Last reviewed: 13 August 2026. Three accounts sit in almost every NRI's banking kit, and their interest is taxed three different ways: NRO interest is fully taxable in India with TDS at 30%-plus, NRE interest is exempt while you qualify, and FCNR interest is exempt with its own return-to-India grace. The expensive mistakes happen at the edges — money parked in the wrong account, treaty relief never claimed on NRO, and the year you move back, when the exemptions quietly switch off. Here is the whole map.
The comparison that settles arguments
| Feature | NRO | NRE | FCNR(B) |
|---|---|---|---|
| What goes in | Indian income — rent, dividends, redemptions, sale proceeds | Foreign earnings remitted in | Foreign currency term deposits |
| Interest taxable in India? | Yes — fully | No, while you are resident outside India under FEMA (s.10(4) family exemption) | No, while non-resident — and until maturity through RNOR status |
| TDS | ~31.2% under s.195, no threshold; treaty rate with TRC + Form 10F | None while exempt | None while exempt |
| Repatriation | Limited — USD 1 million route per FY with 15CA/CB | Free, principal and interest | Free, principal and interest |
| Currency risk | INR | INR | None — held in foreign currency |
The NRO trap — and the two fixes
Every rupee of NRO interest is taxable, and the bank deducts at the domestic non-resident rate with no threshold — the ₹50,000 bank-interest threshold in our TDS rate finder is a resident's comfort, not yours. Fix one: the treaty route — TRC plus e-filed Form 10F handed to the bank brings many treaty rates to 10–15% at source (the full drill is in our DTAA guide). Fix two: the return — where your total Indian income sits below taxable limits or the slab rate is below the deduction, the ITR recovers the excess. Filing also keeps the refund cycle and residency documentation clean year on year.
The year you move back to India
- Tell the bank. Once you are resident under FEMA, NRE/NRO accounts are redesignated to resident accounts (NRE typically to resident/RFC) — the exemption on NRE interest travels with FEMA status, not with the account label, and continuing an exempt claim after returning is a classic notice trigger.
- Use RNOR deliberately. Resident-but-Not-Ordinarily-Resident status (available for the transition years subject to conditions) keeps most foreign income out of Indian tax — and FCNR deposit interest stays exempt through RNOR until maturity. Ladder FCNR maturities across the RNOR window; it is the cleanest legal shelter a returning NRI has.
- Recalendar everything: Schedule FA disclosure begins when you become resident and hold foreign assets — our Schedule FA guide covers the AIS-matched reality of it.
Common mistakes
- Parking India-sourced money in NRE by transfer gymnastics — a FEMA violation waiting for a question.
- Paying 31.2% on NRO interest for years when the treaty said 12.5–15% — the single most common overpayment we see.
- Leaving accounts un-redesignated after returning — exemption claims that stopped being true.
- Breaking FCNR deposits early in the return year instead of riding the RNOR exemption to maturity.
- Skipping the ITR because "TDS is already cut" — and abandoning refunds every single year.
Frequently asked questions
Is NRO account interest taxable in India?
Yes — fully, whatever the amount, and the bank deducts TDS at the non-resident rate (30% plus cess, surcharge where applicable) under section 195 with no threshold. A treaty rate can apply at source with a TRC and e-filed Form 10F, and excess deduction is recoverable through the ITR.
Is NRE fixed deposit interest really tax-free?
Yes, while you qualify as a person resident outside India under FEMA — the exemption in the section 10(4) family (carried into the Income-tax Act, 2025) attaches to that status. The moment you return and become resident under FEMA, the account must be redesignated and the exemption ends.
What happens to FCNR interest when I return to India?
It remains exempt while you are non-resident and continues through Resident-but-Not-Ordinarily-Resident (RNOR) years until the deposit matures. Planning FCNR maturities across the RNOR window is the cleanest transition strategy a returning NRI has.
Can I lower the 30% TDS on my NRO interest?
Often, yes — hand your bank a current TRC and the e-filed Form 10F acknowledgement, and it can deduct at your treaty’s interest-article rate (commonly 10–15%). Set it up at the start of each financial year; it does not apply retrospectively to interest already paid.
Do I need to file an ITR if TDS is already deducted?
Usually it pays to — the flat deduction frequently exceeds the true liability (slab benefits, treaty rates, deductions), and only the return recovers the difference. It also maintains the residency and disclosure record that makes future certificates, refunds and repatriations smooth.
How does the firm help NRIs with account taxation?
We map the accounts to FEMA status, set up treaty relief at source with the bank, file the ITRs with refunds and disclosures aligned, plan the return-to-India transition (redesignation, RNOR strategy, FCNR maturities), and certify repatriations under 15CA/15CB — one coordinated desk across time zones.
We align your NRO/NRE/FCNR setup with FEMA and the treaty, stop the silent 30% overpayment, and plan the return-to-India transition properly.
NRI Lower TDS Certificate Income Tax Filing Talk to usThis article is general information as on 13 August 2026. Exemptions attach to FEMA residential status and bank-account designation; treaty rates vary by country. Surcharge applies above income thresholds. Not professional advice — positions depend on facts and current law.