NRE vs NRO FD: NRO Interest Faces 30% TDS, NRE Stays Tax-Free in India for NRIs

According to reporting by The Economic Times, the rules that separate NRE and NRO fixed deposits for non-resident Indians come down to four things: the TDS rate, PAN, the benefit of a double tax avoidance agreement (DTAA) and the limit on sending money abroad. In plain terms, NRE fixed deposit interest is not taxed in India, while NRO fixed deposit interest is taxed at source at a much higher rate.

For an NRI saver, the account you pick decides how much of your interest you keep. Money earned abroad usually belongs in NRE. Money earned in India usually has to sit in NRO. A valid PAN and a treaty claim can bring the NRO tax bite down.

This article explains how the two accounts work, what the source coverage implies for savers, and what to check before your next deposit. We only know the headline of the original report, so specific rates and thresholds below are standing rules, not figures taken from it. Confirm current numbers with your bank or a tax adviser.

Key takeaways

• NRE FD interest is exempt from Indian income tax for a person who is a non-resident under Indian law, and the money can be repatriated freely.
• NRO FD interest is taxable in India, and banks deduct TDS at a high headline rate, commonly 30% plus surcharge and cess, unless a lower treaty rate applies.
• A valid PAN matters. Without it, TDS can be deducted at a higher rate, and you may struggle to claim credit or a refund.
• DTAA relief can cut the NRO TDS rate, but you typically need a tax residency certificate and a self-declaration on file with the bank.
• NRO repatriation is capped at a limit per financial year, after taxes, and needs paperwork. NRE has no such cap on the principal and interest.

How NRE and NRO fixed deposits differ

An NRE account holds money you bring into India from abroad, in foreign currency converted to rupees. An NRO account holds income earned in India, such as rent, dividends, pension or sale proceeds of property. Both accounts are rupee accounts and both can hold fixed deposits, but they serve different purposes.

The Reserve Bank of India sets out how these accounts operate under the foreign exchange framework, and banks apply those directions. Both deposits are also covered by standard deposit insurance up to the prescribed limit per depositor per bank.

Feature	NRE fixed deposit	NRO fixed deposit
Source of funds	Foreign earnings remitted to India	Income earned in India
Interest taxed in India	No, for a non-resident	Yes
TDS on interest	Not applicable	Deducted at source by the bank
Repatriation of principal	Freely allowed	Capped per financial year, after taxes
Repatriation of interest	Freely allowed	Allowed after tax, with documentation
Joint holding with a resident	Not allowed	Allowed
Typical use	Parking foreign savings at Indian rates	Managing rent, dividends and other Indian income

The gap in tax treatment is the headline difference. It is also why the choice of account matters more than the small difference in the interest rate a bank offers on either product. You can compare current deposit rates on our interest rates page.

NRO FD TDS rate for NRIs: how the tax works

Interest on an NRO fixed deposit is income earned in India, so it is taxable here. Banks deduct tax at source before crediting interest. For non-residents, the standard rate on interest income has long been 30%, plus a health and education cess of 4%, and a surcharge that depends on total income. That is why NRIs often see an effective deduction of roughly 31% or more.

The key point is that TDS is a collection mechanism, not always the final tax. Your actual liability depends on your total Indian income and on any treaty relief. If TDS exceeds your liability, you can file a return and claim a refund.

Worked example

Suppose an NRI earns ₹2,00,000 of interest in a year on NRO deposits, and no treaty relief has been claimed.

• TDS at 30% base: ₹60,000
• Cess at 4% of the tax: ₹2,400
• Total deducted: ₹62,400
• Interest actually received: ₹1,37,600

The same interest in an NRE deposit would have been credited in full, with no Indian tax. That is the reason many NRIs who put foreign earnings into an NRO account end up surprised by the deduction.

PAN rules for NRI fixed deposits

A Permanent Account Number is central to how TDS is applied. When a deductee does not provide a PAN, the income tax rules call for tax to be deducted at a higher rate than the normal one. For a non-resident with a valid PAN, the regular rate applies.

For NRIs the practical points are these:

1. Get a PAN before you open the deposit, not after the first interest credit.
2. Make sure the bank has it linked to the account so the TDS certificate shows the right identity.
3. Keep your address and residency status current, because the bank uses them to decide which rate to apply.
4. Check your annual tax statement against the TDS certificate from the bank before filing your return.

A missing or mismatched PAN is one of the most avoidable reasons for excess deduction, and it can delay refunds because the tax department cannot match the credit.

DTAA benefit: how treaty relief lowers NRO TDS

India has signed double tax avoidance agreements with many countries. Where a treaty applies, the tax on interest paid to a resident of the treaty country can be capped at a rate lower than the domestic 30%. Many treaties set rates in a modest band for interest income, but the exact figure differs by country, so check the specific treaty for yours.

