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Status of NRE FD after return to India – Good & Bad News

One of the most common questions that I get from NRI is – what will happen to my NRE FD after return to India?

This question is on top of his mind because most NRIs locked their savings in long-term NRE FDs & they are giving high interest which is tax-free in India.

You can also get RNOR Guide from this post – important in the case of NRE FDs.

NRE FD after return to India

NRE FD

As an NRI, you can invest your money in fixed deposits in NRO, NRE and/or FCNR accounts. The interest rate on these accounts may be different from the interest rate on resident FDs. Here is a comparison of interest rates on Non-resident FDs of some banks –

Type of FD in Bank

(Sum less than  Rs. 5 crores)

Interest Rate on  NRE or NRO FDsInterest Rate on  FCNR FDs (US Dollars)
1 year FD in ICICI Bank6.75% per annum3.66% per annum
1 year FD in HDFC Bank7.25% per annum3.37% per annum
1 year FD in SBI6.70% per annum3.41% per annum

List – Best Mutual Funds in India for NRI  

It is good to park money in NRE or FCNR fixed deposits –

  • Interest earned on NRE FD is tax-free in India. (can be taxed in the country of residency)
  • Movement of funds is easy.
  • FCNR accounts are protected from exchange risk.
  • Many banks provide loans against FCNR deposits.
  • They can be continued in the same state till maturity whether you return to India or not during the FD tenure.
  • An NRE FD can’t be open in joint name with an Indian resident, even if that person is a direct family member.
  • There is repatriation option on investment through NRE Account.

NRO FDs are not lucrative as –

  • Interest is taxable.
  • There is no repatriation option on the principal investment or it’s tough.
  • Funds that have been originated in India or funds from an NRE account can only be used to open an NRO FD. NRE and FCNR FDs can be opened with funds received abroad as well.

As an NRI, you can make use of NRO FDs for investing money that you have earned in India and/or if you want to open a joint account with an Indian citizen.

Go for an NRE FD is you want to mainly park funds from foreign countries and want the money to be fully repatriable.

NRE FD can continue after return to India

Read – Best Investment for NRI in India

NRE FD after return to India

Let us look at the status of these fixed deposit accounts and the taxation rules related to them when an NRI returns to home base i.e. India and becomes a resident of India –

  • These deposits can remain as-is until maturity when an NRI returns to India and become a resident Indian. They need not be converted to resident accounts.
  • Withdrawals from both these accounts can be done only in Indian Rupees.
  • If we break NRE FD before maturity then interest is calculated only for the duration deposit remained with the bank.
  • Prematurely breaking of NRE FD attracts penalty which varies from bank to bank.
  • NRE and FCNR fixed deposit accounts can be converted to Resident Foreign Currency (RFC) accounts after maturity. The currencies allowed for RFC accounts are freely convertible currencies such as US dollar, Euro, British Pound and Japanese Yen.
  • NRO fixed deposit accounts have to be converted to Resident accounts.
  • The interest rate will be payable at the original rate if the deposit is held for the full term even after conversion into a resident foreign currency account.
  • Interest income from NRE and FCNR that have been converted to RFC accounts will be exempt from tax if the status of the returning NRI is ‘Resident but not ordinarily resident’ also known as RNOR. A person is considered as an RNOR if the following conditions are satisfied –
  1. The person has stayed abroad for 9 years in the previous 10 years

  2. During the 7 financial years preceding the year the person returned to India, he/she has stayed in India for a period of 729 days or less.

    • A person usually has the RNOR status for around 2-3 years. If the status is ‘Resident’, the interest is taxable.  Interest income from NRO account is taxable in India whatever the residency status be. If the interest is taxable, then it has to be considered in the income source – ‘Income from other sources’ while filing tax returns.
    • After returning to India you become resident Indian and your global income becomes taxable in India. Of course, Double Taxation Avoidance Agreement ( DTAA) may be availed if the oversees is also getting taxed locally, so to plan your stay in India try to maintain RNOR status for the maximum possible time.
  • In such scenario except for some income, rest of your foreign income will remain exempt from tax.
  • The NRI has the responsibility to inform the bank on a change of residency status so that the bank can take the necessary steps on the accounts held by the NRI. On becoming resident the onus is on you to notify the bank of the change in the status.
  • The amount in the RFC account can be used for remittances abroad and investments abroad.
  • If you decided to go abroad again for a long term you can either remit the RFC balance abroad or transfer fund from your RFC into an NRE or FCNR account.

