CA Chirag Chauhan

According to the Ministry of Overseas Indian Affairs, India has the second largest diaspora in the world. The overseas Indian community estimated at over 25 million is spread across every major region in the world.

A Non-resident Indian (NRI) is a citizen of India who holds an Indian passport and has temporarily emigrated to another country for six months or more for employment, residence, education or any other purpose.

person of Indian origin (PIO) is a person of Indian origin or ancestry who was or whose ancestors were born in India or nations with Indian ancestry but is not a citizen of India and is the citizen of another country. A PIO might have been a citizen of India and subsequently taken the citizenship of another country.

Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year According to the act, any Indian citizen who does not meet the criteria as a “resident of India” as per Section 6 of Income tax Act, 1961 is a non-resident of India and is treated as NRI for paying income tax.

In case of an NRI who is earning salaried income abroad, only income accruing in India or received in India or deemed to accrue in India is taxable in India, unlike in the case of a resident, whose worldwide income is taxable in India. Therefore, for an NRI who earns abroad, it is very important to ensure that her salary is not received directly in India so that it is not taxable in India. In a recent decision by Tribunal, NRI who earns abroad and receives salary directly in India bank account can claim to be not being earned in India. This decision will help many NRI who are traveling abroad in different county and have a bank account in India.

The Government of India has permitted NRIs to open rupee accounts in India in order to repatriate funds from their home countries. Many NRIs maintain a Rupee account in India for repatriate overseas earned money back to India or wants to keep Indian based earnings in India. Basically there are two options available with NRI interested in opening bank account in India – NRE or NRO account.

What is NRE Account and NRO Account ?

A Non-Resident External (NRE) account is a bank account that’s opened by depositing foreign currency at the time of opening a bank account. This currency can be tendered in the form of traveler’s cheques or notes.

A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account.

Both NRE and NRO Account can be jointly opened. In case of NRE in name of two or more Non Residence. However in case of NRO it May be held jointly with residents also. Currency in which NRE and NRO account is denominated is Indian Rupees. The Amount Deposited in NRE account is Repatriable whereas amount deposited in NRO account has limits and condition for repatriation like upto USD 1 (one) million per financial year (April-March), for any bonafide purpose after giving undertaking along with a certificate from a chartered accountant.

You can chose NRE account in case you want to maintain Rupee Account or you want a joint account with NRI and want rupees to be freely Repatriable. On other hand if you want to maintain Indian earning in India like rent, income from FDs, dividend, etc, or want to open joint account with resident you may open an NRO account.

Taxation of NRI and TDS applicability of NRO / NRE Account

The interest earned on NRO Account as well as the credit balances in account are taxed under the account holder’s tax bracket in India. The Bank will upfront deduct 30% TDS on interest Income which an NRI can file its return and Claim Refund if he is falling within Basic exemption limit. On the other hand, interest earned on the NRE account is totally exempted from income tax and nor TDS is deducted on it, and the credit balances in the account don’t attract any wealth tax.

Investment in Fix Deposit by NRI – Case Study for NRI in US (United States of America)

An NRI is making Fix Deposit in India by opening an NRE account. Interest rates are very good compared to US and are tax free in India. But is it worth for NRIs in USA? This is because, the interest on NRE FDs are tax free in India but not in USA. Any money earned anywhere in the world is taxable in US if a person is in USA. The only exception is if tax is already paid in that country, NRI can claim credit. Interest Income in USA is not taxable on cash basis. You have to disclose your global income as a part of your tax returns in US, irrespective it is cash or accrual basis.

So what this means is NRE FDs are taxable in USA. And the tax in USA is much higher than that of India. For working NRIs who already have an income in USA, the tax on NRE FD interest will be more than 40%. Instead is it not better to keep these FDs in NRO account and pay 30% TDS?

NRO FDs would deduct TDS @ 30%, but you would have to still pay balance 10% tax in USA (based upon how DTAA works). You can’t avoid USA tax if India has deducted any tax. You have to pay the balance of tax in USA.

Both in case of NRE & NRO you should report your gross Interest in your global tax return in USA. In case of NRE you would not be able to show any tax being deducted and hence would have to pay tax on complete NRE interest in US. For NRO, you could claim the TDS deducted in India against your tax liability on NRO interest For example if your NRO interest was 100 and TDS of Rs. 30 was deducted and net was 70 which was credited in your India account. You should show 100 interest in your US tax statement and lets say if your tax liability is 40 for this 100 interest, then you can claim the 30 deducted in India as tax already paid an pay the balance 10 tax in USA.

To avoid such situation many client would rather not have any resident banking relationship with the respective bank which is holding NRE FDs in India so that they can enjoy tax free interest income. For example invest into NRE FDs with 10 year period, interest being paid out quarterly then got their interest income linked to Equity Mutual Fund SIPs making a capital guarantee and protection vehicle.

Foreign Currency Fluctuations and Inflation Risk

Foreign currency fluctuations are driven by Inflation levels in the countries so one does not necessarily make money by investing in a high inflation country. For Example if Rate of Interest in India is 10% and Inflation is also 10% rupee would be depreciated by 10%. So for an NRI if he wants to again convert his Rupee income to any other currency (for eg US Dollar) he may not earn any income on conversion. At the same time if he is investing in fix deposit in US he will earn 2% to 3% without any currency risk.

