NRO Account Tax in India: TDS, Interest & Refunds

If you live outside India and earn interest from a Non-Resident Ordinary (NRO) account, you may notice tax deducted by your bank before the interest is credited. However, Tax Deducted at Source (TDS) is not necessarily the final tax you owe. Understanding how NRO interest is taxed, when an Indian income tax return may be required, and how to check possible refunds or treaty relief can help you manage your Indian tax obligations.

What Are the Tax Implications of an NRO Account in India?

An NRO account allows a person residing outside India to manage eligible rupee transactions and income in India. It may hold funds such as legitimate income earned in India, inward remittances and other permitted credits under Reserve Bank of India (RBI) rules. NRO accounts can be maintained as savings, current, recurring or fixed deposit accounts. 

The main tax implication is that interest earned on an NRO account is generally taxable in India. The bank may deduct TDS, but the amount deducted and your final tax liability can differ.

Your position depends on the relevant tax year, the applicable tax legislation, your taxable income, any applicable surcharge and cess, and whether you qualify for treaty relief. Also, Foreign Exchange Management Act (FEMA) or banking classification and income-tax residential status are separate legal questions; one should not automatically be used to determine the other.

How Is NRO Account Interest Taxed in India?

Tax on NRO Savings Account Interest

Interest credited to an NRO savings account is generally taxable under the Indian tax rules applicable to the relevant period. Even if the interest amount is relatively small, you should include it when reviewing your Indian income and tax records.

Check your bank statement or interest certificate to confirm the interest credited during the tax year. Do not assume that an amount is tax-free simply because the bank has not deducted TDS from it.

Tax on NRO Fixed Deposit Interest

Interest earned on an NRO fixed deposit is also generally taxable in India. Depending on the deposit terms, interest may be credited periodically or at maturity. The timing of credit, the bank's reporting and withholding treatment, and the applicable tax year should be checked against the relevant rules.

What Determines Your Final Tax Liability?

Your final tax liability is not determined by the account type alone. Relevant factors may include:

• The tax year in which the interest is taxable.
• Your total taxable income and applicable tax provisions.
• The relevant rate, surcharge and cess, where applicable.
• Any eligible relief under an applicable DTAA.
• Tax already deducted or paid and available tax credits.

For general information on wider NRI tax rates and tax slabs, see Visament's NRI income tax rates and tax slabs guide. This NRO article focuses on interest earned from the account rather than all categories of NRI income.

Important tax-law update: India's Income-tax Act, 2025 applies to tax years beginning on or after 1 April 2026. Earlier periods must be assessed under the legislation applicable to those periods. Always verify the law and relevant provisions for the specific year being reviewed.

What Is TDS on NRO Account Interest?

TDS is tax that a bank deducts at source when the applicable tax rules require it to do so. The bank reports the deduction against the account holder's tax details, allowing the amount to be checked against the taxpayer's official tax-credit records.

Is TDS the Final Tax on NRO Interest?

No. TDS deducted on NRO interest is not necessarily the final tax liability. The final amount depends on the law applicable to the tax year, the taxpayer's circumstances, and any eligible relief. TDS is credited against the tax liability under the applicable rules.

Avoid assuming that a particular percentage applies to every NRO account holder. Withholding rates and treaty-related treatment can depend on the payment, applicable provisions and eligibility. Check the relevant official guidance for the period involved.

What if the Bank Deducts More Tax Than Necessary?

Compare the bank's interest and TDS records with the tax information available through the Income Tax Department. If the tax deducted exceeds your final liability, you may be eligible to claim a refund through the applicable return process, subject to statutory requirements.

Illustrative example only: Suppose an NRO fixed deposit earns ₹1,00,000 in interest and the bank deducts ₹30,000 as TDS. If the taxpayer's correctly calculated final tax liability on that income is ₹20,000, the ₹10,000 difference may be refundable, provided the taxpayer meets the applicable requirements. These figures illustrate the arithmetic only; they do not establish a general TDS rate or tax outcome.

Do NRIs Need to File an Income Tax Return for NRO Interest?

Whether an NRI must file an Indian income tax return depends on the applicable law, total taxable income and other statutory conditions. The fact that a bank has deducted TDS does not, by itself, determine whether filing is mandatory.

