Detailed Comparison: NRE vs. NRO Fixed Deposits (FDs) for NRIs

For Non-Resident Indians (NRIs), investing in Fixed Deposits (FDs) in India is a popular option due to the higher interest rates compared to many foreign banks. However, it is crucial to choose between an NRE (Non-Resident External) FD and an NRO (Non-Resident Ordinary) FD, depending on your income sources and repatriation needs.This guide provides a detailed comparison of NRE vs. NRO Fixed Deposits, covering repatriation rules, taxation, limitations, eligibility, and other key factors.

Key Differences Between NRE and NRO Fixed Deposits

Feature	NRE Fixed Deposit	NRO Fixed Deposit
Purpose	Hold and invest foreign income in India	Hold and invest Indian income (rental, pension, dividends, etc.)
Deposit Source	Only foreign currency	INR (from Indian income sources) and foreign currency
Currency of Deposit	Foreign currency (converted to INR)	INR only
Tax on Interest Earned	Tax-Free	Taxable (30% TDS for NRIs)
Repatriation (Fund Transfer Abroad)	Fully repatriable (both principal & interest)	Limited repatriability (up to $1 million per financial year)
Interest Rate	Similar to domestic FD rates (higher than foreign banks)	Similar to domestic FD rates
Exchange Rate Risk	Yes (as funds are converted to INR)	No (already in INR)
Tenure Options	1 to 10 years	7 days to 10 years
Premature Withdrawal	Allowed, but penalty may apply	Allowed, but penalty may apply
Joint Account Holding	Allowed only with another NRI	Allowed with an NRI or a Resident Indian
Nomination Facility	Available	Available

In-Depth Analysis of NRE vs. NRO Fixed Deposits:

NRE Fixed Deposit – Ideal for NRIs Wanting Tax-Free Savings
Best for: NRIs who want a tax-free, fully repatriable investment option in India.
Key Features:

Used to invest foreign income in India.
Funds must be deposited in foreign currency (USD, GBP, EUR, etc.), which is converted to INR upon deposit.
Fully repatriable – Principal and interest can be transferred abroad anytime.
Tax-free – No income tax, no wealth tax, and no gift tax on interest earned.
Cannot be jointly held with a resident Indian (only with another NRI).
Tip: If you want tax-free interest and full repatriation, NRE FDs are the best option.NRO Fixed Deposit – Ideal for NRIs with Indian Income Sources
Best for: NRIs who earn income in India and want higher returns than savings accounts.
Key Features:
Used to hold and invest Indian income (rent, pension, dividends, etc.).
Deposits can be made in INR or foreign currency, but all deposits get converted into INR.
Interest earned is subject to taxation in India (30% TDS for NRIs, unless reduced by DTAA).
Limited repatriability – Principal can be repatriated up to $1 million per year (with documentation).
Can be jointly held with a resident Indian or another NRI.
Tip: If you have rental or business income in India, an NRO FD is mandatory for compliance.

Interest Rates for NRE & NRO Fixed Deposits (2024)
Interest rates vary by bank, tenure, and market conditions. Below is a general comparison of NRE and NRO FD interest rates (as of 2024):

Tip: NRE and NRO FD rates are the same, but NRE FDs provide tax-free interest, making them a more attractive option.

Taxation on NRE vs. NRO Fixed Deposits

Tax Type	NRE Fixed Deposit	NRO Fixed Deposit
Income Tax on Interest	No tax	Yes (30% for NRIs, unless reduced by DTAA)
TDS (Tax Deducted at Source)	No TDS	30% TDS (can be reduced under DTAA)
Wealth Tax	No	No
Gift Tax	No	No

How to Reduce Tax on NRO Fixed Deposits?

If your country has a DTAA (Double Taxation Avoidance Agreement) with India, you can reduce TDS by submitting Form 10F and a Tax Residency Certificate (TRC).
Example:
USA: TDS reduces to 15%.
UK: TDS reduces to 15%.
UAE: TDS reduces to 12.5%.Tip: Always submit DTAA documents to your bank to avoid paying higher TDS on NRO FDs.

Repatriation Benefits: NRE vs. NRO Fixed Deposits

Repatriation Rules	NRE FD	NRO FD
Principal Repatriation	Fully repatriable	Up to $1 million per year (with documentation)
Interest Repatriation	Fully repatriable	Fully repatriable (after tax deduction)
Documentation Required for Repatriation	No special documentation	Form 15CA & 15CB required for repatriation

Tip: If you need easy fund transfer to your foreign bank account, NRE FDs are the best choice.

Which FD Should You Choose?

You Should Choose	If You…
NRE Fixed Deposit	Want tax-free interest and full repatriation
NRO Fixed Deposit	Have income in India (rental, pension, dividends, etc.)
Both NRE & NRO FD	Have foreign income but also earn money in India

Final Verdict:
For maximum benefits → NRE Fixed Deposits (FDs) are better due to tax-free interest and full repatriability.
For NRIs with Indian income → NRO Fixed Deposits (FDs) are required for compliance but are taxable.