NRO Fixed Deposit Tax for NRIs:
Why Banks Deduct 31.2% TDS & How to Claim Treaty Relief
Bank TDS of 31.2% on NRO deposits is merely a statutory withholding rate, not your final tax liability. NRIs residing in treaty countries can reduce withholding rates to 10%-15% or claim full refunds by filing an Indian tax return.
Withholding, Not Final Tax
The bank's TDS is a withholding mechanism - not your final tax assessment.
When an NRO fixed deposit earns ₹10 lakh of interest and the bank deducts 31.2% TDS (₹3.12 lakh), the key consideration is:
- Statutory Withholding vs Final Tax: Bank TDS is a flat withholding rate, not an assessment of your actual tax bracket.
- DTAA Concessional Rates: Under Double Tax Avoidance Agreements (DTAA), interest withholding can often be reduced to 10% - 15% with Form 10F and TRC.
- Tax Refund Potential: Filing a non-resident ITR allows you to claim basic exemption limits and recover excess withheld taxes.
30-Second NRO Tax Checkup
Choose the statement closest to you:
- My only Indian income is NRO interest
- I also have rent / capital gains / other Indian income
- I am a tax resident of a country with an India DTAA
- I don't know whether my bank has applied treaty relief
- My bank has already deducted ~31.2%
See what your answer means
- Only NRO interest: your final tax needs to be computed on your total taxable Indian income; excess TDS may be refundable.
- Other Indian income: the final liability cannot be judged from the NRO interest alone.
- DTAA country: check the treaty article, eligibility and documentation rather than assuming a universal 15% rate.
- Unsure about treaty relief: check the residence certificate/TRC and the documentation required for treaty relief.
- 31.2% deducted: treat it as a credit in your tax computation, not automatically as your final tax.
Why does the bank deduct around 31.2%?
For ordinary taxable income of a non-resident, the domestic withholding framework can result in a 30% base rate, with applicable surcharge and health & education cess. Where surcharge is not applicable and 4% cess applies, the effective figure is 31.2%. That does not mean every NRI ultimately pays 31.2% on every rupee of NRO interest.
TDS Timing
TDS is deducted first. Final tax is determined later through the income-tax computation.
The exact withholding can depend on the nature of income, applicable law, treaty relief and documentation.
TDS ≠ Final Tax
Think of the process as:
NRO Interest → Bank deducts TDS → TDS appears as tax credit → You file ITR → Final Indian tax is computed → Excess credit = possible refund
Example
| Particular | Amount |
|---|---|
| NRO interest | ₹10,00,000 |
| Approx. TDS at 31.2% | ₹3,12,000 |
| Final tax | Depends on total taxable income and applicable provisions |
| Excess TDS | Potentially refundable |
Do not calculate your final tax merely by looking at Form 16A.
Where is your NRO tax problem?
A. "The bank deducted too much."
First compute your actual Indian tax liability. The TDS may be higher than the final liability, in which case the excess can generally be claimed through the ITR.
B. "I should get a DTAA rate."
Possibly. But the treaty rate is country-specific. Do not assume every NRI gets a 15% rate.
C. "The bank did not give me treaty relief."
Check whether the bank has the required treaty documentation and whether the particular income qualifies for treaty relief.
D. "I have already filed my ITR."
Reconcile the TDS shown in the return with Form 26AS/AIS and the bank's Form 16A before concluding that the refund or tax credit is wrong.
Is 31.2% always your final tax?
No. A bank's withholding rate and your final tax computation serve different purposes.
Your final computation can depend on:
- total Indian taxable income;
- residential status;
- nature of income;
- deductions where available;
- special-rate income;
- surcharge;
- cess;
- DTAA provisions;
- treaty eligibility and documentation.
For tax years governed by the 2026 framework, the new Act and Rules also need to be considered where applicable.
Domestic TDS vs DTAA Concessional Rates
| Country of Residence | Domestic Withholding Rate | DTAA Treaty Rate (Article 11) | Mandatory Documents |
|---|---|---|---|
| United States (USA) | 30% + Cess = 31.2% | 15% | TRC + Form 10F + Form 67 (in US) |
| United Kingdom (UK) | 30% + Cess = 31.2% | 15% | HMRC Certificate of Residence + Form 10F |
| United Arab Emirates (UAE) | 30% + Cess = 31.2% | 12.5% | Federal Tax Authority TRC + Form 10F |
| Singapore | 30% + Cess = 31.2% | 15% / 10% | IRAS Certificate + Form 10F |
| Canada | 30% + Cess = 31.2% | 15% | CRA Certificate of Residency + Form 10F |
Electronic Form 10F Mandatory
Physical Form 10F declarations are no longer accepted by Indian banks. NRIs claiming DTAA treaty rates must register on the income tax portal, generate an electronic Form 10F and provide a valid Tax Residency Certificate (TRC) from their home jurisdiction.
What about DTAA?
If you are tax resident in another country and the same income is potentially taxed in both countries, the relevant India-country DTAA may provide relief.
But there is no universal:
"NRO interest = 15% under DTAA."
