other NRIs or resident Indians

Current Interest Rates (2025)

NRE FD interest rates vary across banks and tenures. Ranges from 6% - 7.4%

Interest Rates:

• Major Banks offer upto 7%
• Small Finance Banks offers upto 7.40% p.a.
• Some banks offer higher rates for larger deposits (Rs. 3 crore and above)

Tax Benefits for NRIs

The most significant advantage of NRE FDs is their complete tax exemption in India:

Tax-Free Status

• Interest Income: Completely exempt from income tax in India under Section 10(4)
• Principal Amount: No tax on the deposited amount
• Wealth Tax: Exempt from wealth tax
• Gift Tax: No gift tax implications
• No TDS: Banks do not deduct Tax Deducted at Source (TDS) on NRE FD interest

Why is NRE FD Tax-Free?

The tax exemption exists because NRE accounts hold only income earned outside India. Since Indian tax law only taxes income that accrues or arises within India, foreign-earned income deposited in NRE accounts remains tax-free.

Important Tax Considerations:

• Overseas Taxation: Interest may be taxable in your country of residence
• Double Taxation Avoidance Agreement (DTAA): Many countries have DTAA with India to prevent double taxation
• Return to India: Tax treatment may change if you become a resident Indian

Additional Benefits

Full Repatriability

• Both principal and interest can be transferred back to any country without restrictions
• No approval required from RBI for repatriation
• Funds can be converted to any foreign currency

Currency Protection

• Protects against exchange rate volatility by maintaining funds in Indian Rupees
• Eliminates currency conversion costs for India-specific expenses

Flexible Features

• Various tenure options (1-10 years)
• Option to choose between quarterly interest payout or reinvestment
• Partial withdrawal facility in some cases
• Auto-renewal options

Higher Returns

• Generally offers higher interest rates compared to NRE savings accounts
• Competitive rates compared to domestic fixed deposits
• Guaranteed returns unaffected by market conditions

Comparison: NRE vs NRO Fixed Deposits

Feature	NRE FD	NRO FD
Funding Source	Foreign earnings only	Both Indian and foreign income
Tax Treatment	Completely tax-free	Interest taxable in India
Repatriation	Full repatriation	Limited repatriation (up to $1 million annually)
Joint Accounts	With NRIs or resident Indians	With anyone
TDS	No TDS deduction	TDS at 30% (can be reduced under DTAA)

How to open NRE FD?

1. Eligibility: Must be a Non-Resident Indian
2. Documentation:
   • Passport with valid visa
   • NRE account (required prerequisite)
   • Overseas address proof
   • Income proof from abroad
3. Process: Can be opened online or by visiting bank branches in India
4. Funding: Transfer funds from overseas bank account to your NRE savings account, then create the FD

Key Points to Remember

• Minimum Tenure: Most banks require a minimum 1-year tenure for NRE FDs
• Senior Citizen Benefits: Not applicable for NRIs
• Premature Withdrawal: Allowed with penalty (usually 1% reduction in interest)
• Currency Risk: Protected from foreign exchange fluctuations during the deposit period

Strategic Advantage

For NRIs seeking a safe, guaranteed return investment with complete tax exemption in India, NRE FDs represent one of the most tax-efficient investment options available. The combination of competitive interest rates, full repatriation rights, and zero tax liability makes NRE FDs particularly attractive for conservative investors looking to maintain financial ties with India while optimizing their tax position.

Regards,

Honvest Team.