TDS on NRO Fixed Deposit Interest: What NRIs Should Know

An NRO account is a rupee-denominated bank account for NRIs, with TDS on income charged at a flat 30% plus surcharge and cess. According to RBI, NRO deposits increased by nearly 4.7% in FY25, rising from ₹36,103 crore to ₹37,822 crore, indicating that NRIs are increasingly investing through their Indian accounts.

If you are an NRI looking to invest via a FD, it is crucial to understand the rules of TDS on NRO Fixed Deposits as per Indian tax norms to avoid surprises and make informed decisions.

Quick Synopsis

• You are liable to a 30% TDS on an NRO FD, plus applicable surcharges and cess. 
• Your total tax liability increases while your total interest amount increases.
• Save TDS on NRO FDs via DTAA, NRE account, tax refund or taxsaver deposits. 

What is an NRO Fixed Deposit?

Before diving into a detailed list of TDS rules applicable to NRO fixed deposits in 2026, let us take a brief look at how a NRO FD works in India. 

Imagine you are earning a salary abroad while also receiving rental income, investment returns or other passive earnings in India. 

Now you wish to combine a portion of your foreign salary with your Indian income by investing in an NRO Fixed Deposit. Keep in mind that when you deposit your foreign earnings into an NRO FD, the bank will convert the currency into Indian Rupees before processing the investment.

Just like a regular domestic FD, an NRO FD also offers compounding interest on your deposit. For instance, if you open an NRO FD account, you will start earning interest on it, which makes you liable for TDS. If your interest income is up to ₹50 lakh per year, you will be taxed at 31.2% TDS. This rate increases if your interest earnings exceed this limit.

Applicable TDS on NRO Fixed Deposits in 2026

It is important to stay updated about the updated TDS applicable on NRO fixed deposit in order to estimate your ultimate return. Note that while calculating TDS, a surcharge and a health and education cess apply with it. 

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Features and Benefits of NRO Fixed Deposit

• Attractive interest rates: NRO fixed deposit offers competitive returns on your investments.
• Easy fund transfer: You can create an NRO deposit by transferring funds from an existing NRE/NRO account with another bank in India.
• Online booking: Open and manage your NRO fixed deposit conveniently through net banking.
• Repatriation flexibility: Interest earned can be credited to your NRE account under the current income scheme for easier access and fund management.
• Joint account option: NRO FD can be opened jointly with a Resident Indian or another Non-Resident Indian.
• Nomination facility: Depositors can add a nominee to ensure smooth transfer of funds in case of unforeseen circumstances.

Do NRIs Need to File Tax Returns for NRO Interest?

NRIs generally need to file income tax returns in India if they earn interest from an NRO (Non-Resident Ordinary) fixed deposit, as this income is taxable in India.

Interest earned on NRO deposits is treated as income earned in India. It is taxed as per applicable income tax slab rates. Banks deduct TDS (Tax Deducted at Source), typically at around 30% plus surcharge and cess, on the interest earned.

NRIs should file an income tax return in India if they want to claim a refund of excess TDS deducted, total taxable income in India exceeds the basic exemption limit or have additional income sources in India such as rent, capital gains, or business income.

Filing may not mandatory if NRO interest is the only income and TDS has been deducted correctly, filing a return may not be compulsory. However, filing is often recommended to maintain tax records and claim any applicable deductions or refunds.

In short, NRO FD interest is taxable in India, and while filing a tax return may not always be mandatory, it is advisable for NRIs to file returns to claim refunds, ensure compliance, and manage tax documentation properly.

Ways to Reduce Your TDS Burden on NRO Fixed Deposits

As you can see from the table, TDS on NRO Fixed Deposit interest is much higher compared to domestic FDs, i.e., 10% as per the current tax norms. Naturally, you may want to reduce this tax burden. Here are some practical tips to help you lower your TDS liability:

File Income Tax Returns Properly

When it comes to optimising your TDS amount, you must check the amount carefully that was deducted as:

• Due to clerical mistakes, technical issues or other reasons at the bank’s or your FD provider’s end, you might see an extra amount being deducted from your taxable income.
• If your deducted amount mismatches with your liability, you must file a refund while filing your tax return.
• Choose the appropriate ITR form, such as ITR 2, fill it out and submit for a refund within the stipulated time. 

Consider an NRO Taxsaver Deposit

Instead of relying on a regular NRO FD, you might want to opt for or open a tax saver FD to save on taxes:

• With such an NRO FD option, you can save up to ₹1.5 lakh in a financial year. 
• However, you must note that the lock-in period of such an account is typically 5 years. Meaning, you cannot get a premature withdrawal option with such an FD. 

Re-Evaluation of Your Account Type

Apart from opening a tax saver FD, you can reduce the burden of TDS on NRO Fixed Deposit by opting for an NRE account:

• If you create an FD with an NRE account, one of the key benefits you will get is that the interest is completely tax-free.
• With an NRE FD, you can repatriate your principal FD amount along with interest to your foreign account. Whereas, with an NRO FD, you can repatriate only the interest amount. 

Reduce TDS with DTAA Benefits with Proper Documents

A Double Tax Avoidance Agreement (DTAA) between India and a foreign country ensures that you do not pay taxes twice on the same income source. Here is how you can take its benefits:

• Currently, India has DTAA with more than 75 foreign countries. If you reside in any one of them, you can choose to pay taxes as per the Indian tax norms or as per the prevailing DTAA provision in that country, whichever is beneficial to you. 
• For DTAA benefits, you must produce a few documents, such as a DTAA Annexure, a certificate of tax residency, a copy of a self-assessed PAN and a self-declared Form 10F. 

Conclusion

If you are planning to open an NRO FD or you already have one, TDS on NRO Fixed Deposit applies to your interest income. It is generally much higher than domestic FDs. However, you can reduce this tax burden by using strategies such as opting for tax-saving FDs or filing for refunds. Additionally, consider leveraging NRE accounts and DTAA benefits to further optimise your tax planning.