The treaty, the income article, residence status, beneficial entitlement and documentation all matter.
2026 documentation update
For the new Income-tax Act framework, Form 41 is prescribed for a non-resident seeking treaty relief under section 159, with supporting information under Rule 75. Form 41 is the current framework corresponding to the old Form 10F-style information requirement. Home | Income Tax Department
DTAA Readiness Check
Tick what you already have:
- Foreign tax residency established
- Tax Identification Number available
- Tax Residency Certificate / prescribed residence evidence available
- Correct India-country DTAA identified
- Correct income article checked
- Bank informed/documentation submitted where required
- Indian ITR treatment reconciled
4+ boxes checked → Good starting position
You may have the basic documentation to evaluate treaty relief. The actual rate still depends on the applicable DTAA and facts.
0-3 boxes checked → Review before assuming a treaty rate
Do not rely on a generic "15% DTAA" statement. Establish residence, treaty article and documentation first.
NRO vs NRE: a quick distinction
| NRO | NRE | |
|---|---|---|
| Interest | Generally taxable in India | Generally exempt subject to conditions |
| Typical purpose | Indian-source funds/income | Repatriable foreign-source funds |
| TDS on interest | Generally applicable | Generally not applicable while exemption conditions are met |
| DTAA relevance | Can be relevant | Usually less central where income is exempt |
| ITR reporting | Depends on total Indian income | Depends on overall tax position |
Do not assume an NRO account can be treated like an NRE account merely because you are an NRI.
What about the ₹12 lakh rebate?
This should not be the headline issue. For the current framework, Section 87A eligibility is specifically relevant to resident individuals; the Income Tax Department's NRI FAQ states that non-residents cannot claim the rebate.
The bigger NRO question is still:
What is your actual taxable Indian income, what withholding has been made and does treaty relief apply?
What if you also pay tax abroad?
Your foreign country may tax the same income depending on its domestic law and treaty rules.
That creates a second question:
Can you claim foreign tax credit?
That is separate from whether the Indian bank deducted TDS correctly.
Keep:
- foreign tax return;
- foreign tax payment evidence;
- Indian Form 16A;
- bank statements;
- DTAA documents;
- Indian ITR working.
Your NRO Tax Readiness Score
Give yourself 1 point for each "yes":
- I know my Indian tax residency status.
- I know my total Indian taxable income.
- I have checked my NRO TDS in 26AS/AIS.
- I know whether a DTAA applies.
- I have the required residence documentation.
- I have reconciled bank TDS with Form 16A.
- I have checked whether a refund is due.
0-2: Review needed
3-5: Mostly mapped
6-7: Good filing readiness
This is a practical screening tool, not a tax opinion.
Practical checklist before filing your NRI ITR
- NRO interest certificates collected
- Form 16A checked
- 26AS reconciled
- AIS reviewed
- Other Indian income identified
- Capital gains checked
- DTAA eligibility tested
- Residence documentation checked
- Form 41 considered where applicable
- Foreign tax credit reviewed
- Refund/demand reconciled
Bottom Line
Don't treat the bank's TDS certificate as your tax assessment. If around 31.2% has been deducted from your NRO interest, the correct next step is to determine: TDS → Final Indian Tax → DTAA → Refund / Additional Liability - not simply accept the deduction as the final cost.
Need your NRO tax position checked?
Anmol Aniket and Associates advises NRIs on:
NRO/NRE taxation · NRI ITRs · DTAA · Form 41 · foreign income · property · TDS/refunds · foreign tax credit · FEMA/repatriation NRI & Cross-Border Tax Advisory
Frequently Asked Questions
Is 31.2% NRO TDS my final tax?
No. It can be a withholding amount. Your final Indian tax is determined from your overall tax computation.
Can an NRI claim excess NRO TDS as a refund?
Generally, if the TDS credit exceeds the final tax liability, the excess can be claimed through the ITR, subject to the normal rules.
Is the DTAA rate always 15%?
No. The rate depends on the particular treaty, income article and eligibility.
What is Form 41?
For the new Income-tax Act framework, Form 41 is prescribed for non-residents providing information to claim DTAA relief under section 159.
Can an NRI claim Section 87A?
The Income Tax Department's current FAQ states that the rebate is available only to resident individuals and not to non-residents.
NRI Fixed Deposit TDS Refund Roadmap
- Obtain a valid Tax Residency Certificate (TRC) from the tax authority in your country of residence.
- File electronic Form 10F on the Indian e-Filing portal and submit both documents to your bank branch.
- If 31.2% TDS was already deducted, file ITR-2 before the July 31st statutory due date.
- Claim the full benefit of basic exemption slabs (up to ₹3 Lakh under Old / ₹4 Lakh under New Regime).
- Receive direct credit of the excess TDS refund into your NRE or NRO bank account.
Need Assistance?
Anmol Aniket and Associates helps NRIs optimize Indian withholding taxes and claim DTAA benefits.
We prepare Tax Residency Certificate documentation, submit electronic Form 10F declarations and file non-resident ITRs to recover excess TDS deductions.
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