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What Is The TDS Applicable On NRO Fixed Deposits?

NRIs who want to invest in India have ample opportunities for it. They can invest in the country for wealth appreciation and have an effortless and safe investment experience. The most widely used investment options for non-resident Indians are NRI insurance and NRI fixed deposits. 
 

AN NRI can open a Non-resident Ordinary (NRO) account to invest in fixed deposits in India. An NRO fixed deposit account is subject to TDS, and the TDS on FD interest for NRIs is significant. Therefore, you must know the NRO tax* rate for FD interest to plan your investments prudently.

What is NRO Fixed Deposit?

An NRO fixed deposit account is an investment account denominated in Indian currency. An NRI can only open an NRO FD account with an NRO savings account. It can be an individual or a joint account. 
 

Similar to regular fixed deposit schemes, an NRO FD offers fixed returns for low investment risk. However, the interest rate on an NRO FD may differ for various financial institutions. TDS on NRO fixed deposit accounts is applicable per income tax law. 
 

The principal amount of an NRO FD is non-repatriable, but you can transfer the interest earned to an overseas account. Moreover, you can open an NRO FD account in India only using funds originating in the country. However, you can transfer funds from an NRE account to your NRO account and then invest them into an NRO FD.

Features of NRO Fixed Deposit

  • Investor: Only NRIs or People of Indian Origin can invest in an NRO FD scheme. 

  • Duration: Usually, the tenure of an NRO FD is between 7 to 10 years. Most financial institutions allow you to have a nominee in the NRO FD. Additionally, there is a facility for auto-renewal here. 

  • Minimum amount to open an NRO FD: The minimum amount with which you can open an NRO FD differs for various financial institutions. However, it usually falls between ₹ 25,000 to ₹ 50,000.

  • Nature of the account: You can open an NRO FD account individually in your name or jointly with a close relative or family member residing in India. 

  • Withdrawal from an NRO FD: You may avail of a facility for premature withdrawals from your NRO FD account for a small penalty. The withdrawal can only be in the Indian currency.

Benefits of an NRO Fixed Deposit

  • Loan: Similar to regular FDs, you can pledge an NRO FD to avail of a loan in India. In most cases, you can get up to 90% of the FD amount as a loan without breaking your FD. The interest rate for a loan against FD is much lower than for an unsecured loan. 

  • Attractive interest rates: NRO FDs usually have a reasonable interest rate for a low risk, and you can get preferential rates on remittances. 

  • Easy management: NRO FDs do not require regular monitoring, unlike other investment options. Additionally, if you have a joint NRO FD account, the resident Indian joint account holder can manage the account on your behalf when you are overseas.

TDS Applicable on NRO Fixed Deposits

The TDS on FD interest for NRIs under an NRO account is 30%, with an additional surcharge and health and education cess of 4%. The surcharge is variable and increases as your income increases.
 

Total Interest Earned

NRO Tax Rate 

Less than or equal to ₹50 Lakh

31.2% (30% TDS + 0% Surcharge + 4% Cess)

Between ₹50 Lakh and ₹1 Crore

34.32% (30% TDS + 10% Surcharge + 4% Cess)

Between ₹1 Crore and ₹2 Crore

35.88% (30% TDS + 15% Surcharge + 4% Cess)

Between ₹2 Crore and ₹5 Crore

39% (30% TDS + 25% Surcharge + 4% Cess)

Beyond ₹5 Crore (Old Tax Regime)

42.74% (30% TDS + 37% Surcharge + 4% Cess)

Can I Reduce the Income Tax Return for NRI FD?

You cannot avoid paying the income tax return on the interest income for your NRO FD scheme. However, India has a Double Tax Avoidance Agreement (DTAA) with over 75 other countries globally. 
 

If you reside in any one of these countries, you can benefit from the provisions under DTAA. Here, an NRI has the freedom to choose to pay taxes as per the Indian income tax law or according to the provisions of the DTAA, whichever is more beneficial. 
 

According to the DTAA provisions, you can enjoy a concessional TDS rate on your NRO FD interest earnings and ultimately increase your FD earnings. For this, you must obtain a Tax Residency Certificate from the tax or government authority of your country of residence. 
 

The documents required to avail of benefits under the DTAA provisions are:

  • DTAA Annexure 

  • Tax Residency Certificate

  • Self-attested copy of the PAN

  • Self-declaration Form 10F
     

The TDS applicable on an NRO FD is significantly high, especially if you are not eligible for the DTAA provisions.
 

A more tax-efficient way of investing your savings in India is by buying a life insurance policy for NRIs. You can get a deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961, for the premium paid towards NRI life insurance plans. Additionally, the maturity amount or death benefit received from an NRI life insurance plan is tax-exempt under Section 10(10D) of the Income Tax Act. 

 

Our Tata AIA policy for NRI life insurance offers you the dual advantage of tax benefits along with life coverage for your loved ones’ security. You can invest in the most suitable plan through a  quick online process that does not require any paperwork. 

To stay updated with the latest tax provisions and get personalised guidance based on your situation, it is advisable to consult a tax professional or advisor.

 

Wrapping Up

NRIs must pay taxes as per the Indian income tax law in the country on all the income generated in India. It includes the income earned in the form of interest on an NRO fixed deposit account. The NRO FD interest is charged at 30% TDS plus an additional surcharge and cess. You can reduce the tax payable on your FD interest by taking benefits under the DTAA provisions.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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FAQs

What is the minimum duration for an NRO FD account?

You can open an NRO FD account for a minimum of 7 days to earn interest on your investment.

When should I submit the documents to avail of DTAA benefits?

You must submit your documents when applying for DTAA benefits and for every year during the NRO FD tenure.

Can an NRI open a joint NRO FD account?

An NRI can open a single or joint NRO FD account. The joint NRO FD account can be opened with a resident Indian who is a relative.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.