Is interest earned on NRE and NRO bank accounts taxable for an NRI

Question

I am an NRI and I hold both NRE and NRO accounts in India, and I want to know which one attracts tax on the interest earned. I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "Is interest earned on NRE and NRO bank accounts taxable for an NRI" turns on Income-tax Act, 1961, Section 10(4), Income-tax Act, 1961, Section 195 and Income-tax Act, 2025. The points below set out the position and then what to do about it, in the order it should be done.

Section 10(4) of the Income-tax Act, 1961 exempts interest earned on a Non-Resident External (NRE) rupee account and on a Foreign Currency Non-Resident (FCNR) account from income tax entirely, as long as the account holder is a person resident outside India under the Foreign Exchange Management Act.

Interest earned on a Non-Resident Ordinary (NRO) account, by contrast, is fully taxable in India as income from other sources at the applicable slab rate, because an NRO account is meant for managing income earned or accrued in India such as rent, dividends or pension.

Banks are required under Section 195 to deduct tax at source on NRO interest at a higher rate than the domestic savings account TDS rate, generally around thirty percent plus applicable surcharge and cess, unless a lower rate certificate under Section 197 or DTAA relief is obtained.

If the NRI's home country has a Double Taxation Avoidance Agreement with India offering a lower withholding rate on interest income, the NRI can furnish a tax residency certificate and Form 10F to the bank to apply the lower treaty rate instead of the higher domestic TDS rate.

Once an individual's residential status changes back to resident, both NRE and NRO account interest lose any special treatment on future accrual, and the accounts are usually required to be redesignated as resident accounts under the exchange control regulations.

Practical steps: 1) Confirm the correct account type, NRE, NRO or FCNR, for each source of funds; 2) Obtain a tax residency certificate and Form 10F for treaty benefit on NRO interest; 3) Submit these documents to the bank to reduce excess TDS deduction; 4) Report NRO interest and any excess TDS in the Indian income tax return to claim refund if applicable.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — remedies under Income-tax Act, 1961, Section 10(4) carry limitation periods, and unexplained delay weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.