NRO vs NRE: 30% Tax Gap Draining Your Interest?

NRIs earn interest on three account types — NRE, FCNR, and NRO. NRE and FCNR interest is fully tax-free in India. NRO interest is taxable at 30% TDS. Knowing the difference can save lakhs annually.

Here's what happened: NRE and FCNR account interest is fully exempt from Indian income tax under Section 10(4) of the Income Tax Act, as long as the account holder maintains valid NRI status under FEMA.. NRO account interest is taxed at a flat 30% plus applicable surcharge and cess — banks deduct TDS at this rate before crediting interest to the account holder.. NRIs from countries with a Double Tax Avoidance Agreement (DTAA) with India — such as the US, UK, UAE, and Canada — may claim a lower TDS rate on NRO interest by submitting a Tax Residency Certificate to their bank..

What you should do: Call your bank today and confirm whether your accounts are classified as NRE, NRO, or FCNR — do not assume based on the account name alone.. If you hold an NRO account and your country of residence has a DTAA with India, submit a Tax Residency Certificate (TRC) to your bank to reduce TDS below 30%.. If you are returning to India permanently, notify your bank immediately to redesignate your NRE/FCNR accounts — delaying this exposes you to tax liability on interest that would otherwise be exempt..

NRIs can claim TDS refunds on NRO interest by filing an ITR in India if total Indian income falls below the basic exemption limit — most NRIs skip this and leave money on the table.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.