NRI Fixed Deposits: Tax-Free Interest vs. Taxable Interest Explained

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No, NRE fixed deposits are tax-free. However, the interest earned remains tax-free only as long as the individual retains NRI status under FEMA regulations. Once the person returns to India for an indefinite period, continuing to hold an NRE FD becomes non-compliant with the law, and the account must be converted to a resident account.
Under FEMA, an NRI is referred to as a 'Person Residing Outside India' and is defined based on purpose and intention rather than just days stayed. A person is considered an NRI if they stayed in India for less than 183 days in the previous financial year unless they came back for employment, business, or any purpose indicating an indefinite stay.
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
NRI fixed deposits are on the rise! Between April and December 2024, there was a massive 42.8% jump in the amount of money flowing into NRI fixed deposits. This included FCNR deposits (Foreign Currency Non-Resident), NRE deposits (Non-Resident External), and NRO deposits (Non-Resident Ordinary).
So, what’s driving this surge? It is a combination of attractive interest rates and higher NRI remittances. The tax angle plays an important role in how NRIs choose between these deposit types and why India continues to be a top choice for those looking to grow their savings wisely and efficiently.
Here’s what we’ll cover:
Which NRI Fixed Deposits Are Tax-Free?
In order to incentivize NRIs to park their foreign income in India, banks in India offer tax-free fixed deposits. The primary eligibility to hold this deposit is that you are an NRI as defined by FEMA. Below, we get into the details of which fixed deposits are tax-free:
NRE (Non-Resident External Account) Fixed Deposits
Kotak NRE Fixed Deposits allow you to start with a minimal amount of Rs. 5000/-. You can choose NRE fixed deposits with monthly, quarterly or cumulative payouts. Additionally, it can be jointly opened by NRIs/PIOs.
FCNR Account (Foreign Currency Non-Resident Account)
Kotak offers attractive rates on FCNR Fixed Deposits. The interest on FCNR deposits is compounded every 180 days, and just like NRE deposits, FCNR can also be jointly opened by NRIs/PIOs. FCNR deposits can be held in multiple currencies.
Which NRI Fixed Deposits Are Taxable?
The interest accrued on the following fixed deposit type is subject to taxation:
NRO Account (Non-Resident Ordinary Account)
Just like NRE Fixed Deposits, NRO fixed deposits can be opened with a minimal amount of Rs 5000. Kotak also offers a tax saving NRO deposit along with normal NRO fixed deposits. To learn more on how the interest on NRO deposits is taxed, click here
Quick Comparison of FDs in NRI Bank Accounts
Account Type
Currency
Repatriation
Tax on Interest
FD Tenure
Joint Account
NRE
INR
Full
Tax-Free
1 to 10 years
NRIs/PIOs
NRO
INR
Limited ($1 million/year)
Taxable
7 days to 10 years
NRIs/PIOs and Resident Indian
FCNR
Can be held in USD, EURO, GBP, AUD, and SGD
Full
Tax-Free
1 to 5 years
NRIs/PIOs
Wrapping Up
NRI fixed deposits are a promising option if you’re looking for investment opportunities in India. While NRO deposits are taxable, NRE and FCNR deposits are tax-free. If you’re planning to invest and hunting for an option with utmost transparency and convenience, Kotak is your go-to option.
With net banking and phone banking facilities, auto-renewal on maturity and an option for pre-mature withdrawal, we streamline it all for you. Explore details and start investing today!
This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Mutual Fund investments are subject to market risks read all scheme related documents carefully before investing
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