Status of NRE FD After Returning to India

Many NRIs who return to India for good have this question in mind, what will happen to their NRE FD account? Read on to know your answer.

Many NRIs (non-resident Indian) looking to invest in India prefer opening an NRE (non-resident) fixed deposit account. It is an ideal investment choice for risk-averse investors as it helps you keep your investment safe and secure and help you earn valuable returns; there is no risk of loss due to market fluctuation.

Being a term deposit, NRE FD comes with a lock-in period ranging from one to five years, and you can choose the deposit tenure to suit your financial goals. One of the significant reasons why NRIs opt for the NRE FD account is that the interest earned on it is tax-free in India.

As an NRI, you can open an NRE FD account with any bank of your choice. The interest rate for such deposits varies from bank to bank, and it generally differs from the interest rate offered to the resident Indians.

Why is parking your money in NRE FD beneficial? 

  • The interest earned on your NRE FD is tax-free in India. However, it can be a taxable income in the country of your residence.
  • You can easily move your funds to an NRE savings account post maturity.
  • Many banks in India provide loans against NRE fixed deposits. This means you can easily get the necessary funds during an emergency.
  • Most banks offer attractive NRE FD rates; you can get valuable returns from your investment at the end of the deposit term.
  • You have the flexibility to choose the deposit tenure, which ranges from one to five years.

What happens to your NRE FD after you return to India? 

  • You can continue to hold your NRE FD deposit as-is until maturity, irrespective of whether you return to India and become an Indian citizen or not during the deposit tenure.
  • If you break into the NRE FD before the actual maturity date, the interest is calculated only for the duration for which you hold the deposit.
  • Premature breaking of the NRE fixed deposit account may attract a penalty, and the fee may vary from bank to bank.
  • Upon maturity of the NRE fixed deposit, you can either withdraw the amount (principal and the interest) tax-free or transfer the funds to your NRE savings account or RFC (Resident Foreign Currency) account.
  • If you convert your NRE FD into an RFC account post maturity, the interest earned will be taxable. You can get a tax deduction if you can showcase proof of RNOR (Resident but not ordinarily resident) status. You can qualify as an RNOR if you meet the following conditions:

 – You must have stayed overseas for at least nine years in the past ten years

– During the seven financial years before you return to India, you must have stayed in India for 729 days or less

If you wish to convert your NRE FD into an RFC account after your return to India, you must inform the bank about it or re-designate your NRE account as a resident Indian account.

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