TDS on NRO Account Interest: Rates, Exemptions and Reductions

This guide explains everything NRIs need to know about TDS on NRO account interest in 2026, including the standard 30% rate, how Double Taxation Avoidance Agreements (DTAA) can reduce it to as low as 10%, which documents to submit to your Indian bank, and how to reclaim any excess TDS through your Indian income tax return.

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Most NRIs know their NRO account earns interest. What many do not realise until they check their bank statement is that a large chunk of money is already gone before they see it. That is TDS or tax deduction at source, and at 30%, it is one of the highest deduction rates in Indian banking.

If you live in the US, the UK, Germany, or most countries with a tax treaty with India, you can legally significantly reduce that rate. And even if TDS is deducted at the full rate, you can claim it back when you file your Indian income tax return.

Here is how you can do it.

What Is TDS on NRO Account and Why Does It Apply

TDS stands for Tax Deducted at Source. Your bank deducts tax from your interest income before it reaches you, and deposits that interest amount with the Income Tax Department of India, and credits the remaining amount to your primary account.

For NRIs, NRO accounts hold money from Indian sources: rental income, dividends, pension, and interest. Because this money originates in India, Indian tax law applies. The government requires banks to deduct TDS upfront so that taxes are paid even when the account holder lives abroad.

NRO vs NRE: Why TDS on NRO Account Interest Exists

Understanding why NRO interest is taxed clarifies the difference between the two main NRI account types:

• NRE account interest: Completely tax-free in India. No TDS is deducted because NRE funds originate from overseas earnings.
• NRO account interest: Fully taxable at 30% plus cess. NRO funds originate from Indian-sourced income.

Sending overseas earnings to an NRE account rather than an NRO is the simplest way to avoid this TDS entirely.

Current TDS Rate on NRO Account Interest

The standard TDS rate on NRO account interest for NRIs is 30%, as specified under Section 195 of the Income Tax Act, 1961. On top of this, a 4% health and education cess applies.

This brings the effective TDS rate to 31.2% on NRO savings account interest, NRO fixed deposit interest, and NRO recurring deposit interest.

In practical terms, if your NRO fixed deposit earns ₹1,00,000 in interest in a financial year, your bank deducts ₹31,200 and credits only ₹68,800 to your account.

How Surcharge Affects TDS on NRO Account Interest

For high-income NRIs, a surcharge applies on top of the base rate:

• Total Indian income between ₹50 lakh and ₹1 crore: 10% surcharge, pushing the effective TDS rate higher
• Total Indian income above ₹1 crore: 15% surcharge

For most NRIs with moderate NRO balances, the surcharge is unlikely to apply. The standard 31.2% effective rate covers the vast majority of cases.

NRIs cannot claim the Section 80TTA exemption (₹10,000 on savings interest) or the Section 80TTB exemption (₹50,000 for senior citizen residents). Both apply only to resident individuals. The only legitimate route to reduce TDS is through DTAA.

Reducing TDS on NRO Account Interest Through DTAA

India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries. These treaties allow NRIs to pay tax on Indian income at the lower of the two rates: India’s standard rate or the treaty rate.

For NRO account interest, the DTAA typically specifies a reduced rate under Article 11 (Interest), significantly lower than India’s standard 30%.

DTAA Rates for TDS on NRO Account Interest by Country

• USA: 15% under the India-US DTAA (Article 11)
• UK: 15% under the India-UK DTAA
• Germany: 10% under the India-Germany DTAA
• Singapore: 15% under the India-Singapore DTAA
• Canada: 15% under the India-Canada DTAA
• Australia: 15% under the India-Australia DTAA
• UAE: 12.5% under the India-UAE DTAA (though the UAE levies no personal income tax itself)
• Netherlands: 10% under the India-Netherlands DTAA

If you live in the US and your NRO FD earns ₹1,00,000 interest:

• Without DTAA: ₹31,200 deducted (31.2%)
• With DTAA: ₹15,000 deducted (15%)
• You keep ₹16,200 more per ₹1,00,000 of interest

How to Claim the DTAA Benefit on TDS on NRO Account Interest

The DTAA benefit does not apply automatically. Submit the required documents to your Indian bank at the start of each financial year (April) or before your FD is created.

Step 1: Obtain a Tax Residency Certificate (TRC)

A TRC is an official certificate from your country’s tax authority confirming your tax residency there.

• USA: File Form 8802 with the IRS to receive Form 6166. Takes 4 to 6 weeks, so apply early
• UK: Apply to HMRC for a certificate of residence through your HMRC online account
• Germany: Apply to your local Finanzamt (tax office) for an Ansässigkeitsbescheinigung

Step 2: Complete Form 10F Online

Form 10F is a self-declaration filed online at incometax.gov.in. It captures your residency status, tax identification number in your country, and the TRC validity period.

