TDS rules for NRE vs NRO FD accounts explained
Non-Resident External (NRE) and Non-Resident Ordinary (NRO) fixed deposit (FD) accounts are favored investment options for Non-Resident Indians (NRIs) seeking stable returns. The tax treatment, however, varies between NRE and NRO FDs. Interest earned on an NRE FD is exempt from Indian taxes, meaning no Tax Deducted at Source (TDS) is applied. Conversely, NRO FD interest is taxable, and banks deduct TDS at a standard rate of 30% plus applicable surcharge and cess.
NRIs can potentially reduce the TDS rate under the Double Taxation Avoidance Agreement (DTAA) with India, provided they meet specific conditions. The tax implications of NRO FDs differ significantly from NRE FDs, with NRO deposits generally considered less tax-efficient.
One crucial factor influencing NRO FD taxation is the requirement to provide a Permanent Account Number (PAN). If an NRI fails to furnish their PAN, the bank will deduct TDS at the highest applicable rate, which can reach up to 30% plus surcharge and cess. The tax rates on NRO FD interest vary depending on the total interest earned: up to ₹50 lakhs at 31.2%, between ₹50 lakhs and ₹1 crore at 34.32%, between ₹1 crore and ₹2 crores at 35.88%, and above ₹2 crores at 39%.
Written by urgent.news from The Economic Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
