Taxation of Foreign Subsidiaries in India:
February 7, 2023
Net worth Certificate by Chartered Accountant
February 22, 2023
Income Tax on Interest on Fixed Deposit by NRI
An NRI fixed deposit is a great way to invest money for NRI. In India NRIs have many fixed deposit options to choose from; some accounts provide facilities for investment in foreign currency only to protect them from currency fluctuations. India is one of the few countries in the world that offers high returns on Fixed Deposits and as a result many NRIs have started opting to invest in fixed-income instruments in India like fixed deposits. Features of fixed deposit like good returns, minimum risk makes investment in FD more attractive option for NRI. If your NRI and considering investing funds in India then Fixed deposit is best option as it have complete tax saving and its risk free. Income tax on interest on fixed deposit by NRI on NRE account is tax exempt. However interest earned on NRO account is taxable and income tax department deduct tds on same. Purpose of keeping Income Tax exempt on Interest on Fixed Deposit by NRI is make India hub for investments by NRI and increase India foreign currency deposits. Indian government keet tax law related NRI friendly and simple. Fixed deposit investment is popular investment option for NRI. NRI need to open NRE account and crease fixed deposit for earning interest.
Can NRI invest in Fixed Deposit ?
NRI can open fixed deposits in India and invest in fixed deposits. An NRI fixed deposit allows NRIs to invest their money in India and earn interest income. NRI can open fixed deposit account with banks, non-banking financial company (NBFC), and housing finance company.
Advantages of NRI Fixed Deposit (FD) Account:
- It provides option for safe and secure investment
- Some specified NRI FD are 100% tax free
- Nomination clauses are available in all types of NRI FD.
- Interest rates are very competitive and allows to earn good interest income
- Opening and liquidation can be done completely online
Documents required to open fixed deposit account by NRI
NRI need to apply for banker to open NRE accout. From NRE Account NRI need to crease fixed deposit. Below are list of documents for opening NRE account and then creating Fixed deposit.
- Copy of self attested PAN card / Form 60 and passport
- Tax Residency Certificate (TRC) from tax authority
- Complete form 10F
- DTAA annexure
- Valid address proof (Indian and overseas)
- Work or residence permit
- passport size photograph
Whole process can be performed online through websites of banks, internet banking or offline by visiting banks.
Points to be considered before opening NRI Fixed deposit account:
- Interest rates
- Repatriation
- Taxes
- Time period of FD
- DTAA Benefits
Types of Fixed Deposit for NRI in India ?
NRI can open FD using their NRE, NRO and FCNR account. Rate of interest is determined by the bank on the basis of amount and duration. All these three accounts are different from each other in more than one, with the only common factor being that these accounts are made to benefit Non-Resident Indians.
- Fixed deposits in the NRE account: An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings. Interest earned on NRE FD is tax free in India. These are fully-repatriable deposits, which means that you can transfer the whole amount of principal and interest back to your residing country.Depending on duration of FD, interest rate ranges between 5% to 7%.
- Fixed deposits in the NRO account: An NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India.Interest earned on NRE FD is taxable in India. It can be opened jointly with resident and non-resident Inidans.
- Fixed deposits in FCNR account: FCNR stands for Foreign Currency Non-Resident Account. Incase of NRI who wishes to maintain a Fixed Deposit Account in India, he can choose the option of an FCNR Account that allows you to save money earned overseas in Foreign Currency. These deposits are exempt from TDS implications in India. And these are fully-repatriable deposits (principle and interest ).
Key points and differences of all these 3 accounts can be summarized as-
| Account | NRE Fixed Deposits | NRO Fixed Deposits | FCNR Fixed Deposits |
| Deposit Currency | Foreign currency | Indian currency | Foreign currency |
| Withdrawal currency | Indian currency | Indian currency | Foreign currency |
| Repatriation | Allowed fully | Partially repatriable | Allowed fully |
| Tax implication | Tax-free | Only interest taxable | Tax-free |
| Exchange rate risk | Open to risk due to fluctuating foreign exchange rate | No foreign exchange risk involved | No foreign exchange risk involved |
Income Tax Implications on Fixed Deposit
Generally, NRIs are liable for income tax for income made in India by any source. An NRE and FCNR Fixed Deposit is exempt from taxation, but an NRO Fixed Deposit is liable for the NRI tax. TDS applicable on interest earned on NRO Fixed deposit.