Immediately on return to India, NRIs should inform their bank to designate their accounts as domestic Resident accounts or transfer the balance in their NRE/FCNR accounts to Resident Foreign Currency (RFC) accounts, if so desired; FCNR accounts can be continued till the date of maturity and upon maturity, can be converted to RFC accounts.

wiseNRI

Read – NRI Income Tax Rates in India

Few more points:

  • NRI after becoming resident in India can also create a separate tax profile like HUF and take separate tax exemption limit to HUF.
  • There is also NRO– Five years tax saver Fixed Deposit that will be eligible deduction under Section 80C of Income Tax Act, 1961. This also provides NRIs an opportunity to diversify their investments in addition to other investments permitted in Section 80C. The maximum amount to be invested in this should not be higher than INR 150000  in a financial year. No Overdraft or pledge allowed in the NRO – Five years tax saver Fixed Deposit.
  • In Five years NRO TaxSaver Fixed Deposit there is monthly and quarterly payout option is available but there is no partial and premature withdrawal is allowed.

As an NRI, let us know your experience if you ever asked your banker – NRE FD can continue after return to India? Please share their response in the comment section. If you have any additional or updated information – must share that will really help every NRI.

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • Venkitaraman Subramanian says:

    My bank has said NRE FD account can continue till its maturity after that will become an normal resident deposit.

    • Hi Venkitaraman,
      Thanks for sharing. Few banks tell their customers to take a premature withdrawal they have some technical issues..

  • YOgesh Kanna says:

    Really very useful tips. I had these queries as I am planning to return to India and even our RM from banks could not provide satisfactory replies to my queries and all my queries infact answered in above post.

    Especially RFC account and RNOR status are first time information to me.

    So, I can continue to avail tax free income even after returning to India by converting NRE FD to RFC account after maturity!

    Suppose if my NRE FD matures after 3 years of my return, can I still transfer that money to RFC and avail the benefit!

    • Dear Yogesh,

      Thanks for appreciating 🙂

      Regarding your query – interest income on NRE FD will be taxfree in India till the date your status is NRI or RNOR.

      • Ashutosh says:

        Hi Hemant,
        thanks for addressing this important topic.Is NRE FD even possible once someone becomes RNOR? Or one has to convert it into RFC?

        • Hi Ashutosh,
          RNOR is a tax residency status.
          You can have a NRE FD or FCNR FD only if you are a person resident outside India under FEMA.
          A person who has returned to India for employent becomes a person resident in India under FEMA immediately on return.
          After that he can only open a RFC account that is designated in foreign currency.
          Interest on RFC is tax free.. you should check https://wisenri.com/rnor-status/

  • Seetharama says:

    Much useful info, one comment on tax bit:

    Instead of 5-year Tax saving deposit, one may choose ELSS (tax-saving mutual fund) which is locked up for only 3 years, and offers greater chances of appreciation, and increased tax efficiency. With ELSS only 10% long-term capital gain tax is to be paid; in case of bank FDs, the interest is to be shown every year in your tax papers, and tax is to be paid according to your slab. With NRO account, bank will deduct higher TDS. Even if you owe no tax, to recover your money (interest amount) more paper work (15H, or filing tax forms to get refund) needs to carried out, which is an avoidable head-ache.

  • Shashank says:

    I got this message from my Bank:

    Taxability in India is dependent on whether an individual qualifies as an Ordinary Indian Resident (ROR), Not Ordinarily Resident (NOR) or Non-Resident (NRI). An ROR is liable to tax on his global income, while a NOR and NRI is liable to tax on the income ‘earned’ in India. NRI benefits are available to a person till the time he holds the NRI status in India; a person loses his NRI status in the same year when he returns to India or within 2-3 years from the date of arrival to India, depending on the number of days of stay in India (explained below).
    Foreign exchange and overseas assets (such as bank accounts, stocks/securities, life insurance policies, loans, company deposits, debentures, bonds etc.) acquired/held/owned by NRI while he was abroad can be continued to be so held and owned even after the NRI returns to India for permanent settlement. Such foreign exchange and overseas assets can accumulate or accrue income outside India and the balances can be utilized for reinvestment or repatriated to India at any time (without attracting Wealth tax in India) within 1 year immediately preceding the date of his return or later.
    This exemption period is limited to 7 successive years which immediately follow the year in which the NRI permanently returns to India.
    Immovable property
    NRIs can continue to hold immovable properties outside India. Such properties can be rented out and rentals can be credited to overseas bank accounts. The properties can be sold and the sale proceeds credited to overseas bank accounts. Expenses relating to such properties, such as maintenance, insurance premium etc. can be paid out of the overseas balances.

