NRIs or non-resident Indians are accorded certain tax benefits in India which are not available to resident Indians.

An NRI is someone who:

  1. Spends more than 182 days outside India in a financial year
  2. Does not spend more than 60 days in India in the financial year and 365 days in India in the preceding four financial years (This condition is relaxed for persons going abroad for employment or visiting India from outside India).

The following tax benefits are available to NRIs:

  1. NRE Savings Account

An NRI can transfer his foreign currency earnings to this account. He can also transfer money held in India on which tax has been paid and a certificate from a CA has been obtained under Form CA/CB. The interest on this savings account is tax-free, unlike the savings bank account interest available to Indian residents.

  1. NRE Fixed Deposit

The interest on this fixed deposit is tax-free for NRIs unlike the interest on FDs for Indian residents. It is also free from TDS deduction, unlike resident FDs. However, this type of FD must be held for at least one year. Premature termination of the FD before completion of one year will lead to forfeiture of interest.  

  1. FCNR Deposit

An NRI can also open fixed deposits in specific currencies such as US Dollars, British Pounds, Euros, Yen and Australian Dollars. The interest on these deposits is exempt from tax in India and is not subject to TDS. These accounts are not available to Indian residents. This type of FD must also be held for at least one year. Premature termination of the FD before completion of one year will lead to forfeiture of interest.  

  1. Foreign Earnings

An NRI is only taxed on the income earned in India. He is not subject to tax on his foreign income. A resident Indian, on the other hand, has to pay tax on his global income. However, an NRI may be subject to tax in his country of residence. In such a case, he can claim relief under the provisions of the Double Taxation Avoidance Treaty (DTAA) between his country of residence and India.

Current NRE FD Rates with major banks:

Bank Rate Tenure
Indusind Bank 6.75% 1 year 2 months to below 2 years
Yes Bank 6.75% 1 year to less than 10 years
ICICI Bank 6.75% 1 year to 2 years
Axis Bank 6.75% 12 months to 17 months
SBI 6.25% 1 year to less than 2 years
Bank of India 6.6% 1 year to less than 2 years
PNB 6.5% Above 1 year to 3 years
Canara Bank 6.3% Above 1 year to 3 years
Indian Bank 6.25% Above 1 year to less than 2 years
Bank of Baroda 6.9% Above 1 year and up to 2 years

Source: Bank websites, Data as on 14th November 2017, Rates for deposits less than 1 crore

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.