The Investment Decision for NRI cannot be a Standard for all. It depends upon mainly the following Factors

Country of Residence

Currency and inflation of Residence country

Currency and inflation in India

Investment in Fix Deposit, Gold, Equity , Real Estate, etc

DTTA with other Country

End use of Investment –Repatriate or not

Filing of income Tax Returns for NRI

NRI has to mandatorily file his Income Tax Return if his total income is more than basic exemption limit i.e. Rs 2,50,000. Any income arising in India like Rent and FD interest are taxable and TDS is liable to be deducted at the time of Receipt.

Most of NRI who has NRO account Fix Deposit a TDS of 30% is deducted from interest income earned on Fixed Deposit. In some cases NRI total Income is less than Basic exemption Limit and they do not file their income tax return. However TDS has been already deducted. Such NRI can file their tax return and Claim Refund from Income Tax Department.

For Example: An NRI of US has Fix deposit in NRO account earning Interest of Rs 200000/- During an Year. The Bank Has Deducted TDS of Rs 60000/- . An NRI can file Income Tax Return in India and Claim Refund.

For any query you can write to [email protected] . Before making any decisions do consult your Professional / tax advisor. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.

Read Other Articles from CA Chirag Chauhan

Republished with Amendments

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  1. Bhawna says:


    My client was NROR till March 2011. He earned an income from sale of shares in March 2011 but he received the proceedings in Indian bank account in May 2011 , Oct 2011 & May 2012 in parts. I hope his income will not be taxable in India. Please suggest.

  2. Ketan Daliya says:

    In case of NRI, what is the rate of tax in case of Capital gain on sale of Eq. Shares (Listed as well as unlisted) and investment in Eq. Shares of Pvt. Ltd. Co. in Foreign Currency

  3. Prem Dodeja says:

    I am NRI,
    My income tax refund failed to credit in NRE bank account
    Then I applied for re issue of refund with NRO bank account
    That also failed…
    Please suggest how to obtain Income Tax Refund…

  4. Gurmit says:

    I am having NRO account and my income is from pension, interest earned from FDs and rent received. I am not clear whether the pension payable to me is also taxable @ 30 percent as in the case interest earned from FDs and rental income. Shall appreciate reply.

  5. Amitava Sengupta says:

    Dear Chirag Chauhan, Is it necessary for a NRI (who files IT returns) to show income from NRE and FCNR(B) term deposits (which are taxfree) ?

  6. Anand says:

    During FY 2014-15 I have been in India till Aug 20 and was paid salary in to my indian bank account.
    On employment purpose I moved abroad and will be here till 30/Sep/2015.
    I have filed my returns for AY 201516 based on the form 16 provided by my company.

    Do I FACE ANY TAX IMPLICATIONS for the current FY after returning to India.

  7. KRN says:

    Dear Chirag Chauhan,

    I know interest income from NRO account is taxable and should be shown on income tax return including NRO bank accounts. No issues.

    My question is though NRE accounts, NRE deposits and FCNR deposits are tax excempt in India. However, we need to show interest income on these during the financial year 2014-15 shown in the EI tab of the ITR form or any other place in ITR form. Please guide me.


  8. Viswanathan says:

    I am a Senior aged 78 years.I hold a foreign citizenship but stay in India.I have no income other than in India interests from FDs and rental from property,the total taxable income being less than Rs three lakhs non taxable (as per the latest for AE 2015-16.
    Can I submit 15-H to the Bank so that no TDS is applied at all sparing me the trouble of applying for refund every year?

  9. SUbhash nair says:

    Hi Chirag,

    My wife is a foreign national holding a PIO and staying in India. She would start working and we would like to know the folowing:

    1. In regards to income from a job or service what are the rules applicable for a Pio.

    2. WHat is the TDS applicable for Pio.

    It would be a great help if you can help me with The same.

    Thanking you in anticipation,


  10. Bala says:

    Hi Chirag,

    Working in an foriegn country. My outside india Duration mixed with two financial year.

    My empolyer also outside India. Shall I send my salary to Indian account (local). Is it taxable.

    If not I have to NRE account and transfer the amount. Is it taxable.

    I am not earning any amount in India.

    If I stay less than 180 days outside India then the transfered amount is taxable.

    Kindly give your answer and Suggetion.


  11. Subham says:

    Hi Chirag,

    I have two questions.

    1) I have a NRO account where I get an income of Rs 87000 yearly. This is my only income in India. So will I have to pay tax on it? Will my income be straightly taxed at 30% (30% of 87000) or only the interest would be taxable (30% on 4% of 87000), 4% being the NRO account interest rate.

    2) Can you deposit cash rupee in a NRO account?

  12. ajay says:

    if we have trf fund to india in NRE a/c and taken fdr at india. no tds has been deducted by bank. pl advise whether this interest amt will be taxable in the hand at india.

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April 2021