Nri Deposits
The article outlines the seven key reasons for NRIs to convert their resident fixed deposits (FDs) into NRO deposits, including legal compliance, higher interest rates, tax benefits, repatriation options, and additional features like automatic renewal and overdraft facilities.
When you become a Non-Resident Indian (NRI), several critical financial adjustments must be considered. One crucial step is converting your resident Fixed Deposits (FDs) into Non-Resident Ordinary (NRO) deposits. This conversion is a regulatory requirement and offers various benefits that can enhance your financial management. This article explores seven compelling reasons why converting your resident FDs into NRO deposits is wise.
According to the Foreign Exchange Management Act (FEMA), NRIs are prohibited from holding resident fixed deposits (FDs). They are required to convert these FDs into Non-Resident Ordinary (NRO) deposit accounts. Failure to comply with this regulation can result in penalties, making it crucial to make the conversion promptly to avoid legal issues.
NRO deposits offer higher post-tax returns compared to other accounts like NRE (Non-Resident External) or NRO savings accounts. The interest rates on NRO FDs are on par with domestic deposits, which can provide better earnings on your invested funds.
Five-year NRO fixed deposits qualify for a tax deduction under Section 80C of the Income Tax Act (I-T Act). However, Section 115D of the I-T Act imposes specific conditions for this benefit. The income must not come from investments or long-term capital gains to avail of the deduction. Instead, the benefits apply to earnings from sources like rent, dividends, or salary.
The principal and interest earned on NRO deposits can be repatriated to your home country, with a limit of USD 1 million per financial year. To repatriate funds, you must submit the necessary documentation, ensuring that you can transfer your earnings internationally as needed.
The Double Taxation Avoidance Agreement (DTAA) can reduce the Tax Deducted at Source (TDS) on interest earned from NRO deposits. To avail of DTAA benefits, you need to provide a self-declaration, your PAN card, Form 10F, and a current year's tax residency certificate, which helps reduce the overall tax burden.
NRO deposit offer automatic renewal upon maturity, ensuring that your investment continues to earn interest without any interruption. This feature helps maintain your funds' growth with minimal effort, as the deposit is automatically extended for another term.
NRO deposit accounts allow you to avail of an overdraft facility of up to 90% of your deposit amount. This can be accessed at a nominal interest rate above the deposit's interest rate, providing liquidity and additional financial flexibility against your fixed deposits.
Converting your resident FDs into NRO deposits is a crucial step for NRIs looking to manage their finances efficiently and in compliance with Indian regulations. The benefits, including regulatory compliance, higher interest rates, tax advantages, repatriation facilities, DTAA relief, automatic renewal, and overdraft options, make NRO deposits an attractive choice for managing your investments in India.
To convert resident FDs into NRO deposits, click here.