NRI Fixed Deposit Tax Free Interest Vs Taxable Interest

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?
Which NRI Fixed Deposits Are Taxable?

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

Currency: Indian Rupees (INR)
Deposits: Made in foreign currency, converted to INR
Repatriation: Fully and freely repatriable deposit (both principal + Interest)
Taxation: Tax-free interest in India
Tenure: Minimum 1 to Maximum 10 years
Ideal for: NRIs who want to bring money into India and earn returns in INR

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)

Currency: Maintained in a foreign currency (USD, EURO, GBP, AUD, and SGD currencies)
Deposits: Made in foreign currency
Repatriation: Fully and freely repatriable (both principal + Interest)
Taxation: Tax-free interest in India
Tenure: Minimum 1 year to maximum 5 years
Ideal for: NRIs who want to avoid currency conversion risk

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)

Currency: Indian Rupees (INR)
Deposits: From income earned in India (rent, pension, dividends, etc.)
Repatriation: Up to $1 million per financial year, subject to conditions
Taxation: Interest is taxable in India
Tenure: 7 days to 10 years (same as that of resident deposits)
Ideal for: NRIs who have existing income sources in India

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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Frequently Asked Questions

Can an NRE fixed deposit be taxed?

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.

Who is an NRI as per FEMA?

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.

Importantly, FEMA treats individuals as NRIs from the day they leave India for education, employment, business, or vocation abroad, regardless of the number of days spent in India. On the other hand, anyone returning to India permanently is considered a resident from the date of return and must promptly convert NRI accounts into resident accounts.