TDS on NRO Fixed Deposits: Form 16A, DTAA, and Getting Your Refund

An NRI doctor in the UK has Rs 50 lakhs in a three-year NRO fixed deposit at 7%. Her bank deducts TDS at 31.2% every quarter, amounting to roughly Rs 10,920 per quarter on Rs 3.5 lakh of annual interest. She has not submitted her Tax Residency Certificate. Under the India-UK tax treaty, the applicable rate is 15%. She has been overpaying by Rs 5,670 per quarter, and Rs 22,680 per year. Over three years, that is Rs 68,040 she is entitled to claim back but has not.

This is not unusual. The TDS mechanics on NRO fixed deposits are poorly understood by most NRI account holders and, frankly, by some bank branch staff too. Here is how the system works and how to use it correctly.

The 30-second answer: TDS on NRO FD interest is deducted at 31.2% (standard rate) unless you submit a Tax Residency Certificate and Form 10F to your bank, in which case the applicable DTAA rate applies. Common DTAA rates: UK 15%, USA 15%, UAE nil (no personal income tax treaty benefit requires careful reading), Singapore 15%. The bank must issue Form 16A quarterly. Download it from TRACES using your PAN. Reconcile with Form 26AS before filing your ITR. If more TDS was deducted than your tax liability, file an ITR and claim the refund. For very large NRO FDs, apply for a Section 197 nil certificate to stop overpayment at source.

The frustrating thing about NRO FD TDS is that overpayment is the default. You have to actively opt out of paying too much. This guide tells you how.

Standard TDS Rate on NRO FD Interest

Under Section 195 of the Income Tax Act, interest earned by a non-resident on an NRO account (including fixed deposits) is subject to TDS at the rate of 30% plus applicable surcharge and health and education cess of 4%.

For most NRIs whose total Indian income does not exceed Rs 50 lakhs, the effective rate is:

30% + 4% cess = 31.2%

This is not a flat rate on the FD balance. It is a rate on the interest earned, deducted by the bank at source before crediting interest to your account.

Banks typically deduct TDS quarterly, at the time interest is credited. The deducted amount is deposited with the Income Tax department under your PAN within the prescribed timeline.

A concrete illustration:

An NRO FD of Rs 1,00,000 at 7% per annum earns Rs 7,000 in interest per year, or Rs 1,750 per quarter.

• TDS at 31.2% per quarter: Rs 546
• Net interest credited per quarter: Rs 1,204
• Annual TDS deducted: Rs 2,184

Now contrast with a 15% DTAA rate:

• TDS at 15% per quarter: Rs 263
• Net interest credited per quarter: Rs 1,487
• Annual TDS at DTAA rate: Rs 1,050
• Annual saving from DTAA claim: Rs 1,134 per Rs 1 lakh FD

Scale this to a Rs 50 lakh NRO FD and the difference is Rs 56,700 per year in TDS. The effort required to submit a TRC and Form 10F is a few hours. The return is substantial.

DTAA Rates by Country

India has bilateral Double Taxation Avoidance Agreements with most countries where NRIs are concentrated. The treaty reduces the maximum TDS rate on interest income.

Country of Residence	DTAA Rate on Interest
USA	15%
UK	15%
Canada	15%
Australia	15%
Singapore	15%
UAE	12.5% (Article 11, India-UAE DTAA)
Germany	10%
Netherlands	10%

Note on UAE: The UAE does not levy personal income tax, so there is no Tax Residency Certificate in the conventional sense. The Federal Tax Authority in the UAE does issue Tax Residency Certificates for individuals. Many UAE-based NRIs are unaware of this and continue to pay TDS at 31.2% when they could be paying 12.5%. UAE TRCs can be obtained through the UAE Ministry of Finance online portal.

Always read the specific article on interest in the relevant treaty, as the rate varies and some treaties have different rates for different types of interest.

How to Submit Form 10F and TRC to Your Bank

Step 1: Obtain a Tax Residency Certificate (TRC) from your country of residence. This is issued by the tax authority (IRS in the USA, HMRC in the UK, CRA in Canada, etc.). It confirms that you are a tax resident of that country. In the USA, this is Form 6166. In the UK, it is a Certificate of Residence issued by HMRC. The process and timeline vary by country. Allow 4-8 weeks.

Step 2: Complete Form 10F. This is a simple self-declaration form available on the Income Tax India portal. It requires your name, address, country of residence, Tax Identification Number in the residence country, and the period covered. As of AY 2023-24 and onwards, Form 10F must be filed online on the Income Tax portal if you have a PAN. NRIs without a PAN may still submit the physical form to the bank.

Step 3: Submit to your bank. Send the TRC and Form 10F to your bank's NRI banking or TDS operations team. Email submission is typically accepted; some banks require physical submission for the first time and accept scanned copies for renewals.

Step 4: Renew annually. Banks require a current-year TRC for each financial year. Submit fresh documents before April 1 each year to ensure the correct DTAA rate is applied from the start of the financial year.

Form 16A: What It Is and How to Get It

Form 16A is the TDS certificate for income other than salary, issued by the deductor (your bank) to the deductee (you). It is your evidence that TDS was deducted and deposited with the government under your PAN.

