Wednesday, December 23, 2015

Difference between Resident and NRI Fixed deposit India

As the name suggest, Resident Fixed deposits are for Resident of India and NRI fixed deposit are for Non-resident Indians but remember both are for Indian Citizens. Indian banks, both private banks e.g. ICICI, HDFC, Kotak, Citibank, DBS, Deutsche, Axis bank and public sector banks like SBI, Bank Of Baroda, Union bank offers both resident and NRI fixed deposits, but they usually have different interest rates. A resident can only open the resident fixed deposit, you just need a saving account for that. For opening NRI fixed deposit, you need either NRE or NRO saving account.

There are three types of NRI fixed deposits, NRE, NRO and FCNR fixed deposits and there are some significant difference between them ranging from taxation, repatriation, funding to overall interest yield. You can understand those differences in detail by reading this article. But, the important point is that, an NRI cannot open a Resident fixed deposit, it's not allowed. He can only open either NRE, NRO, FCNR or RFC fixed deposit, where first two are in Indian rupees and last two will in foreign currency e.g. USD, GBP, SGD, JPY, CAD etc.

Resident vs NRI Fixed deposit on India

As I told even though both are fixed deposits and both can be opened by Indian citizens, but residency plays a very important role. You can only open a resident fixed deposit if you have resident saving bank account in India. Similarly, for NRI fixed deposit, you can choose from four options e.g. NRO, NRE, FCNR and RFC. They all have different eligibility criterion and different purpose e.g.

1) Both Principle and Interest earned on NRE fixed deposit are tax-free in India, so your actual interest yield is always higher than the resident fixed deposit for the same interest rate. For example, if for a fixed deposit of duration 5 years, and the bank is offering 8.5% interest rate for both resident and NRE fixed deposit, then overall interest yield will be more in NRE account. Why? because interest earned are taxed at a rate of 20% as TDS in the case of resident fixed deposit but no tax in case of NRE fixed deposit. Though you can prevent TDS by submitting relevant form 15G, NRE fixed deposit is more convenient.

2) Contrary to our first point, if you are opening NRE fixed deposit then you can only open that by using foreign currency e.g. you cannot open an NRE fixed deposit using Indian rupees, but what should NRI do if they have income in Indian rupees? How can they open fixed deposit using INR in their bank account? Well, NRI can open an NRO fixed deposit by using the Indian funds but the tax on the interest rate on NRO fixed deposit is more than the resident fixed deposit. On Resident fixed deposit, maximum TDS is 20% but in NRO fixed deposit TDS can go up to 40%. Though you can avail concessional TDS rate by submitting DTTA declaration form to your bank.

3) Another significant difference between resident and NRI fixed deposit is that NRI can open fixed deposit in foreign currency e.g. US dollar (USD), British pound (GBP), Swiss frank (CHS), Euro (EUR) and other popular currencies like SGD, AUD, HKD, NZD, and CAD. NRI customers have two options FCNR (Foreign Currency Non Resident) fixed deposit or RFC fixed deposit, which only returning NRI can open to lock the money earned in foreign currency.

4) Interest rate can also be different for resident and NRI fixed deposits. A couple of years bank resident fixed deposit usually have way more interest rate than NRI fixed deposit e.g. up to 9 to 10% as compared to 4% for NRI deposits, but nowadays they are at par, but you should always check interest rate on respective banks sites as they keep vary. For example, if you are opening HDFC NRI fixed deposit or ICICI resident fixed deposit then you should go to HDFC and ICICI bank website to check the current FD rates.

Remember, India has so many banks offering varying range of interest rates for NRI fixed deposits, both Indian banks e.g. ICICI, HDFC, Kotak, YES Bank, SBI, Axis Bank, Bank of Baroda and Indian unit of foreign banks like Deutsche bank, RBS, Standard Chartered, DBS, HSBC, Citibank, Barclays, ABN AMRO, BNP Paribas etc. If you are confused with which bank is best to open NRE fixed deposits or saving account, this article might help you.

Here is a table which effectively summarize the difference between three popular types of NRI fixed deposits, NRE, NRO and FCNR fixed deposits:

Difference between Resident and NRI Fixed deposit India

That's all about the difference between resident and NRI fixed deposit on India between resident and NRI fixed deposit on India. Remember, the fundamental difference comes from the fact that resident fixed deposit is for resident Indians and NRI fixed deposit are for Non-resident Indians. NRI also has more options than resident e.g. they can choose from four different types of fixed deposits e.g. NRE (tax-free), NRO (allows to use Indian funds), FCNR (foreign currency FD) and RFC (for returning NRIs). They all have different features and purpose and NRI should research properly, understand that before opening any NRE or NRO fixed deposits.

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