TDS on NRO Interest: 2026 Rates, DTAA Relief and Refunds

Close-up of an Indian 50 rupee banknote, the currency your NRO deposit and its interest are paid in before TDS on NRO interest is deducted

Your NRO fixed deposit in Kochi pays 7%, but when the interest lands, almost a third of it is missing. The bank has not made a mistake. It has deducted tax at source at the rate Indian law sets for non-residents, and unless you act, that money stays with the tax department until you file a return.

This guide explains TDS on NRO interest in plain English for NRIs in the UAE, Saudi Arabia, the UK, the US, Canada and Australia: the 31.2% rate, why it is usually more than you really owe, and the three legal ways to pay less or get the extra back. It reflects the Income-tax Act, 2025, which applies from 1 April 2026, and was checked on 11 November 2026.

Please note: this article is general information, not professional financial, tax or investment advice. Rules change, so check the official sources linked below or speak to a qualified professional before you decide. Read our disclaimer.

Table of contents

TDS on NRO interest: the rate banks deduct
Is NRO interest taxable in India, and do you really owe 31.2%?
Route 1: claim the DTAA rate at your bank
Route 2: how to avoid TDS on NRO fixed deposit interest with Form 128
Route 3: claim back excess TDS on NRO interest in your return
Which route fits you? A quick decision guide
Sources
FAQ

TDS on NRO interest: the rate banks deduct

The Income Tax Department's own FAQ is clear: when a non-resident earns interest on bank deposits, the bank must deduct TDS at 30%, increased by surcharge and the 4% health and education cess, unless a tax treaty gives a lower rate. Under the new Act the rule sits in section 393(2), Table serial number 17 (the old section 195), and the 30% comes from the Finance Act, 2026.

Your situation	Effective TDS on NRO interest
Normal case, no documents given	30% + 4% cess = 31.2%
Higher income band (10% surcharge)	About 34.32%
Next band (15% surcharge)	About 35.88%
Resident of the UAE with treaty papers	12.5% (India-UAE DTAA, Article 11)
Resident of the US with treaty papers	15% (India-US DTAA, Article 11)

Two points surprise many NRIs. First, there is no threshold: TDS on NRO interest applies from the first rupee, unlike the Rs 40,000 limit residents enjoy. Second, it covers savings, fixed and recurring deposits alike, so TDS on NRO FD interest and on savings interest works the same way. Banks deduct when the interest is credited or paid, whichever is earlier, and public sector banks deduct when it is actually paid. Your annual TDS certificate from the bank shows the TDS on NRO interest for each deposit.

Is NRO interest taxable in India, and do you really owe 31.2%?

Yes, NRO interest is taxable in India because the income arises here. But the TDS on NRO interest is only an advance payment. Your real tax is worked out on your total Indian income for the year, and the TDS is set off against it.

Under the default regime for tax year 2026-27, income up to Rs 4 lakh is taxed at nil, then 5% up to Rs 8 lakh and 10% up to Rs 12 lakh, rising in steps to 30% above Rs 24 lakh. The basic exemption applies to NRIs too. What does not apply is the rebate that lets residents pay zero tax up to Rs 12 lakh; that is for residents only.

Simple example: an NRI nurse in Abu Dhabi has Rs 20 lakh in an NRO FD at 7%, so she earns Rs 1.4 lakh of interest and has no other Indian income. With no paperwork, the bank keeps about Rs 43,680. Her real Indian tax is nil, because Rs 1.4 lakh is below the Rs 4 lakh nil band. Every rupee of that TDS on NRO interest is a refund she must claim.

Compare this with your NRE account: NRE interest is exempt for a person resident outside India under FEMA, so no TDS is deducted at all. If you are unsure which account your money belongs in, read our NRE vs NRO account guide before you open the next deposit.

Infographic of TDS on NRO interest in 2026: 31.2% default rate, 34.32% with surcharge, 12.5% UAE and 15% US DTAA rates, Form 128 nil TDS and tax-free NRE interest

Route 1: claim the DTAA rate at your bank

If your country has a tax treaty with India, the bank can apply the treaty rate to TDS on NRO interest instead of 31.2%. Most of India's treaties cap tax on interest at 10% to 15%. For an Indian expat in Dubai, the India-UAE treaty rate is 12.5%; for a depositor living in the US it is 15%. For the UK, Canada, Australia, Saudi Arabia and others, check Article 11 of the specific treaty, because the rate depends on who beneficially owns the interest.