Consider these points when assessing your position:

• Review your income: Identify NRO interest and any other income that may be taxable in India.
• Check the applicable filing rules: The relevant tax year and statutory conditions determine whether a return is required.
• Consider a refund claim: If eligible, filing a return may be necessary to claim excess TDS.
• Reconcile tax credits: Confirm that the bank's reported deductions appear correctly in the relevant tax records.

The Income Tax Department publishes guidance for non-resident taxpayers and applicable return requirements. Check the official non-resident FAQs and the relevant filing guidance before deciding what applies to you.

For broader information about NRI taxation and return-filing considerations, read our complete guide to NRI income tax. This article is intended to explain NRO interest, not replace a complete return-filing guide.

Can NRIs Claim DTAA Relief on NRO Account Interest?

A Double Taxation Avoidance Agreement (DTAA) may provide relief when income is taxable or subject to tax in more than one country. Whether relief applies to NRO interest depends on the relevant treaty, the taxpayer's tax residency, the nature of the income and the applicable Indian rules.

Living abroad or holding an NRO account does not automatically establish eligibility for a reduced rate or refund.

Depending on the treaty and the applicable procedure, supporting documents may include:

• Tax Residency Certificate (TRC): Evidence of tax residency in the other country.
• Form 10F, where applicable: A prescribed form used to provide relevant information for claiming treaty benefits.
• Supporting records: Documents required to establish eligibility and support the treaty claim.

Requirements may vary according to the relevant tax period and current rules. Check the applicable treaty and official instructions before applying a particular rate or claiming relief. A treaty benefit may affect withholding or the final tax treatment, but neither a reduced deduction nor a refund is guaranteed.

NRO vs NRE Account: What Is the Difference in Taxation?

NRO and Non-Resident External (NRE) accounts serve different purposes and have different tax treatments. The following comparison focuses on interest taxation rather than the full rules for opening or operating either account.

The RBI's guidance on accounts held by non-residents explains the permitted features of NRO and NRE accounts. The interest exemption for NRE accounts is subject to the applicable legal conditions; it should not be assumed solely from an account label.

How to Check NRO Interest and TDS Records

Reviewing your bank and tax records can help you identify missing deductions, incorrect amounts or discrepancies before filing a return or seeking a refund.

1. Collect your bank records. Download statements for the relevant period and obtain an interest certificate covering your NRO savings account or fixed deposit.
2. Check the TDS documentation. Review the TDS certificate or other bank records showing the tax deducted, where available.
3. Review Form 26AS. Check the tax-credit information reported against your PAN.
4. Review the Annual Information Statement (AIS). Compare the reported interest and tax information with your own records, and use the available feedback facility if information needs correction.
5. Reconcile any differences. Check the amount, reporting period, PAN and bank records. Contact the bank if a deduction appears to be missing or incorrect.
6. Retain supporting documents. Keep interest certificates, statements, TDS records and relevant treaty documents for filing or refund purposes.

The Income Tax Department explains the purpose and contents of Form 26AS and AIS. These records are useful for reconciliation, but you should not assume that every entry is automatically correct or complete.

Common Mistakes to Avoid

When reviewing NRO account tax implications in India, avoid these common errors:

• Assuming bank TDS is always the final tax.
• Applying an old tax rate without checking the relevant tax year.
• Treating NRO and NRE interest as having the same tax treatment.
• Assuming every NRI has identical return-filing obligations.
• Claiming DTAA relief without confirming eligibility and documentation.
• Ignoring differences between bank statements, Form 26AS and AIS.
• Expecting a refund without checking the final liability and applicable claim requirements.

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Conclusion

NRO account interest is generally taxable in India, but TDS, final tax liability, return-filing obligations and possible relief are separate matters. Review the rules for the relevant tax year, reconcile your bank records with official tax-credit information, and seek qualified tax advice when your circumstances are unclear. For tax years beginning on or after 1 April 2026, check the applicable provisions of the Income-tax Act, 2025.

Disclaimer: This article is for general informational purposes only and is not individualized tax advice. Tax rules and filing requirements can change; verify the applicable official guidance or consult a qualified Indian tax professional before making a tax decision.