Tax (Tax Deduction) on Fixed Deposit Interest Income:
Since this income is earned in India, the interest income from the savings and fixed deposits in NRO accounts are taxable.TDS rate applicable on interest earned on NRO deposits is at 30.90%. If interest amount paid exceeds Rs.10 lacs, TDS will be @33.99%.However, lower TDS rates are applicable in case of countries having Double Taxation Avoidance Agreement (DTAA) with India. The TDS will be applicable for any amount of income, irrespective of whether an NRI’s total taxable income exceeds basic exemption limit Rs 2.5 lakh or not in a financial year.
Income tax return filing for Interest on Fixed Deposit in India :
A Person NRI or not, whose income exceeds Rs 2,50,000 (basic exemption) is required to file an income tax return in India. Even NRIs earning up to this limit in India should file an income tax return to get TDS refund amount. July 31st is the last date to file income tax returns in India for NRIs.Interest received from NRE Account, even though exempt, required to be shown under Schedule EI (Exempt Income) in I-T return.
Double Taxation Avoidance Agreement (DTAA)
Double Taxation Avoidance Agreement (DTAA) is an agreement entered by India with various countries to avoid double taxation of income. Many NRIs living in foreign countries have a source of income in India and in many cases, this income earned in India is subject to tax in India as well as the country of residence of the NRI.This leads to double taxation of income.To avoid this, India has entered into a Double Tax Treaty Agreement with many countries.
Under the current DTAA provisions, customers can enjoy concessional rate of Tax Deducted at Source (TDS) on interest earned in India And thereby can earn higher yield on their NRO deposits (FD as well as Savings Account).This ensures that NRIs don’t have to pay tax twice on the same income. and living in a country that has a DTAA with India,
If you are opening an NRO FD and want to avail the tax rate deduction as per the DTAA, then you have to offer a DTAA Declaration for every financial year along with following documents:
1) DTAA Annexure.
2) PAN Card Copy / Form 60/ Passport (self-attested)
3) TRC
4) Form 10F
Form 10F is required to be submitted by a customer when TRC does not include all information required by income tax authorities. If you are applying for any DTAA benefit then annexure referring to that should also be submitted.
FAQ on Income Tax on Interest on Fixed Deposit by NRI:
Who is NRI?
An NRI is an Indian citizen who stays outside India:
(a) for purposes of carrying out employment or any business or vocation;
(b) under circumstances indicating an intention to stay outside India for an uncertain duration;
(c) any Indian citizen deputed outside India for a temporary period in connection with employment.
2.What is the minimum amount to open a NRE Fixed deposit account?
Minimum amount to open a NRE Fixed deposit account is Rs. 25,000 but this may differ from bank to bank.
3.Is advance tax compliance applicable to NRI with Fixed deposit Interest income?
If NRIs tax liability exceeds Rs 10,000 in a financial year, advance tax compliance will be applicable to NRI. Interest under Section 234B and Section 234C is applicable if advance tax is not paid.
What is due date for filing Income tax return for interest income ?
Due Date of Income Tax Return filing Income tax return for interest income for FY 2022-23 (AY 2023-24) is 31st July 2023.
TDS Refund for tds deducted on Interest earned on Fixed Deposit by NRI ?
TDS is deducted at 30% plus applicable surcharge and cess on Interest earned on Fixed Deposit by NRI on NRO account.
What is the minimum amount with which I can open a NRO Fixed Deposit?
The minimum deposit amount required to open an NRO fixed deposit account is Rs. 1 lakh
Who can Open NRO Fixed Deposit Account ?
Non-Resident Ordinary (NRO) Rupee Account can be opened and maintained by an NRI, PIO or Foreign National with an Authorised Dealer for the purpose of putting through bona fide transactions denominated in Indian Rupees not involving any violation of the provisions of FEMA
Can I give Nominee for NRO Fixed Deposit Account ?
Yes
Can I Repatriation income earned on Fixed Deposit Account ?
Yes Repatriation income earned on Fixed Deposit Account is allowed.