Banks usually ask for four documents before the interest is credited:

A Tax Residency Certificate (TRC) from your country of residence covering the period.
Form 41, filed on the income-tax e-filing portal. It replaced Form 10F for income from 1 April 2026; Form 10F still applies to earlier income.
Your PAN.
A self-declaration that you are the beneficial owner of the interest and have no permanent establishment in India.

Timing matters. Treaty relief only applies to interest credited after the bank has your papers, so submit them at the start of the tax year and renew the TRC each year. Our DTAA guide for NRIs explains how treaty residence and double tax credits work.

Route 2: how to avoid TDS on NRO fixed deposit interest with Form 128

The treaty rate still takes 12.5% or 15% even when you owe nothing, as in the Abu Dhabi example. If your Indian income is low, the cleanest way to cut TDS on NRO interest is a lower or nil deduction certificate. Under the new Act you apply in Form 128 (the old Form 13) under section 395(1).

The tax officer issues a certificate for a lower or nil rate based on your estimated income and tax for the year.
It names your bank (the deductor), the amount and the period, so give the bank a copy before the interest is credited.
A valid PAN is mandatory; applications without PAN are not granted.
If you also receive rent or are selling a flat, one application can cover several payers. See our guide to NRIs selling property in India for how the same certificate helps on a sale.

Do not hand your bank Form 15G or 15H. Those declarations (now Form 121) are for residents only, and a bank that wrongly accepts them can later face a demand.

Route 3: claim back excess TDS on NRO interest in your return

If the TDS on NRO interest has already been deducted, the bank cannot reverse it. The only way back is your Indian income tax return.

Check that the bank reported the TDS on NRO interest against your PAN in your tax credit statement (Form 168, the old Form 26AS) and the AIS.
Collect the bank's TDS certificate, your TRC and Form 41 acknowledgement.
File the return by the due date, generally 31 July 2027 for tax year 2026-27 for most NRIs, declaring your residential status correctly.
Claim treaty relief where it helps and track the refund on the e-filing portal.

Our NRI income tax return guide covers which form to use and what to disclose. Beware of emails promising an "instant tax refund" link; our sister blog shows how to spot these phishing emails.

Which route fits you? A quick decision guide

There is no single best answer; the right way to handle TDS on NRO interest depends on your total Indian income. Use this short checklist:

Small Indian income (interest and rent well below Rs 4 lakh): apply for a nil certificate in Form 128 early in the year.
Medium or high Indian income, where your slab tax is close to or above the treaty rate: give the bank your TRC and Form 41.
Large deposit maturing soon: act before the credit date, because relief is never retrospective at the bank.
Money that does not need to stay in rupees: compare an NRE or FCNR deposit, where interest is tax-free in India. Our NRI fixed deposit comparison shows how the returns stack up.
Tax at home: check whether your country of residence taxes the interest and how much Indian tax it will credit. Gulf residents usually face no local income tax; UK, US, Canadian and Australian residents usually report it.

Sources

This guide was checked against these official and reputable sources on 11 November 2026:

Photo: Indian 50-rupees banknote closeup (68912) by Sohel Patel, CC0, via Wikimedia Commons (cropped).

FAQ: TDS on NRO interest

TDS for NRO interest is deducted at what rate?

Banks deduct 30% plus 4% cess, which is 31.2%, under section 393(2) of the Income-tax Act, 2025. Surcharge raises it to about 34.32% at higher incomes, while a DTAA can lower it to 10% to 15%.

Is TDS deducted on NRO FD interest?

Yes. TDS applies to NRO fixed deposit, recurring deposit and savings interest from the first rupee, with no threshold. NRE interest is exempt and has no TDS.

How can I avoid TDS on NRO fixed deposit interest?

Give the bank a Tax Residency Certificate and Form 41 to get the treaty rate, or apply for a lower or nil deduction certificate in Form 128 before the interest is credited. Form 15G and 15H do not work for NRIs.

Is NRO interest taxable in India?

Yes. It is Indian income and is taxed at slab rates on your total Indian income. The 31.2% TDS is an advance payment, so if your real tax is lower you can claim a refund by filing a return.

What is the DTAA rate on NRO interest for UAE residents?

Under Article 11 of the India-UAE treaty, the rate is 12.5% of gross interest for an individual depositor who gives the bank a valid TRC, Form 41, PAN and a beneficial-owner declaration.

How do I get a refund of excess TDS on NRO interest?

Check that the TDS appears against your PAN in Form 168 (old 26AS) and the AIS, then file your Indian income tax return by the due date, generally 31 July after the tax year, and claim the excess.

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