  • Pramod says:

    Best bank for nri’s with good customer service and fd rates

  • Ravindra says:

    i want to know after becoming resident indian from NRI status, do I need to break FDs of NRE account?

    • Hi Ravindra,
      You don’t have to break – you can continue.

      • Shekhar says:

        How is that possible i.e. to continue with NRE FD ? You had said before that NRE accounts are to be converted into Resident Accounts. Bank will have to close NRE FDs in such cases in their System (GL) and open new Resident FDs with same interest rate and maturity ?

  • Benoj Devassy says:

    After matured the NRE FD, and become a resident, need to pay tax for the interest from the deposit.

    • Anuj says:

      Hi Benoy,

      Interest Income is tax free till your residential status is NRI or RNOR.On becoming resident, interest is taxable

  • Mg john says:

    NRI return to India FD account status how

  • Abraham mathew says:

    Still confused about the future of nre fd held by an nri returnee with local banks
    Need a straight answer by someone whether the interest earned is taxable if the holder have rnor status
    Why rfc or fcnr account is different from nre fd
    ? Fcnr foreign currency denominated and nre fd although it is in rupees it is repatriable means it’s backed by a foreign currency
    Banks in india deduct tax once you inform them that you are back for the nre fds.
    Therefore if anybody in this forum knows about the sections in tax law supporting the the argument
    Not to pay tax for nre fds till
    The expiry of rnor status please share it.it will be of good use to many of the returned indians.

    Thank you

  • Niket S says:

    Looking at current scenario is it better to keep money in fcnr or nre fd as rupee might slight further

  • PS says:

    I have done FD in my NRE account. What will happen if I return to India. till when I can continue NRE FD? Is interest on NRE FD will be tax free after return

    • Anuj says:

      Hi PS,

      After returning to india you can hold NRE FD till maturity. After that you have the option to convert it to RFC Account.
      Taxability depends upon your residential status.If you become resident then interest would be taxable

  • Manoj says:

    Went to ICICI today. Had 3 NRE FDs with them all opened in the last 6 months. They said I have to close them and open new FD. Since none of them completed 1 year, lost all the interest till today. 🙁

    • Dear Manoj,
      Sorry to hear that but you should talk to higher authorities in the bank.

  • Bija says:

    After long 27 years working abroad I have returned back to India on 9 Feb, 2019. I have saving in NRE a d FCNR deposits. Being NRI the interest was tax free in India. I want to maintain the FCNR as it is for my children higher edication at USA. What is the most efficient way to restucture my investments.

  • Rem says:

    Is nri time deposit is taxable in India

    • Anuj says:

      Hi Rem,

      It depends in which type of account you are holding time deposit
      Like in NRE , NRO etc.

  • Subramanian says:

    Dear Sir,
    I have seen the following comment:”Will the FD in NRE be considered as domestic FD in a bank if I relinquish my NRI status?”
    Is it that the each bank will have its own rule or is there any guidelines or circular by RBI regarding NRE FD of returned NRI?

  • Mahender Goriganti says:

    real question is; can my NRE (INR) FDs accounts be 1. redesignated as RFC accounts (am still RNOR) so these funda are avilable for convertion later if need be for overseas use; 2. & or can the NRE a/c INR be exchanged to FCNR (say $) and or 3. continue as FD but redeposited as RFC (INR) as is, so as to enable me to utilize, if need be later, for overseas use??

  • Ramesh Ashar says:

    I was NRI for past 30 years. I returned to India on 25 Dec, 2019. For A/Y 2018/19, I stayed outside India for more than 180 days. I got my dues from my foreign employer in Nov/Dec 2018 which I have invested in NRE FDs & FCNR which mature in Oct/Nov, 2019. I have small balance in NRE account. I wish to inform my Bank about my change of status. Please guide me.

  • Rau says:

    In matters of tax one must ask a tax adviser to quote the relevant official publication. Indian IT Act Sec 10(15)(iv)(fa) is quoted below:

    It states that exemption for NR person or NOR person is allowed (of interest paid) on foreign currency deposits. If this is the same section under which a bank exempts NRE interest while the account holder enjoys NR status then it is reasonable to assume the phrase “foreign currency” deposits also includes “foreign exchange” deposits. Under FEMA, NRE deposits are referred to as “convertible foreign exchange”.

    (fa) by a scheduled bank to a Non-Resident or to a person who is Not Ordinarily Resident within the meaning of sub-section (6) of section 6 on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India.

    Explanation.—For the purposes of this item, the expression “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;

    • Hi Rau,
      Thanks for sharing.

