NRI and overseas · Property, accounts and remittances
How is interest on NRE, NRO and FCNR accounts taxed?
Short answer
Interest on an NRE account is tax-free for a non-resident, and interest on an FCNR(B) deposit is tax-free for a non-resident or a resident who is not ordinarily resident. Interest on an NRO account is taxable, and the bank deducts TDS at 30% plus surcharge and cess unless a lower treaty rate is claimed with a tax residency certificate and Form 10F. When you return to India, NRE and FCNR accounts must be redesignated.
The three accounts
| NRE | NRO | FCNR(B) | |
|---|---|---|---|
| Currency | Indian rupees | Indian rupees | Foreign currency |
| Money in | Remittances from abroad | Indian income (rent, pension, dividends) and money from abroad | Remittances from abroad |
| Repatriation | Fully repatriable | Up to USD 1 million a financial year, with Forms 15CA/15CB | Fully repatriable |
| Interest: tax | Exempt while you are non-resident | Taxable | Exempt while non-resident or RNOR |
| TDS | None | 30% plus surcharge and cess | None |
Points to note
- Exempt interest is still shown in the return, under exempt income.
- NRO interest: if a treaty gives a lower rate (often 10% to 15%), give the bank a tax residency certificate and Form 10F (now Form 41) to get TDS at that rate. Otherwise, claim a refund by filing a return.
- Joint accounts: an NRE account can be held jointly with a resident relative only on a "former or survivor" basis.
When you return to India
- Inform the bank. NRE accounts must be redesignated as resident accounts or moved to a Resident Foreign Currency (RFC) account.
- FCNR deposits can run to maturity; interest stays exempt while you are RNOR.
- From the time you become a resident under the Income-tax Act, NRE interest becomes taxable, even if the account has not yet been redesignated.
Rent, pension and other Indian income
Indian income credited to the NRO account is taxable, with TDS by the payer. Declare it in your return and claim credit for the TDS.
Legal basis
- Section 10(4)(ii) and 10(15)(iv)(fa), Income-tax Act, 1961, now section 11 with Schedules II and IV, Income-tax Act, 2025
- Section 195, now section 393(2) (TDS on NRO interest)
- Foreign Exchange Management (Deposit) Regulations, 2016
Official sources
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