Step 3: Submit to Your Indian Bank

Submit the TRC and Form 10F acknowledgement with your PAN card copy. The bank applies the reduced DTAA rate from that point forward.

Step 4: Verify the Rate

Check your next interest credit or Form 26AS on the income tax portal to confirm TDS is being deducted at the DTAA rate, not 30%.

Can You Get a Refund on TDS on NRO Account Interest?

Yes. If TDS was deducted at the full 30% rate, you can claim a refund by filing an Indian Income Tax Return (ITR).

Situations where a refund is possible:

• You submitted DTAA documents late, and some TDS was deducted at 30% before the bank switched to the lower rate
• Your total Indian income fell below the taxable slab, meaning no tax is actually owed
• Other deductions reduce your overall tax liability below the TDS already deducted

How to claim the refund:

• File an ITR at incometax.gov.in by 31 July for the previous financial year
• All TDS deducted appears in Form 26AS, which the portal auto-populates from bank filings
• Refunds are processed directly to your bank account, typically within 2 to 4 months of filing

What Documents Does Your Indian Bank Need

Submit these to your Indian bank at the start of every financial year:

• PAN card: Mandatory. Without it, complications arise under Section 206AA
• Tax Residency Certificate (TRC): From your country of residence, valid for the financial year
• Form 10F: Filed online at incometax.gov.in and acknowledgement submitted to the bank
• Non-resident declaration: Some banks ask for a self-declaration confirming NRI status, overseas address, and tax residency country
• Passport copy: For identity verification alongside PAN

DTAA benefits do not carry over automatically. Resubmit every April.

How PandaMoney Connects to Your NRO Account

PandaMoney sends money to your NRE or NRO account at the real mid-market rate with zero fees, settling same day or next business day through its network of 16+ fully authorised banking partners in India.

For NRIs looking to minimise TDS on interest, the smarter choice is to send overseas earnings to an NRE account rather than an NRO. NRE interest is completely tax-free. If you fund an NRE FD through PandaMoney, you earn interest with zero Indian tax liability instead of the 31.2% TDS hit on equivalent NRO interest.

For a comparison of NRE vs NRO vs FCNR accounts and which earns tax-free interest, the guide covers every dimension.

For a full guide on NRO account repatriation and the USD 1 million annual limit, that article explains the process clearly.

Download PandaMoney on Android or iOS.

FAQs: TDS on NRO Account Interest

What Is the TDS Rate on NRO Account Interest in 2026?

The standard TDS rate on NRO account interest is 30% plus 4% cess, giving an effective rate of 31.2%. This applies to NRO savings account interest, NRO fixed deposit interest, and NRO recurring deposits. A surcharge applies if the total Indian income exceeds ₹50 lakh. NRIs with a valid DTAA claim can reduce this to as low as 10% to 15%, depending on their country of residence.

How Do I Reduce TDS on NRO Account Interest Using DTAA?

Submit a Tax Residency Certificate (TRC) from your country of residence and a completed Form 10F to your Indian bank at the start of each financial year. Once accepted, the bank applies the lower DTAA rate for TDS on your NRO interest instead of the standard 30%. DTAA rates for interest income range from 10% (Germany, Netherlands) to 15% (USA, UK, Canada, Singapore, Australia).

Can I Claim Exemption Under Section 80TTA on NRO Account Interest?

No. Section 80TTA, which allows resident individuals to claim a ₹10,000 exemption on savings account interest, does not apply to NRIs. Neither does Section 80TTB (₹50,000 exemption for senior citizen residents). NRIs cannot claim these exemptions. The only legitimate way to reduce TDS on NRO interest is through DTAA, or to file an ITR and claim a refund if the total tax liability is lower than the TDS deducted.

Does TDS Apply to NRE Account Interest Too?

No. NRE account interest is completely tax-free in India under Section 10(4) of the Income Tax Act. No TDS is deducted on NRE savings or fixed deposit interest, regardless of the amount earned. This is one of the primary advantages of keeping overseas remittances in an NRE account rather than an NRO account.

What Happens If I Do Not Submit DTAA Documents to My Bank?

Your bank deducts TDS at the full 31.2% rate. You do not automatically lose this money permanently. You can recover the excess TDS by filing an Indian ITR for the relevant financial year and claiming a refund. However, this means your money is locked with the tax department until the refund is processed, which typically takes 2 to 4 months after filing.

Disclaimer: This blog is for educational purposes only and does not constitute legal, financial, or tax advice. TDS rates, DTAA provisions, and Income Tax rules are subject to change. Always consult a qualified Chartered Accountant before making decisions about NRO account interest or DTAA claims. Verify current TDS rules at incometax.gov.in and DTAA texts at the Ministry of Finance website. PandaMoney facilitates all transfers exclusively through authorised and fully licensed banking and financial institution partners.