NRIs can also invest in company deposits provided the principal and interest amount would not be credited to a Non Resident External (NRE) account. Moreover, the amount that are received from the deposits are non repatriable, which means you cannot transfer the money back abroad.
An NRI can open two kinds of accounts in India - NRE and NRO accounts. Click here to find out the differences between NRE account and NRO account.
Company fixed deposits that already exist can be renewed by an NRI. However, before investing in a fresh company fixed deposits NRIs must remember the following details:
1. The Non Banking Financial Company (NBFC) can accept or renew deposits for a minimum period of 12 months and maximum period of 60 months. Deposits cannot be accepted on repayable demand.
2. NBFCs is not liable to offer higher interest rate than the ceiling rate prescribed by the Reserve Bank of India (RBI).
3. NBFC should have minimum investment grade credit rating. It may get rated by any of the five rating agencies namely CRISIL,CARE, ICRA and FITCH, Ratings India Pvt. Ltd. and Brickwork Ratings Pvt. Ltd.
4. NBFCs are not allowed to offer any gifts, incentives or any other additional benefits to the depositors.
5. The repayment of deposits by NBFCs are not guaranteed by the RBI and hence unsecured.
6. RBI does not take any responsibility in asserting the financial soundness of an NBFC as well as correctness of any statements given by the NBFC.
7. Certain mandatory disclosures about the company should be made in the Application Form issued by the company soliciting deposits.
8. Depositors should collect a proper deposit receipt with details of the name of the depositor, date of deposit, amount of deposit in words and figures, maturity date and amount. The receipt should be duly stamped and duly signed by an officer authorised on the behalf of the company.
9. Deposit Insurance Facility is not available to the depositor of the NBFCs.
Taxation on company deposits
It is important to remember that there is a TDS that becomes applicable if the interest on the deposits cross Rs 5,000. This is as against a TDS that is applicable for bank deposits. Investors have to add the interest income to the total income before paying taxes on the same.
So, while investing in company deposits NRIs must check the investment grade credit rating of the NBFC. Other restrictions including payment from NRO account should also be kept in mind.