To claim this at source, banks generally ask for documents along these lines:

• A tax residency certificate from the tax authority of your country of residence
• A self-declaration, often in a prescribed format, confirming you are a tax resident there and have no permanent establishment in India
• Your PAN and your tax identification number in the country of residence
• Any additional form the bank requires for treaty claims

If you do not file these before the interest is credited, the bank will deduct at the domestic rate, and you would have to claim the difference back through your return.

Illustration with an assumed treaty rate

For illustration only, assume a treaty caps the rate at 15% and the same ₹2,00,000 of NRO interest applies. The tax at 15% is ₹30,000, against ₹62,400 in the earlier example. The saving is ₹32,400 a year. How surcharge and cess apply on a treaty rate can vary, so treat this as a simple indication, not a computation of your liability.

A treaty rate also does not remove the need to consider tax in your country of residence. Many countries tax worldwide income and then give credit for tax paid in India, but the rules differ.

NRO repatriation limit and paperwork

NRE deposits are freely repatriable, meaning you can send the principal and interest back abroad without a cap. NRO accounts are different. Under the foreign exchange framework, a resident of this type can remit from NRO balances up to a prescribed amount per financial year, currently understood to be USD 1 million, after paying applicable taxes. Confirm the current limit with your authorised dealer bank, because the rules can be revised.

Remitting from an NRO account typically involves:

1. An accountant's certificate confirming taxes have been paid or provided for
2. A declaration from you on the source and purpose of funds
3. Filing of the relevant remittance forms through your bank
4. Retention of proof that tax was paid on the income being remitted

Plan for this in advance if you expect to move a large sum out of India, such as sale proceeds of property. Doing the paperwork late is the usual cause of delays, not the limit itself.

Which NRIs are affected and which are not

The difference between NRE and NRO matters most to people who fit these profiles:

• NRIs who earn abroad and save in India. They benefit from NRE deposits because the interest is tax-free here and freely repatriable.
• NRIs with rental, dividend or pension income in India. They will have an NRO account and should plan for TDS on its interest.
• Returning NRIs. Once your residential status changes, the tax treatment of your accounts changes too, and the account may have to be redesignated. Check the timing with your bank.
• Residents of India. None of this applies to you. Resident savers follow the regular TDS rules for fixed deposits, with thresholds and Form 15G or 15H options for eligible depositors.

If you are unsure of your status, residential status under Indian tax law depends on the number of days you stay in India in a year, not on your citizenship.

What to do now: a practical checklist

1. Split your money by source. Foreign earnings go to NRE, Indian income stays in NRO.
2. Confirm your PAN is on file and linked to every deposit.
3. If your country has a treaty with India, submit your residency certificate and declaration to the bank before the next interest credit.
4. Ask your bank which TDS rate it is currently deducting on your NRO deposits.
5. Compare the rate on offer with the after-tax yield. A slightly higher NRO rate does not help once 30% or more is deducted.
6. Keep your TDS certificates and file a return if excess tax has been deducted.

You can follow related developments on our news hub.

Common mistakes NRIs make with FD taxation

The most frequent mistake is keeping foreign earnings in an NRO account, which exposes interest to Indian tax that an NRE account would have avoided. The second is ignoring the treaty benefit and leaving the claim until filing time. A third is assuming that NRE interest is tax-free everywhere. It is exempt in India, but your country of residence may still tax it.

Other errors include letting a PAN go inactive, failing to tell the bank about a change in residential status, and leaving NRO funds unmanaged until a large remittance is urgent. Each one is easy to fix if caught early.

Frequently asked questions

Is NRE FD interest really tax-free for NRIs?

NRE fixed deposit interest is exempt from Indian income tax for a person who is a non-resident under Indian law. That exemption applies in India only. Your country of residence may tax the same interest under its own rules, so check locally.

What is the TDS on NRO FD interest?

The standard TDS on interest earned by a non-resident has been 30%, plus surcharge as applicable and 4% cess. A lower treaty rate can apply if you submit the right documents. Your bank can confirm the rate it is currently applying.

Can I get a refund if too much TDS was deducted on my NRO deposit?

Yes. If the tax deducted exceeds your actual liability, you can claim the excess by filing an income tax return in India. Keep the TDS certificates from the bank, and make sure your PAN is correctly recorded so the credit matches.

Is there a limit on sending money abroad from an NRO account?

Yes. NRO balances can be remitted abroad up to a prescribed limit per financial year, after taxes, and with supporting documents. NRE balances do not carry that cap. Confirm the current figure with your bank, as limits can be revised.