TDS For NRI FD (Fixed Deposit): Complete Guide

The Indian investment market has significantly evolved over the years, with more and more investment opportunities arriving, digital services making procedures convenient, and investment-encouraging schemes being put in order. While Indian citizens enjoy multiple investment opportunities, so do NRIs, and much like Indian citizens, NRIs are also taxed on their Indian investments as per the prevailing tax provisions.

It is established that NRIs are to pay a flat 30% TDS on interest earned from NRO fixed deposits. Some questions remain, though - How are NRO fixed deposits taxed? Most importantly, how do you reduce TDS on interest-earned NRO fixed deposits as an NRI? Read along as we explore the answers.

In the article, we will talk about:

NRO Fixed Deposit
What is the TDS on NRO Fixed Deposits for NRIs?
Tax Planning For TDS on NRO Fixed Deposit Interest

NRO Fixed Deposit

NRO fixed deposits generate returns with low investment risks. Interest rates vary from one financial institution to another; however, the TDS is applicable to the interest earned from all NRO fixed deposits.

What is the TDS on NRO Fixed Deposits for NRIs?

30% TDS rate applies to the interest earned from NRO fixed deposits. The surcharge is also applicable as per applicable slab rates. A health and education cess is also applicable at 4% rate.

The table below provides further insights into how TDS is applied to NRIs holding NRO fixed deposits.

Total Interest Earned NRO Fixed Deposits	Tax Rate for NRIs
Rs. 50 Lakh or less	(30% TDS + 0% Surcharge + 4% Cess) = 31.2%
Between Rs. 50 Lakh and Rs. 1 Crore	(30% TDS + 10% Surcharge + 4% Cess) = 34.32%
Between Rs. 1 Crore and Rs. 2 Crore	(30% TDS + 15% Surcharge + 4% Cess) = 35.88%
Between Rs. 2 Crore and Rs. 5 Crore	(30% TDS + 25% Surcharge + 4% Cess) = 39%
Beyond Rs. 5 Crore (Old Tax Regime)	(30% TDS + 37% Surcharge + 4% Cess) = 42.74%

TDS on NRO Fixed Deposit Interest

TDS (Tax Deducted at Source) is mandatory on interest earned from NRO fixed deposits as per Indian tax laws. However, while you cannot avoid TDS altogether, there are legitimate ways to manage and potentially reduce the amount deducted, ensuring better tax efficiency through proper planning.

Leverage DTAA

DTAA refers to the Double Tax Avoidance Agreement. NRIs are subject to tax regulations in the country of residence along with tax implications on their earnings in India as well. This may lead to taxation of the same income twice and thus, relief can be availed as per DTAA.

India has signed DTAA with many nations to avoid double taxation of income. NRIs living in countries that have DTAA in place with India can avail themselves of the benefit of lower withholding of tax on interest income. For instance, as per the India-UAE DTAA, withholding tax on interest income can be lowered to 12.5%.

Note that the beneficial rate is applicable only when the NRI provides the requisite documentation, including:

Tax Residency Certificate (TRC)
Form 10F
Self-declaration including no PE certificate
PAN copy

Claim Deduction Under Section 80TTA

Calculate your total income in the respective financial year, including interest earned from NRO fixed deposit and claim a deduction under 80TTA. It is applicable to income of up to Rs 10,000.

For instance, if you earn ₹9,000 in NRO savings interest during a financial year, you can claim the full amount as a deduction under Section 80TTA (limit: ₹10,000).

Note: This applies only to NRO savings account interest, not fixed deposit interest.

Serve PAN

PAN is a crucial tool for the government to keep track of financial transactions. Holding a valid PAN implies proper compliance with the regulations and offers multiple benefits. The absence of a PAN can lead to the application of higher tax rates. However, NRIs who do not furnish a PAN can still avoid higher TDS by providing their name, email ID, contact number, address, Tax Residency Certificate (TRC), and Tax Identification Number (TIN) or equivalent.

Wrapping Up!

As an NRI, maintaining a bank account in India is essential not only to meet specific regulations but also to plan your finances strategically. Kotak Mahindra Bank offers benefits like competitive interest rates and applicable tax exemptions to help you save and grow your money in India. So, check out our offerings for NRIs and find one that suits your needs.

FAQs

1. Are FCNR deposits not subject to taxation in India?

FCNR deposits are held in foreign currencies and interest therefrom is not subject to tax in India until you hold the status of a Non-resident Indian or a Resident and Not Ordinarily Resident.

2. What documents do I need to provide for the benefits under the DTAA provisions?

You will need to provide the following documents to enjoy the benefits of DTAA:

Tax Residency Certificate
DTAA Annexure
Self-declaration e-filed Form 10F
Self-attested copy of the PAN

3. Are the TDS rules the same for NRO and NRE fixed deposits?

No, they are not. Interest from NRO fixed deposits are subject to taxation. On the contrary, the interest from NRE fixed deposits and savings accounts are free from taxation.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.