Is TDS applicable for NRE fixed deposits?

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Key Takeaways

As an NRI, you may often wonder whether tax deducted at source (TDS) is applicable on the interest income you earn on your fixed deposits in India. And, if yes, what’s the NRI TDS rate? Find answers here.

Introduction

Non-resident Indians (NRIs) generally use a non-resident external (NRE) account to manage their finances in India. These accounts don’t just let NRIs transfer a portion of their foreign earnings to their home country smoothly, but also provide a great investment in the form of NRE fixed deposits (NRE FDs).

NRE FDs are a preferred investment option for NRIs as they fetch higher returns than deposits in a savings account. The principal and interest earned is fully repatriable.

But is there any tax on NRE fixed deposit? And what is the tax deducted at source (TDS) rate on interest from an NRE account?

If you are a resident Indian, banks and other financial institutions deduct TDS at 10% from the interest income on your fixed deposits if the total interest income exceeds Rs 10,000 in a financial year.

However, the good news is that income from NRE accounts are exempt from TDS.

NRE FDs are tax-free

An NRE account is completely tax-free. This means that both savings and fixed deposits in NRE accounts, as well as the interest earned on them, do not attract any kind of income tax, wealth tax, gift tax in India.

This is because the money invested in NRE FDs is the income earned by you overseas and not in India, and therefore it won’t be taxable.

Since, an NRE account does not attract tax, you do not have to worry about TDS either.

But as soon as you lose your NRI status and your NRE FD accounts get redesignated to resident accounts, your investments will start attracting TDS at rates applicable to resident Indians.

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NRO fixed deposits

It is also important to note that not all fixed deposits by NRIs are exempted from TDS. Interest income from a non-resident ordinary (NRO) account is taxable and TDS is applicable on this.

An NRO account allows NRIs to manage income earned in India -- in the form of rent, pension or dividends. Since this income is earned in India, the interest income from the savings and fixed deposits in NRO accounts are taxable.

Interest earned on NRO accounts is subject to TDS deduction at the rate of 30% plus applicable surcharge and cess.

Final Note

Income earned from NRE fixed deposits are tax free and don’t attract TDS. Earnings from an NRO account attract tax and are liable for TDS since the income deposited in the account is earned in India.

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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.