NRI tax insights

TDS on NRO FD Interest: Are NRIs Paying More Than They Owe ?

By TEAM NRITAX.AI, NRITAX.AI Tax Research Team · Published 2026-10-31

*Halloween Special | A practical guide for NRIs for FY 2025–26 (AY 2026–27)*

🎃 This Halloween, the scariest thing on your Indian bank statement might not be a mysterious charge. It might be your TDS deduction.

You live overseas. Your NRO fixed deposit earns interest. Your bank deducts tax. And when you look at the statement, you may wonder: *Is this really how much tax I owe?*

Here's the twist: tax deducted at source (TDS) is not necessarily your final tax liability.

Depending on your residential status, total Indian income, applicable tax provisions and eligibility for treaty relief, your final tax may differ from the amount deducted by your bank. You may be eligible to claim a refund if your eligible tax credits exceed your final tax liability. Alternatively, you may owe additional tax.

The trick is not to guess. The treat is understanding your actual tax position.

In this Halloween edition of the NRITAX guide, we'll explain how NRO fixed-deposit interest is taxed, how to review your TDS, and what NRIs should know about filing an income tax return for Assessment Year 2026–27.

Because the only thing scarier than a tax deduction is not knowing what it means.

1. Is NRO Fixed-Deposit Interest Taxable in India?

Generally, yes. Interest earned on a Non-Resident Ordinary (NRO) account or fixed deposit is taxable in India under the applicable tax provisions.

Banks generally deduct TDS from interest paid or credited to non-residents. The applicable withholding rate depends on the relevant domestic provisions and circumstances, including any eligible relief under a Double Taxation Avoidance Agreement (DTAA).

NRO accounts should not be confused with Non-Resident External (NRE) accounts or FCNR(B) deposits. Qualifying interest on NRE and FCNR(B) accounts may receive different tax treatment, subject to the applicable conditions.

Your account type, residential status and individual circumstances all matter.

2. Why Might Your Bank Deduct More Tax Than You Owe?

Banks generally deduct TDS according to the applicable withholding rules. They may not have all the information required to determine your final tax liability across your Indian income.

Your final tax calculation may depend on:

• Your total taxable income in India.
• Your residential status for the relevant financial year.
• The applicable tax regime.
• The nature of your income and any special tax provisions.
• Eligible deductions, reliefs or treaty benefits.
• Tax already deducted or paid during the year.

Imagine that your bank deducts tax from your NRO fixed-deposit interest, but your final tax liability, calculated using the applicable rules and your complete income details, is lower than the tax already paid.

You may be eligible to claim the excess through an income tax return.

However, if you also earn rental income, capital gains or other taxable income in India, your overall tax liability may be higher than you expect.

A TDS deduction alone cannot tell you whether you are entitled to a refund.

3. How Much TDS Is Deducted on NRO Fixed-Deposit Interest?

The applicable rate depends on the relevant withholding provisions and your circumstances.

A commonly encountered domestic withholding calculation for certain non-resident interest income is a base rate of 30%, plus applicable health and education cess and, where relevant, surcharge. An applicable tax treaty may provide relief if the necessary conditions are satisfied.

However, do not assume that every NRO fixed deposit is subject to precisely the same effective rate.

The deduction may depend on:

• The applicable domestic withholding provision.
• The nature of the payment.
• Any applicable surcharge and cess.
• Whether treaty relief is available.
• Whether the required documentation has been provided.

If the deduction looks unusually high, check the rate applied by your bank and the provisions relevant to your circumstances before concluding that the amount is refundable.

4. Your Residential Status Could Change the Answer

For Indian income-tax purposes, residential status is determined under the applicable legal tests. It is not established solely by your passport, citizenship, overseas address or bank account type.

Depending on your circumstances, you may be classified as:

• Resident and ordinarily resident (ROR).
• Resident but not ordinarily resident (RNOR).
• Non-resident (NR).

These classifications can affect how your income is taxed in India.

For example, someone who returns to India after living abroad may need to review their residential status carefully. The result can affect which income is taxable in India.

Before calculating a potential refund, establish your residential status for the relevant financial year.

Start with the NRITAX Tax Residency Calculator to review your position for FY 2025–26. Its result is an initial assessment, not a substitute for a complete review of your circumstances.

5. Does the New Tax Regime Affect Your Refund?

Yes. The applicable tax regime can affect how your taxable income is calculated.

For AY 2026–27, the new tax regime provides a basic exemption threshold of ₹4 lakh for individuals whose income is taxed under the normal slab structure. Tax rates increase as taxable income rises.

However, the rebate commonly associated with the headline of no income tax up to ₹12 lakh is subject to specific eligibility conditions. Non-residents generally cannot claim the Section 87A rebate available to eligible resident individuals.

