NRO Account Taxation: Rules on Interest, Rent, Dividends, and TDS Deduction in India 2025

Non-Resident Indians (NRIs) use Non-Resident Ordinary (NRO) accounts to handle income earned in India, such as rent, dividends, and pensions. Under the Income Tax Act 1961, this income is taxable in India and must be deducted at source. The Tax Deducted at Source (TDS) rate for NRO accounts is 30%, plus any surcharge and cess on interest earned. If the actual tax owed is less than the amount deducted, NRIs can file an Income Tax Return to claim a refund. Filing a return is required if your income goes over the basic exemption limit. Tax relief through the Double Taxation Avoidance Agreement is also available in some cases. Understanding NRO account rules and TDS provisions helps you stay compliant and make the most of your earnings.

What is an NRO account?

An NRO (Non-Resident Ordinary) Account is a specialized banking tool exclusively available to Non-Resident Indians (NRIs). It functions as a rupee-denominated savings account, enabling NRIs to effectively oversee their income earned in India, including rental earnings, dividends, pensions, and interest. 

Moreover, NRO accounts play a pivotal role in facilitating the smooth transfer of funds from abroad to India. These accounts are tailored to meet the unique financial needs of NRIs, ensuring compliance with tax regulations and regulatory requirements associated with their non-resident status. In essence, an NRO account serves as an essential bridge between an NRI's Indian income sources and their international financial transactions, offering a secure and compliant means of managing their finances in the country.

Is an NRO account taxable?

An NRO account taxable in India means that any income earned here, such as rent, interest, pension, or dividends, is subject to taxation under the Income Tax Act, 1961.The bank deducts TDS  at 30% (plus surcharge and cess) on such earnings. If the actual tax liability is lower, NRIs can file an income tax return to claim a refund and stay compliant with Indian tax law. [1]

Is Interest on an NRO Account Taxable or Not?

The bank deducts TDS from NRO accounts when it credits the interest. NRIs pay tax only on the interest they earn, and there are exemptions if their annual earnings are low.

• The bank deducts TDS from NRO accounts as soon as the interest is credited.
• The TDS rate for an NRO account is 30%(+ surcharge + cess), and it applies only to the interest earned.
• This helps NRIs with lower incomes, since they may not have to pay tax on their NRO interest earnings.
• For a Fixed Deposit (FD), the bank may decide when TDS is to be deducted. Some banks do it on accrual, while some do it on maturity(whichever is earlier).
• Along with any interest on the account, the NRI are also liable to pay tax on any other income like rent, capital gains, etc. that they earn from India.

Understanding Tax Implications: Transferring Funds from NRO Account to Foreign Account.

Transferring money from an NRO account to a foreign account involves strict compliance with RBI and income tax regulations. NRIs can remit up to USD 1 million per financial year after paying applicable taxes, and banks will deduct TDS at prescribed rates on every outward transfer, typically at 10% of the remittance amount. Staying informed about these rules helps NRIs plan remittances efficiently and avoid unexpected tax deductions while managing their Indian income.

Key Points for NRO to Foreign Remittance:

•  Remittance Limit: NRIs can transfer up to USD 1 million (or equivalent in INR) per financial year from their NRO account to overseas accounts, as per RBI guidelines. 
• TDS on Remittance: Banks deduct TDS on the entire Indian income remitted abroad. This deduction applies to all outward transfers and helps ensure tax compliance for NRIs when repatriating funds.
• Required Documentation: For each remittance, NRIs must submit Form 15CA (online) and Form 15CB (from a Chartered Accountant) to the bank. Additional documents, such as proof of the source of funds and the purpose of remittance, may be required. 
• Income Tax Declaration: Both the repatriated amount and applicable TDS must be reported in the NRI’s annual Indian tax filing. Claiming benefits under a Double Taxation Avoidance Agreement (DTAA) can help reduce the overall tax impact in eligible jurisdictions if India has an agreement with the NRI’s resident country. 
• Purpose Restrictions: Remittances for certain activities, including speculative investments and prohibited exports, are not allowed under FEMA and RBI master directions. In such cases, banks need purpose codes and proof that the remittance is for legal purposes. 
• Bank Procedures: Only authorised dealers (banks) can process NRO outward remittances. Each request requires thorough KYC and compliance checking. 

Why This Matters?

Following these official guidelines avoids unplanned deductions, delays, and compliance risks. NRIs should always consult their bank for the latest notifications and updates to the RBI master circular before making large transfers.

Understanding NRO Account Limitations for Investments in India.

