TDS on NRI FD Interest: All You Need to Know

What is TDS on NRI FD Interest?

If you are an NRI (Non-Resident Indian) investing in India, fixed deposits (FDs) are among the most popular low-risk avenues for preserving and growing wealth. But many NRIs are often surprised by the tax implications — especially TDS on NRI FD interest, which can reduce your returns if not planned wisely.

In this guide, Ultra explains everything about TDS (Tax Deducted at Source) on NRI FDs, how it works for NRE and NRO accounts, applicable rates, and practical tips to manage and potentially reduce your tax outgo.

TDS stands for Tax Deducted at Source — it means the bank deducts tax before paying out interest income to you. For NRIs, the Income Tax Act, 1961, has clear provisions that require banks to deduct TDS on interest earned from fixed deposits and other income sources in India.

For resident Indians, there is an annual threshold limit under which interest on FDs may be tax-free. However, for NRIs, no basic exemption limit applies — so even if your FD interest is small, TDS applies.

Types of NRI Accounts and How TDS Applies

Let’s understand the difference between NRE FD, NRO FD, and how TDS works for each:

1. TDS on NRE Fixed Deposit

• NRE FDs (Non-Resident External) accounts are maintained in Indian Rupees, but both the principal and interest are fully tax-free in India if you are an NRI.

• So, no TDS is deducted on interest earned on NRE FDs.

• However, if your residential status changes or your NRE account is converted to a resident account, tax rules may change.

2. TDS on NRO Fixed Deposit

• NRO FDs (Non-Resident Ordinary) accounts hold income earned in India such as rent, pension, dividends, or any other Indian income.

• Interest earned on an NRO account is fully taxable.

• Banks deduct TDS at 30% plus surcharge and cess on the interest income.

• Unlike residents, NRIs cannot submit Form 15G/15H to avoid TDS on NRO accounts.

What is the TDS Rate on NRI FD Interest?

• NRO FD: TDS is 30% plus surcharge and cess.

• NRE FD: No TDS if you qualify as an NRI under FEMA and your deposits comply with RBI rules.

• TDS is deducted at the time of crediting interest to your account.

• You may claim a refund if your total tax liability is lower than the TDS deducted.

How to Avoid or Reduce TDS on NRO Account Interest

Many NRIs search for how to avoid TDS on NRO account — here are some legitimate tips:

1. Double Taxation Avoidance Agreement (DTAA)

India has DTAA agreements with many countries. You can avail a lower TDS rate (often 10%–15%) if your country of residence has DTAA with India. Submit Form 10F, a self-declaration, and a Tax Residency Certificate (TRC) to your bank.

2. File Income Tax Returns

If your total tax liability is less than the TDS deducted, you can claim a refund when you file your ITR in India.

3. Re-evaluate Account Type

Use an NRE FD wherever possible for overseas remittances. These are tax-free in India.

4. Use Tax Planning Tools

Explore other tax-saving options like investments under Section 80C, if applicable.

NRE FD Rates and Benefits

One reason NRIs prefer NRE FDs is that they offer competitive interest rates, which are tax-free in India and fully repatriable. Current NRE FD rates vary between 5%–7% p.a., depending on tenure and bank.

However, keep in mind that while interest is tax-free in India, it may be taxable in your country of residence under local tax laws.

TDS on Other NRI Incomes: Property, Dividends

TDS on NRI property sale: 20% (LTCG) or 30% (STCG) plus surcharge and cess.

• Dividends: 20% TDS.

• It is important to plan these transactions with a qualified tax advisor to avoid excess TDS and double taxation.

Final Thoughts

Proper planning can help you reduce TDS on NRI FD interest and maximise your returns. Choose your FD type wisely (NRE vs NRO), claim DTAA benefits where eligible, and always file your tax returns to claim refunds.

At Ultra, we help you explore diverse fixed-income investments, from bonds and deposits to other smart alternatives, so you can grow your wealth with clarity and confidence.

Explore fixed-income options and smart investment strategies at Ultra.

FAQs on TDS on NRI FD Interest

Q1. How much TDS is deducted on NRO account interest?

A: TDS of 30% plus surcharge and cess is deducted on interest earned on an NRO account.

Q2. Is there TDS on NRE fixed deposits?

A: No. NRE FD interest is tax-free in India if you qualify as an NRI and follow RBI norms.

Q3. How can I avoid TDS on NRO FD?

A: You cannot fully avoid TDS, but you can reduce it by claiming DTAA benefits if your country has a tax treaty with India.

Q4. Is the interest on NRE FD taxable abroad?

A: It depends on your country of residence. Many countries tax global income, so check local tax laws.

Q5. Can I claim a refund on TDS deducted?

A: Yes. File your Indian income tax return to claim any excess TDS back if your total tax liability is lower.