NRE vs NRO FD TDS rules: Tax rate for NRIs, PAN rules, DTAA benefit and repatriation limit

Non-Resident External (NRE) and Non-Resident Ordinary (NRO) are popular fixed deposit (FD) options for Non-Resident Indians (NRIs) looking for stable returns from their investments. However, the tax treatment is different for NRE and NRO fixed deposits.

While interest earned on an NRE fixed deposit is exempt from tax in India, interest earned on an NRO fixed deposit is taxable and banks deduct Tax Deducted at Source (TDS). NRIs can, however, claim a lower TDS rate under the Double Taxation Avoidance Agreement (DTAA), if they meet the required conditions.

Is TDS deducted on NRE fixed deposits?

As per the ICICI Bank website, “No, interest earned on NRE fixed deposits is tax-free in India for NRIs, so banks do not deduct TDS on the interest.”


As per the HDFC Bank website, “Interest earned on NRE fixed deposits is exempt from income tax in India. This provides NRIs with a tax-free way to earn interest on their foreign income. Since the interest is tax-exempt, no TDS applies to NRE FDs.”

NRE accounts are funded with foreign income and the funds are fully repatriable. This makes NRE fixed deposits different from NRO deposits when it comes to taxation in India.

NRO fixed deposit tax implications

Interest earned on NRO FDs is subject to TDS. The standard rate for TDS on NRO accounts is 30% plus applicable surcharge and cess. This makes NRO deposits less tax-efficient compared to NRE deposits, as per HDFC Bank.

As per Section 206AA of the Income Tax Act, if an NRI fails to provide their Permanent Account Number (PAN), TDS will be deducted at the highest applicable rate, which is the maximum marginal rate or 30% plus surcharge and cess.

TDS on interest earned from NRO deposits & savings accounts held by non-resident customers

Total Interest Earned	Withholding Tax Rate
₹50 lakhs or less	31.2% (30% tax + 0% surcharge + 4% cess)
More than ₹50 lakhs and up to ₹1 crore	34.32% (30% tax + 10% surcharge + 4% cess)
More than ₹1 crore and up to ₹2 crores	35.88% (30% tax + 15% surcharge + 4% cess)
Above ₹2 crores	39% (30% tax + 25% surcharge + 4% cess)

Double Taxation Avoidance Agreement (DTAA)

To prevent NRIs from paying tax on the same income twice, India has signed Double Taxation Avoidance Agreements (DTAA) with a number of nations. NRIs are eligible for lower TDS rates on their NRO FD interest under the DTAA.

Important Frequently Asked Questions (FAQs) on NRI deposits (As per SBI website)

Which bank accounts can an NRI open in India?

An NRI can open and maintain accounts denominated in either Indian Rupee or a foreign currency as described below:

NRE or NRO account in Indian rupees (as a running account or a fixed deposit)

FCNR (B) Account in USD, EURO, GBP, CAD, JPY and AUD (only as a fixed deposit)

How much funds can be repatriated or sent overseas from an NRE / NRO / FCNR (B) account ?

Funds from NRE / FCNR (B) deposits accounts are fully repatriable without any upper limit, whereas funds from NRO accounts are partially repatriable (up to USD 1 million per financial year).