      • Rau says:

        Hi Hemant,

        Sec 10(15)(iv)(fa) seems to deal only with foreign currency deposits of NR and NOR individuals. A strict interpretation of this would be FCNR deposits which are denominated in foreign currency.

        It is Sec 10(4)(ii) that deals with exemption of NRE interest of persons resident outside India

        Sec 10 (4) (ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder :
        Provided that such individual is a person resident outside India (i.e. a Non-Resident under IT Act)

        The FEMA definition of a person resident in India generally covers a person residing in India for more than 182 days during the preceding Financial Year. (understand that reference is made to the preceding FY which is the year preceding the “Previous Year” (Sec. 3) i.e. the year in which income is earned.).

        Under FEMA the definition of resident excludes a person coming to or returning to India otherwise than
        – for employment or business or profession
        OR
        – for other purpose in circumstances that suggest he intends to stay for an uncertain period (indefinite period ?)

        The above double negative implies a person coming for employment,business,profession is a resident from the very day they arrive.

        Similarly a person coming for any other purpose (e.g non OCI tourist or retired Indian) in circumstances that suggest an intent to stay in India for an uncertain (indefinite) period would also be FEMA resident assuming they have crossed the 182 day threshold.

        Conclusion:

        An IT NOR individual may not claim exemption of NRE interest under Sec 10(4)(ii) beyond one Financial year following the preceding Financial Year in which he was a FEMA NR.

        An IT NOR individual may claim exemption of FCNR interest under Sec. 10(15)(iv)(fa) for the years in which he enjoys IT NOR status

  • Shri says:

    does my nri Fd remain non taxable after I return to India after 12yesrs

  • Ajay says:

    Hello Hemant,
    I would like to know whether the rules are similar for OCI card holder and NRI

  • Rohan says:

    Hi Hemant,

    Could you pls clarify on one doubt as I am not sure.

    I have a NRE FD which i just made a few months back. As per the bank, no interest is paid if NRE FD is broken before a year (there’s no pro-ration based on the actual duration the FD is held).

    Now I will be returning to India in a few months. My NRE FD will not complete the tenure of 1 year. As per your article and my research, I cannot hold a NRE FD the moment i return to India permanently

    1.) After my return to India, Can I still hold the NRE FD till maturity but pay tax on the earned interest. I think I will be in RNOR status for a year. But even if I am in ROR or Resident status, I dont mind and will file taxes. But is this legal (i.e. holding NRE FD but paying taxes as per the tax filing status

    2.) OR do I need to immediately convert my NRE FD to resident FD on return. If this is the case, I would immediately convert break my NRE FD and lose a few months of interest instead of breaking it after I go to India and losing an entire year of interest

    Pls advice

  • Pradeep says:

    Within what time frame should a returning NRI intimate his bank about his changed status from NRI to Resident?

  • Niraj says:

    After NRI returns to India and has RNOR status is the interest earned on NRI Rupee deposit taxable?

  • Kedar says:

    what happens to NRE deposits after the status is changed to resident deposit?

  • Surya says:

    In one part of this article you say the onus is on the NRI to inform the bank to convert his account to resident account upon his return to india.
    Elsewhere it is written that an NRI can retain NRE accounts till maturity (does that mean beyond the period he is RNRO?)

  • Bhat says:

    I stayed 8yrs in abroad and soon I will return to India can I be a RNOR

  • Simon says:

    what happens to a NRE FD when an NRI returns to India.

  • Victor says:

    Am still an NRI, I have a NRE FD, which will mature in July. My question, the full amount upon maturity along with the interest earned will be transferred to the NRE account?

  • sindhu says:

    Hi I was an NRI. Now we are in India for 1&12years.We had an NRE Fd. It got matured. My question is is the interest taxable.

  • Manoj says:

    I recently returned to India after living abroad for 15 years. I have a NRE account with NRE FDs (in INR). When I approached the bank about status change, they said that they will close the NRE account and open a new resident saving account.
    Since some of my NRE FDs are less than 1 year old, bank said that they will break the FDs without giving any interest and start new FDs with the same principal amount for the remaining duration in the new savings account.
    Can I continue my NRE account as I will be in RNOR status for 3 years? Is the bank correct on not giving interest on FDs. Looks like I am getting penalized for moving back to India.

  • Raj says:

    I am a NRI but on 27th of April, I returned to India on my retirement after 35 years of service abroad. I have NRE saving accounts. When I have to inform to the banks and how and when the Tax will commence on my earnings as interest on the NRE FDs?

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