Any interest earned in NRO Account is taxable and TDS of 30% flat is deducted by the Bank.
There are few ways by which you can reduce this tax amount.
1) Check for DTAA – If the DTAA between India and country of your residence allows a lower rate of TDS
India has Double Taxation Avoidance Agreement (DTAA) with many countries under which a lower rate of tax is deducted.
For e.g. if you are residing in US or UK, a concessional rate of 15% will de deducted (instead of 30%) provided you complete the documentation formalities. You will need to submit :
- PAN Card Copy
- DTAA Declaration form
- Original or certified true copies of the ‘Tax Residency Certificate’ (TRC) from the income-tax authorities. For tax residents of countries where there is no income tax, a “Self-declaration” shall be submitted by the depositor to the Branch.
- Self attested copy of passport & visa.
See this link on information on getting Tax Residency Certificate in US
2) If your total income is lower than the basic exemption limit of Rs 2 lakh
If your total income in India is less than the basic exemption limit of Rs 2 lakh per financial year, you may apply to the Income Tax Officer in your jurisdiction in India, requesting for a waiver of TDS. If the Tax Officer grants you the waiver, you may submit this to the payers such as your bank and claim TDS exemption.
As granting this waiver depends on the discretion of the Tax Officer, it may or may not come through easily. Then, it is best to file your tax returns and claim a refund of the TDS.
3) File Tax Return and claim Refund of TDS
As Banks deduct TDS at flat rate of 30%, it is most likely that the tax deducted is higher than your actual tax liability. You should calculate the tax as per the income tax slab rates and check if more tax is deducted and whether a Refund should be given.
You can then file the Income tax return online and claim refund of excess tax paid. Normally it takes 4-6 months for refund to be credited to your bank account.
1) You must have PAN to get refund or benefit of DTAA. See my other post on How to Apply for PAN
2) Note that TDS on NRO interest is mandatory as per Section 195. Form 15G / Form 15H for lower / Nil deduction of Tax is applicable for residents only & not for NRIs.
3) Any interest earned in NRE Account is Tax free. So , as far as possible, you should keep money in NRE Account.