Banks are required to issue Form 16A quarterly, within 15 days of the end of each quarter. The quarters are:

• Q1: April to June (Form 16A due by August 15)
• Q2: July to September (Form 16A due by November 15)
• Q3: October to December (Form 16A due by February 15)
• Q4: January to March (Form 16A due by June 15)

How to download Form 16A from TRACES:

1. Go to traces.gov.in and log in with your PAN and date of birth.
2. Navigate to Downloads > Form 16A.
3. Select the relevant financial year and quarter.
4. Select the deductor (your bank's TAN number).
5. Download the PDF.

You can do this from anywhere in the world. You do not need to be in India. If you have multiple NRO FDs across different banks, each bank will have its own TAN and you must download Form 16A separately from each.

If Form 16A is not showing on TRACES: the bank may not have filed its TDS return for that quarter yet, or may have filed it with an error. Contact your bank's TDS department and quote your PAN. They are legally required to correct TDS filing errors.

Reconciling Form 26AS Before Filing Your ITR

Form 26AS is your consolidated tax credit statement on the Income Tax portal. It shows all TDS deducted against your PAN from all sources: banks, clients, buyers of property, etc.

Before filing your ITR, verify that the TDS amounts in your Form 26AS match:

1. The amounts in your Form 16A from each bank
2. The interest credited to your NRO FD account (check your passbook or bank statement)

Common discrepancy: your bank credited interest at the DTAA rate because you submitted a TRC, but filed its TDS return with an error and the Form 26AS shows a different amount. Or the bank filed using your old PAN linked to a wrong address and the credit does not show up on TRACES.

Any discrepancy between Form 16A and Form 26AS must be resolved before filing. Contact the bank's TDS department. If needed, escalate to the bank's compliance team with the specific TDS challan details.

The ITR Refund Process for Excess TDS

If the TDS deducted on your NRO FD interest exceeds your total Indian tax liability after all deductions, you are entitled to a refund. The refund process is:

1. File your ITR (typically ITR-2 for NRIs with FD income and no business income) on the Income Tax portal before the due date (July 31 for non-auditable assessees).
2. Claim all TDS credits shown in Form 26AS.
3. If your tax liability is lower than TDS paid, the excess is a refund.
4. The refund is issued to your Indian bank account linked to your PAN. It should be your NRO account (refunds cannot be directly credited to NRE accounts as they are a tax-related payment).

Refunds for NRIs are typically processed within 2-4 months of filing if the return is selected for processing and there are no discrepancies. The refund is paid with simple interest at 6% per annum from April 1 of the assessment year if it is delayed beyond 3 months.

A full worked example:

Priya, resident in the UK, has a Rs 20 lakh NRO FD at 7%. Annual interest: Rs 1,40,000.

Without DTAA:

• TDS at 31.2%: Rs 43,680
• Priya's actual Indian tax liability (after basic deductions, assuming no other Indian income): approximately Rs 18,000 at slab rates
• Refund due: Rs 25,680

With DTAA (15% rate after submitting TRC and Form 10F):

• TDS at 15%: Rs 21,000
• Tax liability: Rs 18,000
• Refund due: Rs 3,000

The DTAA approach saves Priya Rs 22,680 in upfront TDS and leaves a small refund to claim. Both approaches result in the same total tax paid, but the DTAA approach avoids locking up Rs 22,680 with the government for 6-12 months.

Section 197: Nil TDS Certificate

If your NRO FD interest income results in nil Indian tax liability (perhaps because you have carry-forward losses, large deductions, or a DTAA that reduces your rate to nil), you can apply for a lower TDS or nil TDS certificate under Section 197 from the Income Tax department.

The application is filed online through the Income Tax portal under the taxpayer's login. The Assessing Officer reviews it and, if satisfied, issues a certificate specifying the rate at which TDS should be deducted. You present this certificate to your bank.

Section 197 is most useful when:

• Your total Indian income is below the taxable threshold
• A DTAA brings your effective tax rate to nil (as in some treaty interpretations for UAE residents)
• You have significant losses or deductions that reduce your liability to nil

The certificate is valid for the financial year specified. Apply early in the year, ideally in April, so the bank can apply it from the start of the year.

The Closing Read

Most NRIs with NRO fixed deposits overpay TDS because the default rate is 31.2% and claiming the DTAA reduction requires submitting paperwork the bank does not proactively ask for. Submit your TRC and Form 10F before the financial year begins, download Form 16A from TRACES quarterly, reconcile with Form 26AS, and file your ITR to claim any refund. For large NRO FD balances, the annual saving from correct DTAA treatment is substantial. The Section 197 nil certificate is worth pursuing if your overall Indian tax liability is genuinely nil. Do not leave money with the government that is rightfully yours.

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Related guides:

• DTAA and reducing TDS on NRO income
• TDS for NRIs and how to claim refunds
• Tax on NRO interest income
• NRE vs NRO vs FCNR accounts: which one do you need
• NRO repatriation process
• NRI fixed deposit laddering strategy
• NRE vs FCNR for savings: which earns more
• NRI savings vs fixed deposit: where to park funds
• PAN card for NRIs
• FATCA and CRS self-certification for NRI bank accounts
• NRI account KYC reverification

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Tax rates and DTAA provisions cited reflect the law as currently in force. DTAA rates should be verified against the specific treaty applicable to your country of residence. This guide does not constitute tax advice. Engage a qualified CA for personalised tax planning.