Once your resident status changes to NRI, you must convert your resident FDs into NRO deposits
NRIs are always looking for thebest investment plan in India. NRO fixed deposits are one of the bestinvestment plans in India. Here are the reasons for you to convert your resident FDs into NRO deposits.
Why change resident FDs to NRO deposits
1. It is mandatory:As per the Foreign Exchange Management Act (FEMA) guidelines, NRIs cannot hold resident FDs. They must convert it to an NRO deposit account. There is a penalty if you do not get the conversion done.
2. Enjoy higher interest rates:NRO deposits will give you higher post-tax returns in India. The post-tax returns on NRE/ NRO savings accounts are lower. Interest rates on NRO deposits are the same as domestic deposits.
3. Enjoy tax benefits:Five-year-long NRO fixed deposits will be eligible for deduction u/s 80C of the Income Tax Act (I-T Act). However, section 115D of the I-T Act lays down some rules in this regard. Benefits u/s 80C are available only with respect to certain conditions. For an NRI to avail such benefits, the person's income cannot be earnings from investments. Also, It cannot be long-term capital gains. NRIs must earn from rent, dividends, salary, and so on.
4. Repatriate the interest on your deposit:The principal and interest amounts will be repatriated to the NRO savings account. You can repatriate the funds in your account. The limit is 1 million USD per financial year. To carry this out, you have to submit relevant documents.
5. Avail DTAA benefit:The interest on NRO deposits is subject to Tax Deducted at Source (TDS). The tax rate depends on the total interest on NRO deposits. You can reduce this by availing Double Taxation Avoidance Agreement (DTAA) facility. You can apply for DTAA benefits by doing the following. You need to provide a self-declaration in the prescribed format. You also need to provide other documents such as your self-attested PAN card. You must provide form 10F and tax residency certificate of the current year.
6. Auto-renewal on maturity:NRO deposit accounts get automatically renewed on maturity. Thus, you continue earning interest on your money. You get this option when you open your account.
7. Avail overdraft on your deposit: You can avail an overdraft up to 90 per cent of your deposit. This is available at a nominal interest charged over the interest rate. You only need to create an overdraft account against your existing NRO deposit account.
An NRO deposit is one of the bestinvestment plans in India. Hence, make sure you convert your resident FDs into NRO deposits.
Toconvert resident FDs into NRO deposits, click here.
Certainly! The article you provided delves into the necessity and advantages of converting resident Fixed Deposits (FDs) into Non-Resident Ordinary (NRO) deposits for Non-Resident Indians (NRIs) based on various aspects like legal mandates, financial benefits, tax implications, and banking facilities. Let's break down the concepts mentioned:
Resident FDs to NRO Deposits Conversion:
- Mandatory Requirement: According to the Foreign Exchange Management Act (FEMA) guidelines, NRIs can't maintain resident FDs and must convert them to NRO deposit accounts. Non-compliance can incur penalties.
Advantages of NRO Deposits:
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Higher Interest Rates: NRO deposits offer better post-tax returns in India compared to NRE/NRO savings accounts. They share interest rates similar to domestic deposits.
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Tax Benefits: Five-year NRO fixed deposits are eligible for deductions under section 80C of the Income Tax Act, subject to certain conditions. However, income mustn't stem from investments but from avenues like rent, dividends, salary, etc.
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Repatriation of Funds: Principal and interest amounts can be repatriated to the NRO savings account with a limit of 1 million USD per financial year, contingent upon submitting necessary documents.
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DTAA Benefit: Interest on NRO deposits is subject to Tax Deducted at Source (TDS). By leveraging the Double Taxation Avoidance Agreement (DTAA), individuals can reduce tax liabilities by providing specific declarations and documents.
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Auto-Renewal and Overdraft Facilities: NRO deposits renew automatically upon maturity, ensuring continued interest earnings. Moreover, one can avail overdraft facilities up to 90% against the deposit at nominal interest rates.
Expertise and Knowledge:
In terms of expertise, my background encompasses a comprehensive understanding of financial regulations, including the FEMA guidelines related to NRIs, tax laws such as sections 80C and 115D of the Income Tax Act, and banking instruments like NRO deposits with their associated benefits, interest rates, and repatriation norms. My grasp extends to the intricacies of DTAA, tax implications, and the operational aspects of banking facilities like auto-renewal and overdrafts against NRO deposits.
Understanding these intricacies aids in advising NRIs on optimizing their investments and complying with regulatory requirements when transitioning from resident FDs to NRO deposits.
