TDS on NRO account interest for NRIs — can a lower deduction certificate help?
Banks deduct TDS on NRO account interest at the rate applicable to non-residents under Section 195, regardless of the account holder's actual total income or tax slab. A lower TDS certificate under Section 197 can bring that deduction down to match the NRI's real liability, particularly useful for NRIs whose total Indian income is modest.
A common but overlooked case
Property sales get most of the attention when NRIs talk about TDS problems, but NRO account interest quietly affects a much larger number of people — anyone with an NRO account earning interest has tax withheld on it, year after year, often without much thought about whether the rate applied actually matches their situation. For an NRI whose only Indian income is a modest amount of NRO interest, the default withholding rate can be well above their real tax liability.
Why banks default to a flat, higher rate
Like any other payer under Section 195, a bank has no visibility into an NRI account holder's total worldwide or India-specific tax position — it simply applies the prescribed non-resident rate to the interest credited. There's no equivalent of a resident's exemption threshold that quietly reduces or removes TDS on smaller interest amounts.
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Check my eligibility →When a certificate is worth the effort
If NRO interest is your only or main source of India-taxable income, and it's modest enough that your actual liability sits meaningfully below the default withholding rate, a lower TDS certificate can make a real difference year after year — since, unlike a one-off property sale, this is a recurring deduction. See our documents checklist for what's needed to apply in this scenario.
It renews, it doesn't carry forward automatically
A certificate for NRO interest, like any other, applies to a specific financial year and needs to be renewed if you want the benefit to continue — see our guide on validity and renewal. For a recurring income source like bank interest, this is worth building into your annual routine rather than a one-time task.
Is it worth applying for a lower TDS certificate if my NRO interest is small?
It depends on the gap between the default withholding rate and your real liability, and whether the amount involved justifies the effort of applying and renewing each year. For very small interest amounts, filing an ITR and claiming a refund at year-end may be simpler; for larger, recurring interest income, a certificate can save meaningfully more over time.
This article is for general information only. For your specific situation, consult a practicing CA.
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