NRO Account Tax Rules and Deductions
Neha Navaneeth
Marketing & Content Associate
Dec 2, 2025
If you're a Non-Resident Indian (NRI) earning rent, interest, or dividends in India, that income is usually credited to your NRO account and is subject to TDS (tax deducted at source) in India. You need to understand how your Non-Resident Ordinary (NRO) account tax works within the framework of Indian laws to stay compliant and draw benefits such as the Double Taxation Avoidance Agreement (DTAA).
This guide breaks down everything you need to know about NRO account tax rules, from possible deductions to how much you can transfer abroad, and the steps you should take when it’s time to file your taxes.
What is an NRO Account?
An NRO Account is a rupee-denominated account maintained in India by non-resident individuals (NRIs), persons of Indian origin (PIOs), and overseas citizens of India (OCIs). The NRO account is used to keep the income in India, and it is governed by the Foreign Exchange Management Act (FEMA) 1999.
An NRI is required to open an NRO account for crediting income earned from India. For taxation and compliance purposes, it is usually preferred for an NRI to keep abroad-earned and India-earned income separately.
Income sources for NRO account are:
The rental income from India has to be credited to an NRO account. That is the only allowed route for NRIs as per FEMA rules. Tenants must deduct 30% TDS before making payment.
After the removal of Dividend Distribution Tax in FY 2020–21, dividend income is taxable for NRIs. Companies deduct 20% TDS on dividends in the absence of a tax treaty.
Taxation of capital gains varies by asset type (property, equity, debt, etc.) and by holding period. Short-term and long-term gains are taxed at rates under the Income Tax Act.
Pension income is taxed in India if the pension emanates from an Indian source, like a government pension, EPS pension, or pension from a private employer, etc. The entitled exemptions are listed under Section 10.
NRO Account Tax Rules
All income in your NRO account is fully taxable in India. This includes interest earned on savings, rental income, dividends, pension payments, and any other income and sources that qualify as Indian income. The NRO account tax liability is triggered at the time of either receipt or accrual of income.
TDS by banks
Banks deduct 30% TDS on interest earned on deposits along with applicable surcharge or cess. In many cases, this TDS is higher than the individual’s actual total tax liability, which is why NRIs often end up claiming refunds.
For example, if your NRO savings account earns you an interest of ₹50,000 in a year, the bank will deduct TDS of about ₹15,600 (including surcharge and cess). If your actual tax liability on this income is lower, you can claim a refund by filing your income tax return.
How NRIs are Taxed: Examples
Scenario A - Rental Income + Interest Income
If you are getting rent of ₹2,00,000 and interest of₹50,000, the tenant/bank will deduct TDS (at around 30%) on the gross amount, and then they will credit your balance. You get the net amount after TDS. You calculate your actual tax liability at year-end, and if your TDS is more than that, you can get a refund.
Scenario B - Interest Income (US Resident)
For an NRO fixed deposit earning ₹1,00,000 interest, the default TDS is ~30% + applicable surcharge/cess. If you are a US resident, you may apply the relevant India–United States Double Taxation Avoidance Agreement (DTAA) and submit a TRC + Form 10F to reduce TDS (for example, to ~15%). Excess TDS over the treaty rate can be claimed as a refund.
Scenario C - Interest Income (UK Resident)
A UK-based NRI can similarly reduce TDS on NRO interest from ~30% to a treaty rate (commonly ~15%) by submitting a TRC, Form 10F, and declaration before payout. Documents must be accepted by the payer.
Claiming Benefits Under DTAA - Lower Tax for Eligible NRIs
India has Double Taxation Avoidance Agreements (DTAs) with many countries to keep NRIs from being taxed twice on the same income. These agreements may provide qualifying people with lower TDS rates on interest, dividends, and other forms of income.
Send the documents given below to your bank for claiming DTAA benefits before interest is credited:
Tax residency certificate (TRC) of your country of residence
Form 10F (self-declaration for tax residence and treaty benefits)
Written request for the DTAA clause and concessional rate
NRO Income Deductions & Exemptions
If you have taxable income in India, investments you make in eligible instruments such as an Equity-Linked Savings Scheme (ELSS) qualify for a deduction under Section 80C of the Income Tax Act, 1961, up to ₹1.5 lakh in a financial year (for the old tax regime).
You can get a benefit for health insurance premiums paid by you or your Indian resident parents under section 80D (subject to limits of Rs 25,000 and Rs 50,000 based on age).
Repatriation Rules And Tax Compliance
Repatriation is the process of transferring money from your NRO account to your foreign bank account. Current rules allow you to repatriate USD 1 million per fiscal year (April to March).
For repatriation from an NRO account, you generally need to submit Form 15CA online. If the taxable remittances from your NRO account exceed ₹5 lakh in a financial year (or if the bank insists), a CA must also issue Form 15CB certifying that due taxes have been paid. Banks evaluate your tax compliance status and the source of funds prior to authorizing the transfer.
However, before your bank can process the repatriation, all your outstanding NRO account tax obligations must be paid. That means TDS should be deducted from all taxable income, and if there is any tax due, pay it.
Filing Income Tax Return in India (for NRIs with NRO Income)
You need to file an income tax return(ITR) if your total income from India is more than ₹ 2.5 lakh or if you want a tax refund. Since NRO account tax is deducted at source, usually at a higher rate, most NRIs should file returns for NRO income to claim a refund.
Income from salary, House property & Capital gains:
For processing these details, use ITR-2, and
For business or professional income, use ITR-3.
The submitted claim consists of:
Link your PAN with Aadhaar (if you didn't do that already).
There is a 26AS form, the one where you can find TDS deducted by banks, tenants.
Log in to the Income Tax e-filing site.
Select the appropriate ITR form.
Enter your income details and also the TDS credit claim.
Verify and submit your return.
Conclusion
Knowing the NRO account tax rules helps you manage your Indian income with compliance. While the 30% TDS may seem a bit high, the actual tax implication may be down largely by DTAA benefits and by claiming a refund through ITR filing. Keep all documents like TDS certificates, rent agreements, or DTAA forms organised.
Download Rupeeflo today to open your NRO account within 48 hours!
FAQs
Is TDS on NRO interest compulsory?
Yes, TDS is compulsory, but it can be brought down from 30% to the DTAA rate (normally 10-15%) by submission of your TRC and Form 10F before interest payment.
What is the repatriation limit of an NRO account for an NRI?
Within a financial year, an NRI can repatriate a maximum of up to USD 1 million from his or her NRO account after payment of applicable taxes on submission of Form 15CA/15CB.
What is the time an NRI takes for a tax return?
Normally, it takes 4-6 weeks from the time of the initial filing and e-verification of the ITR without incurring any issue is required.
Can NRIs claim Section 80C on income derived from NRO investments?
Yes, if your income is taxable in India and you file an ITR. Eligible investments like ELSS, PPF, and life insurance qualify up to ₹1.5 lakh.