NRIs need a clear understanding of how NRO accounts operate, as they are subject to the Foreign Exchange Regulation Act regulations (FEMA). Knowing these rules helps NRIs manage rental income, pension earnings, dividends, and other funds in India with clarity. It also helps them plan investments, tax responsibilities, and repatriation decisions confidently while staying aligned with Indian financial laws. A well-informed approach ensures smoother financial management, especially when income comes from multiple domestic sources. Here are the mandatory rules you should know:-

• NRO accounts do not allow direct investments:
  • NRO accounts hold income earned in India, but do not support direct investment transactions. FEMA rules prevent NRIs from using these accounts to purchase assets or investment products. This separation ensures domestic earnings remain traceable and compliant with regulatory standards. NRIs use NRE accounts or specific investment routes that meet FEMA conditions when planning long-term investments.
• RBI approval is required for investments
  • NRIs obtain prior approval from the Reserve Bank of India when an investment is funded through an NRO account. This approval acts as a regulatory safeguard, confirming that funds meet the criteria set by Indian law. The process also ensures that the source of funds, the investment purpose, and the documentation remain transparent and properly recorded.
• FEMA governs all investment transactions
  • Every investment related decision involving an NRO account must follow FEMA guidelines. These rules govern how funds move, are maintained, and can be repatriated. FEMA oversight maintains accountability in cross border financial activities and helps NRIs avoid compliance issues, especially when handling high value investments or complex transactions.
• The government introduced a simplified tax regime in 2019
  • The government launched a restructured tax system in 2019, offering taxpayers, including eligible NRIs, the choice between the old and new regimes. Each regime has different slab rates and deduction options. NRIs assess how their NRO-based earnings fit into these structures to determine which option offers better tax efficiency, given their total income and eligible benefits.
• The choice between old and new regimes supports tax planning
  • NRIs compare both tax regimes to understand how each affects their annual tax outflow. The old regime offers deductions and exemptions, while the new regime provides lower rates with fewer benefits. This flexibility allows each NRI to select the structure that aligns with their income pattern, financial goals, and preferred tax-saving strategy.

How to Save Tax on NRO accounts?

For NRIs, understanding the tax slab for NRO accounts is important, as income earned in India, such as rent, pension, or dividends, is fully taxable under Indian tax laws. The points below will help to understand:

1. Tax Deduction under Section 80C:

• NRIs can reduce their tax liability on NRO accounts by utilizing tax deduction benefits provided under Section 80C of the Income Tax Act.
• Invest in tax-saving instruments such as PPF (Public Provident Fund), NSC (National Savings Certificate), and ELSS (Equity-Linked Savings Scheme) to avail of these deductions.

2. Obtain a Tax Residency Certificate (TRC):

• NRIs should obtain a Tax Residency Certificate (TRC) from the tax authorities of their country of residence.
• The TRC confirms their resident status for tax purposes in that country.
• It's essential to have this document before submitting it to the bank to ensure compliance with tax authorities.

3. Awareness of TDS Rates:

• NRIs should be informed about the Tax Deducted at Source (TDS) rates applicable to NRO accounts when filing their income tax returns.
• If the TDS rate on their NRO account exceeds the applicable tax rate on their income, they can claim a refund for the excess TDS deducted.
• To claim a refund, NRIs must file their income tax returns, providing details of the tax deducted and income earned from their NRO account.
• A TDS rate of 10% is applied to interest earned on NRO savings accounts.

4. Invest in Tax-Free Bonds:

• NRIs have the option to invest in tax-free bonds issued by the Indian government to lower their tax liability on NRO accounts.
• These bonds typically have a long-term tenure of 10-15 years, and the interest earned is exempt from taxation.

5. Utilise the National Pension System (NPS):

• NRIs can take advantage of the National Pension System (NPS), a government-backed pension scheme.
• By investing in the NPS, NRIs can claim tax deductions of up to Rs. 50,000 under Section 80CCD(1B) of the Income Tax Act.
• Investing in the NPS not only helps in tax savings on NRO accounts but also contributes to securing their financial future, especially for retirement planning.

Managing Finances as an NRI: Understanding Non-Resident Ordinary (NRO) Accounts

An NRO (Non-Resident Ordinary) account is a financial tool tailored for NRIs (Non-Resident Indians) to manage income earned in India or abroad, subject to Indian taxation. While it can hold both Indian and foreign currencies, transactions within India must be conducted in Indian rupees. This section explores NRO account features, including fund transfers to repatriable NRE (Non-Resident External) accounts, managing family expenses and investments, and the potential to earn up to 9% interest on NRO fixed deposits. NRIs should also be aware of tax implications and consider converting their accounts when working abroad.

• An NRO (Non-Resident Ordinary) account is a savings account used by NRIs (Non-Resident Indians) to manage their income earned in India or abroad, which is subject to taxation in India.
• The account can hold funds in both Indian and foreign currency, but only Indian currency can be used for transactions within India.
• NRIs can transfer funds from their NRO account to their NRE (Non-Resident External) account, which is a repatriable account where money can be transferred back to the foreign account without any restrictions.
• NRO accounts can be linked to UPI payment systems, but there are certain restrictions on the amount that can be transferred per day.
• NRIs can use NRO accounts to manage their family expenses and investments, while NRE accounts can be used for repatriable investments.
• NRIs can earn up to 9% interest on NRO fixed deposits, and can also convert their resident savings account to an NRO account.
• It is important for NRIs to inform their bank to convert their existing account to an NRO account when taking up employment abroad and to be aware of the tax implications of using NRO accounts.

Navigating the NRO Account Landscape

Navigating the NRO account landscape is important for NRIs to manage Indian income, as different types of accounts serve specific needs.

