Interest earned on an NRO account is taxable in India, and unlike NRE interest, the bank withholds tax at source before you ever see it — meaning your actual credited interest is already net of TDS. The rate the bank applies by default is often noticeably higher than the tax you'd owe once your actual total income and any applicable DTAA relief are factored in, which is why NRO TDS is one of the more common sources of NRI tax refunds.
Why the default rate runs high
Banks generally apply a standard TDS rate under the Income-tax Act on NRO interest, plus applicable surcharge and cess, without knowing your total income, your applicable deductions, or your treaty position — because a bank isn't positioned to make those individualized judgment calls at the point of a routine interest credit. That standard rate is a withholding rate, not necessarily your final tax liability.
Ways to legitimately reduce it
A lower DTAA treaty rate can sometimes apply in place of the domestic default, if you submit the required documentation (typically a Tax Residency Certificate and Form 10F) to your bank before the interest is credited — after the fact, it usually can't be adjusted at source. Separately, if your actual tax liability for the year is lower than the TDS already withheld, the excess is recoverable by filing an Indian income tax return and claiming a refund; it isn't lost, just fronted.
- Submit a Tax Residency Certificate + Form 10F to your bank in advance to potentially unlock a treaty rate
- File an Indian ITR to claim back TDS that exceeds your actual liability
- For a large one-off transaction, a lower/nil TDS certificate can front-load the correction instead of waiting for a refund
Use the TDS-on-NRO-interest calculator on the NRE/NRO & TDS page to see how a given interest amount and rate translate into net proceeds, and compare a default withholding scenario against a certified lower rate.