Saturday, August 20, 2022

Does interest earned on NRO saving account and FD are Taxable in India?

Hello guys, if you are wondering whether interested earned on NRO saving account or NRO fixed deposit is taxable in India or not then you are at the right place. Yes, unlike interest earned on both NRE saving account and NRE fixed deposits which are totally tax-free in India, interest earned on both  NRO saving account or NRO fixed deposit are taxable in India. In fact, as per the current regulation, tax is deducted at source @normal rate of 30.9%, which is calculated by @30% + surcharge + cess 2%, surcharge can be up to @10% if taxable income is more than 10 lakhs INR. Which means, funds lying in NRO account can be taxed at the rate of almost 40.9% in India. 


In short, almost half of the interest goes to the government. Though, if you don't have any other income in India, you can claim this TDS deduction by filing your tax return of submitting form 15G, if you are not a senior citizen and 15H if you are a senior citizen having age more than 60, to the bank to avoid TDS in the first place.

This is actually the main difference between NRE and NRO account and why I suggest every NRI to open NRE account and never transfer or remit to NRO Account.  They are best used to keep any income which is earned in India, for example rental income if you have a flat or house which is rented as those deposits cannot be made to NRE account. 




Important thing to note about Taxation on NRO account

1) Interest earned on funds lying on NRO saving account as well as on NRO fixed deposit are subject to tax at rate of 30.9%

2) Taxation rate can go up to 40.9% if your taxable income in Indian rupees is more than 10 lakhs.


If you don't have an NRO account, either saving or fixed deposit then you can open it with all major banks in India e.g. SBI, ICICI, HSBC, Axis Bank, YES Bank or Kotak Mahindra. Normally, your existing resident account is converted to NRO account, once you become NRI, but if you have already closed your resident account then don't worry, you can always open it again with both public and private sector banks.




In short, Yes, interest earned on NRO saving and fixed deposit account are subject to tax in India. As per current rules, the tax is deducted at source and only be reclaimed by filing tax returns. This is the main reason, I don't advice my friend to transfer any money from NRE account to NRO account for investment purpose or remitting money into NRO account because once your foreign income goes to NRO account, it's treated as Indian income and taxes are charged at higher rate.

Interest on NRO Account is Taxable in India

You should always remit your money to NRE bank account if you don't have one then it's high time you open an NRE account for just remittance purpose. Money lying on NRE accounts and interest earned on top of it is completely tax-free and you can also easily repatriate it.


1 comment:

  1. One important thing to know that you can save tax on NRO fixed deposit by submitting DTAA (Double Tax Avoidation Agreement) but you cannot prevent TDS by submitting form 15G or 15H.

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