• NRO Saving Account: Used to deposit Indian income like rent, pension or dividends. Interest earned is credited here, and the NRO account interest is taxable under Indian law.
• NRO Current Account: Ideal for NRIs running businesses or frequent transactions in India. Allows flexible deposits and withdrawals, but doesn’t earn interest like savings accounts.
• NRO Fixed Deposit Account: Provides a higher return on a fixed tenure. Friends are locked for a period, and interest earned is subject to TDS deduction in India.
• NRO Recurring Deposit Account: This helps the NRI to save a small amount monthly with interest. Useful for disciplined saving, though income earned is taxable, requiring TDS deduction at source.

Comparing Different Banks for Opening an NRO Account

A clear understanding of NRO account options helps NRIs manage earnings in India with confidence. Leading banks offer NRO accounts with distinct features that support regular transactions, income deposits and smooth transfer of funds to an overseas account. HDFC Bank, ICICI Bank, Axis Bank, State Bank of India and Kotak Mahindra Bank remain preferred choices because they offer reliable digital platforms, stable interest rates and effortless day-to-day account management. Each bank follows its own interest calculation structure, and variations in rates can affect long-term financial planning. Comparing these rates in one place creates a clear picture and supports better decision-making. The table below highlights the current NRO account interest rates offered by major banks in 2025.

• Interest Rate & Tax: Interest in an NRO account is taxable under the Income Tax Act 1961. Always compare net interest after TDS deduction.
• Bank Interest Comparison: Rates differ: HDFC (3-3.5%), ICICI (3%- 3.5%), Axis (2.7 per cent to 5.5 per cent), Kotak (3%-3.5%), SBI (2.7% to 3.3%) [12]
• Fees and Charges: Banks levy charges like account maintenance, transactions, cheque books, and ATM withdrawals.[13]
  • HDFC: Minimum Balance Requirement (AMB): ₹10,000 for Metro/Urban branches and ₹5,000 for Semi-Urban/Rural branches.[14]
  • SBI: charges ₹500 quarterly.
• Account Management: Ease of opening, online banking, mobile services and customer support play an important role in choosing the right NRO Account.
• Financial Advice: Consult a Financial Advisor before deciding. Comparing interest, changes, and services ensures better financial management for NRIs in India. 

NRO Account Taxation from the Indian Government's Perspective

From the Indian government's perspective, NRO account taxation ensures fair revenue, compliance with laws, and balanced financial participation from NRIs:

• Simplified Filing: The Finance Act 2020 allowed NRIs to file income tax returns online, making the process faster, simpler, and efficient.
• Double Taxation Relief: India signed DTAA agreements with several countries to prevent double taxation, reducing extra tax burdens for NRIs earning abroad and domestically.
• Investment Relaxation: The government is considering easing restrictions on NRO accounts, allowing NRIs to invest in Indian stocks and bonds more freely.
• Startup Incentives: The Startup India scheme offers tax holidays, capital gains exemptions, and encourages entrepreneurial investments, benefiting NRIs interested in Indian startups and innovations.
• Manufacturing Boost: Atmanirbhar Bharat promotes self-reliance, providing tax incentives for manufacturing, infrastructure, and technology. Even the Tax on NRO fixed deposits encourages proper compliance.

NRO Account Tax Calculation Example

Interest earned on an NRO account is taxable in India for NRIs, subject to the applicable income tax slab rates or a flat TDS rate of 30% (plus cess/surcharge), whichever is lower, unless DTAA relief is claimed.

Example 1: Standard TDS Deduction

• TDS Rate (incl. Cess) below ₹50 Lakhs: 31.2%
• Calculation: 30% base tax rate *(1+4% health and education cess)=31.2%

Example 2: Claiming DTAA Benefit

• DTAA Rate: The DTAA rate overrides the domestic TDS rate if it is more beneficial to the NRI. For many countries, the interest rate is 10% or 15%
• Documentation Required: To claim this reduced rate at source (i.e., from the bank), the NRI must mandatorily furnish:
  • Tax Residency Certificate (TRC): Issued by the tax authority of the country of residence.
  • Form 10F: A self-declaration form (filed electronically since 2023).
  • Self-Declaration/Annexure: Confirming beneficial ownership.
  • PAN Card Copy

Disclaimer: This reflects DTAA rates from verified sources, including DBS, ICICI Bank, and RBI rule summaries.

Note: This calculation applies the surcharge to the 30% tax component, then adds the 4% Cess on the total (Tax + Surcharge).

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Strategic compliance is key to wealth management for NRIs. Income from NRO accounts is taxable, but by using DTAA (Double Taxation Avoidance Agreement) provisions, you can lower the standard 30% TDS to concessional rates and increase your net returns. Managing your Indian assets smoothly is just as important as tax efficiency. NoBroker NRI Services offers a simple, complete solution for property investment, management, and tax filing. With smart tax planning and a clear, broker-free platform, NRIs can confidently grow their wealth in India. Let NoBroker help you achieve your Indian property goals in a compliant and rewarding way.