This distinction matters because NRIs should not assume that tax benefits advertised for resident taxpayers automatically apply to them.

Your actual tax calculation may also depend on the nature of your income. Certain income categories are subject to special provisions rather than ordinary slab rates.

Before filing, check:

• Your residential status.
• The tax regime applicable to your circumstances.
• The nature of your income.
• The applicable tax rates and special provisions.
• Whether a rebate, deduction or treaty relief is legally available.

Do not select a tax regime or claim a rebate solely because it appears beneficial in a general example.

6. How to Check Whether You Have Excess TDS

If you suspect that too much tax has been deducted from your NRO fixed-deposit interest, follow these steps.

Step 1: Gather your bank records

Collect your fixed-deposit interest certificates, relevant bank statements and TDS certificates, including Form 16A where applicable.

Confirm the interest earned during FY 2025–26 and the tax deducted against it.

Step 2: Review Form 26AS and AIS

Check your Form 26AS and Annual Information Statement (AIS) through the Income Tax Department's e-filing portal.

Compare the reported interest and tax credits against your own records. Investigate any discrepancies before filing.

Step 3: Identify all relevant Indian income

Do not calculate your tax using NRO interest alone unless you have established that it is your only relevant income.

Consider other applicable sources, including:

• Rental income from property in India.
• Interest from other Indian accounts or investments.
• Capital gains.
• Salary or professional income, where relevant.
• Other taxable Indian income.

Different income sources may receive different tax treatment.

Step 4: Calculate your tax liability

Determine the applicable provisions for your residential status, income categories and tax regime.

Compare your resulting tax liability with the total tax deducted and paid.

A refund may be available if your eligible tax credits exceed your final liability, subject to the applicable filing and refund rules.

Step 5: File the appropriate return

For AY 2026–27, ITR-2 is generally relevant for individuals who are not eligible to use ITR-1 and do not have income chargeable under the head profits and gains of business or profession.

ITR-3 may be relevant when business or professional income is involved, subject to the applicable form conditions.

Check the official form instructions before selecting a return.

Step 6: Complete e-verification

After filing, complete the prescribed e-verification process.

The Income Tax Department specifies a 30-day timeline for e-verification or submission of ITR-V. Delayed verification can affect the date treated as the filing date under the applicable rules.

Follow the instructions provided by the Department for your return.

7. What Is the Belated ITR Deadline for AY 2026–27?

If you missed the original deadline for filing your return for FY 2025–26, you may still be able to file a belated return.

The Income Tax Department's published guidance gives 31 December 2026 as the usual deadline for filing a belated return for AY 2026–27, or before completion of the assessment, whichever occurs earlier, subject to applicable provisions.

A late-filing fee may apply under Section 234F of the Income-tax Act, 1961:

• ₹1,000 where total income does not exceed ₹5 lakh.
• ₹5,000 in other applicable cases.

Whether a fee applies in your particular situation depends on the applicable filing requirements and circumstances.

Other tax consequences, including interest on unpaid tax, may also need to be considered.

Period Meaning

Financial Year 2025–26 Income earned from 1 April 2025 to 31 March 2026 Assessment Year 2026–27 Assessment year associated with FY 2025–26 Usual belated-return deadline 31 December 2026 for eligible cases, subject to applicable rules

If you believe you are entitled to a refund, start reviewing your documents early. Waiting until the deadline can leave little time to resolve discrepancies or complete filing formalities.

8. What If You Miss the Belated-Return Deadline?

Missing the belated-return deadline can make a refund claim more complicated.

An updated return under Section 139(8A) is not a general substitute for a belated return when your objective is to claim or increase a refund. Updated returns are subject to statutory restrictions and cannot generally be used to increase a refund.

Depending on your circumstances, you may need to explore whether a request for condonation of delay under Section 119(2)(b) is available.

Such relief is not automatic. The applicable conditions, time limits, supporting evidence and decision of the competent authority matter.

If the deadline has passed, obtain case-specific advice before choosing a filing route. Do not assume that a refund claim will automatically be accepted.

9. Can a DTAA Reduce Tax on NRO Interest?

Potentially. India's Double Taxation Avoidance Agreements with other countries may provide relief for certain types of income, subject to the relevant treaty and domestic law.

Whether a treaty provision applies to your NRO interest depends on the specific agreement, your tax residency, the nature of the income and the applicable conditions.

Documentation may be required to establish eligibility. Depending on your circumstances, this may include a Tax Residency Certificate (TRC) and Form 10F.

A treaty does not automatically eliminate Indian tax on all NRO interest. Nor should you assume that a treaty rate will be applied simply because you live overseas.

