A GIFT City FD provides a new avenue for NRIs to save with extensive benefits. If you’ve moved abroad but want to participate in the growth trajectory of India, this investment option offers numerous possibilities. It works much like a fixed deposit but with evolved rules. The advancement is due to the regulatory framework of the International Financial Services Centres Authority (IFSCA). Explore the interest rates you can earn against a GIFT City FD compared to regular bank FDs in this article.
How do GIFT City FD interest rates work?
Owing to management in foreign currency and its connection to global standards, the GIFT City FD rates are determined based on different values. Here’s a breakdown of how they’re calculated:
- Linked to global interest cycles
Unlike regular FDs following India’s repo rate revisions, the interest rate in GIFT City FDs is tied to global benchmarks. So, if the international rates, especially in the US or Europe, fluctuate, so do these FD rate.
- Currency dependent
Your returns also depend on the currency you choose. Since deposits are typically held in USD, EUR, and other globally accepted currencies, each has its own influence on the interest structure.
- Tenure plays a key role
The flexibility is similar to that of regular FDs. You can choose a tenure between 7 days and 5 years. The maximum duration is capped at 5 years compared to 10 years. So, you can save for your short to medium-term financial goals.
- Bank-driven rates
Besides the currency-driven impact, the banks offering GIFT City account also have the flexibility to adjust the deposit rates based on their internal policies and market interpretation.
- Tax-free earnings
One of the biggest advantages of a GIFT City FD is that you get to keep a large portion of what you earn. There are no tax implications on interest earnings for NRIs, including no TDS deductions.
GIFT City vs Regular FD rates: Main differences
The factors influencing the difference in returns between GIFT City FDs and regular FDs are explained as follows:
- Currency impact on returns
Regular FDs are automatically tied to INR. Hence, the returns are exposed to inflation and currency depreciation that affect the Indian Rupee.
On the other hand, GIFT City FDs are linked to foreign currencies. This gives more stability if you earn and spend internationally.
- Differential regulatory standards
Traditional FDs operate under the RBI regulations. As India’s central monetary authority, it standardises how banks set interest rates.
GIFT City FD rates, as discussed earlier, are governed by the IFSCA guidelines that give banks more flexibility to align with the global markets. The international framework makes fixed deposits function like offshore banking products.
- Difference in tax treatment
Interest earned on regular FDs is taxable in India under the head ‘Income from Other Sources’ according to your applicable income tax slab. TDS is also deducted if the interest income exceeds a certain threshold.
When do GIFT City FDs make more sense?
Now that you’ve learned about the differences in GIFT City FD rates, it also helps to understand how it fits your needs. Here’s when it is suitable for you:
- When you earn in foreign currency
If your income is in USD, EUR, or any other major currency, parking funds directly in a GIFT City fixed deposit is practical.
- When you want tax-efficient returns
Since the interest earned on this type of FD is tax-free in India, you can opt for it to make your returns more rewarding.
- When you want to diversify globally
If you want to expand your portfolio to global markets, a GIFT City FD is a good start to gain early exposure.
Final words
Both regular and GIFT City FD have their own appeal. While one focuses on fixed returns based on India’s growing market conditions, the other explores the global standards. Your choice comes down to your expectations for your portfolio. You can explore the growth that interest rates rooted in the international framework bring with a GIFT City FD. Meanwhile, a regular FD provides a safe investment avenue in India. You can also maintain both to benefit from their distinctive features.
