Is Your NRI Bank Interest Taxable in India?
Here’s a simple breakdown of how interest from NRO, NRE, and FCNR accounts is taxed
For NRIs, Indian bank accounts often serve dual purposes—managing Indian income and maintaining foreign earnings in rupees. But how does the interest income from these accounts get taxed?
Let’s break it down.
🏦 What is an NRO Account?
An NRO (Non-Resident Ordinary) account is used to manage income earned in India—such as rent, dividends, pension, or salary.
Purpose: Deposit and manage earnings from Indian sources
Currency: INR
Repatriation Limit: Up to USD 1 million per financial year (with proper documentation)
Taxation:
Interest earned is taxable in India at applicable slab rates
Subject to TDS (Tax Deducted at Source) at 30% + surcharge & cess
🌍 What is an NRE Account?
An NRE (Non-Resident External) account is meant for depositing your foreign earnings in India.
Purpose: Park overseas income in India, in INR
Currency: INR (converted from foreign currency)
Remittance: Fully and freely repatriable
Taxation:
Interest is tax-free in India (if you qualify as an NRI under FEMA)
No TDS deducted on interest
Principal and interest are freely repatriable
💡 Exemptions: NRE & FCNR Accounts
NRE Savings/Fixed Deposit Interest: Fully exempt from tax in India (for NRIs under FEMA)
FCNR (Foreign Currency Non-Resident) Deposits: Also tax-exempt in India
These are held in foreign currencies like USD, GBP, etc.
Ideal for NRIs who want to avoid exchange rate risks
⚠️ Note: Once your residency status changes (e.g., you return to India), the exemptions no longer apply.
🔢 TDS Rates You Should Know
If your NRO income is below the taxable limit or you qualify for a lower treaty rate, you can claim a refund by filing a tax return in India.
✅ Final Thoughts
Understanding NRO vs NRE accounts is key for NRI tax compliance. While NRE and FCNR interest is tax-free, NRO interest is fully taxable with 30% TDS. Many NRIs skip filing for small amounts, but even minor mismatches can cause issues. Filing your taxes helps claim refunds and stay compliant.
Want to simplify tax filing for your NRO income?
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