Before claiming treaty relief:

• Identify your country of tax residence.
• Review the relevant DTAA provision.
• Check the documentation requirements.
• Confirm whether relief is available for your income.
• Reconcile the tax already deducted.

You can begin exploring the issue with the NRITAX DTAA Tax Credit Calculator. Its result is indicative and should not be treated as a final treaty determination.

For further context, read our guide to tax treatment of foreign salary in an Indian NRE account.

10. How Can You Reduce Excess TDS in Future?

If you repeatedly find that the tax deducted from your income exceeds your eventual liability, investigate the cause before the next financial year.

Depending on your circumstances, potential steps may include:

• Checking whether the bank has applied the correct withholding provisions.
• Reviewing whether an applicable DTAA provides relief.
• Providing the bank with the required treaty documentation.
• Investigating whether an application for a lower or nil deduction certificate is available.
• Reviewing your residential status and overall Indian tax position.
• Reconciling TDS records throughout the year.

Eligibility for a lower or nil deduction certificate depends on the applicable statutory procedure and your circumstances. Do not assume that a bank must change its withholding rate simply because you expect your final tax liability to be lower.

Professional review can help identify the correct route.

11. When Should an NRI Speak to a Tax Advisor?

A straightforward case with complete records may be manageable without extensive assistance. Professional advice may be useful when:

• You have significant TDS credits and are unsure how much may be refundable.
• You earn rental income, capital gains or other Indian income.
• Your residential status is uncertain.
• You have recently returned to India.
• You want to claim DTAA benefits.
• Your tax records contain discrepancies.
• You have missed the belated-return deadline.
• You are unsure which ITR form or tax regime applies.

A Tax Advisor can review the information you provide, explain relevant tax considerations and help you understand your filing options.

Book a 30-minute Tax Advisor consultation with NRITAX to discuss your TDS, income and possible next steps.

Confirm the current consultation scope and applicable fee on the NRITAX website before booking.

Frequently Asked Questions

Is NRO fixed-deposit interest taxable for NRIs?

Generally, yes. NRO interest is taxable in India under the applicable rules. The final tax treatment depends on the relevant provisions and your circumstances.

Why has my bank deducted tax at a high rate?

Banks apply applicable withholding rules when deducting TDS. The rate can depend on the nature of the payment, domestic provisions, surcharge and cess, and any eligible treaty relief.

Does paying TDS mean I have paid my final tax?

Not necessarily. TDS is a tax credit. Your final liability depends on your overall taxable income, applicable tax provisions and eligible relief.

Will every NRI receive an NRO TDS refund?

No. A refund depends on whether your eligible tax credits exceed your final tax liability and whether you meet the applicable filing requirements.

Can I file a belated return for AY 2026–27?

The Income Tax Department's published guidance gives 31 December 2026 as the usual belated-return deadline for eligible cases, or the earlier completion of assessment, as applicable. Check your individual filing requirements.

Can a DTAA eliminate tax on all NRO interest?

No. Treaty relief depends on the applicable agreement, your tax residency, the nature of your income and the required conditions and documentation.

Final Takeaway: Don't Let Tax Confusion Haunt You

This Halloween, don't let an unexplained TDS deduction become a lingering financial worry.

If you earn interest on an NRO fixed deposit, the tax shown on your bank statement is an important starting point—but it does not, by itself, establish your final Indian tax liability.

Review your residential status, reconcile your income and tax credits, check the applicable tax provisions, and determine whether you are eligible to claim a refund.

For eligible taxpayers filing for AY 2026–27, the usual belated-return deadline is 31 December 2026, subject to applicable rules and the completion of assessment.

Start by reviewing your records and using the appropriate tools. If your circumstances involve multiple income sources, treaty relief, uncertain residency or a significant refund claim, consider obtaining professional advice before filing.

Understand your tax position before you file.

• Check your residential status with the NRITAX Tax Residency Calculator.
• Explore potential treaty considerations with the DTAA Tax Credit Calculator.
• Speak to a Tax Advisor about your circumstances.

Disclaimer

This article is for general informational purposes only and does not constitute tax, legal or financial advice. Tax treatment depends on individual circumstances and the law applicable to the relevant assessment year. Rates, deadlines, filing eligibility, treaty relief, fees and refund procedures should be checked against current official guidance and applicable law before acting. A refund is not guaranteed. Consult a qualified Tax Advisor for advice specific to your circumstances.

Official references

• Income Tax Department — Individual income tax return guidance
• Income Tax Department — Income Tax Returns FAQs
• Income Tax Department — ITR-V and e-verification FAQs
• Income Tax Department — TDS rates
• Income Tax Department — Section 244A, interest on refunds