How to Avoid TDS on NRO Account?

Wondering how to avoid TDS on NRO account? Avoiding TDS (Tax Deducted at Source) on an NRO (Non-Resident Ordinary) account in India requires careful planning and understanding of applicable tax laws. Read on to get the strategies to minimize or avoid TDS on an NRO account:

How to Avoid Tax on NRO Account?

• Submit Form 15G/15H: NRIs can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens aged 60 years and above) to the bank if their total taxable income is below the basic exemption limit (currently ₹2.5 lakh for individuals below 60 years). This declaration prevents the bank from deducting TDS on interest income.

• Tax Residency Certificate (TRC): NRIs residing in countries with which India has a Double Taxation Avoidance Agreement (DTAA) can obtain a Tax Residency Certificate (TRC) from their country of residence. By submitting the TRC to the bank, they can avail lower TDS rates as per the DTAA provisions.

• Interest Income Calculation: Ensure that the interest income accrued in the NRO account is calculated correctly. Only interest income is subject to TDS, not the principal amount deposited.

• Invest in Tax-Free Bonds: Invest in tax-free bonds issued by government entities or infrastructure bonds that are exempt from TDS. Ensure these investments comply with RBI guidelines for NRIs.

• Opt for Non-Interest Bearing Accounts: Consider opening a non-interest bearing NRO account if interest income is not a priority. This avoids TDS on interest income altogether.

• Optimize Investments: Invest in NRO fixed deposits or other financial instruments that offer lower interest rates to minimize the impact of TDS.

Even if TDS is avoided, NRIs must disclose all income earned in India, including interest income from NRO accounts, while filing ITR in India.

By employing these strategies, NRIs can effectively minimize or avoid TDS on their NRO accounts in India while ensuring compliance with tax regulations. It’s advisable to consult with a tax advisor or financial consultant to optimize tax planning and manage NRO account investments effectively.

This is all about how to avoid TDS on NRO account.

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Wondering

how to avoid TDS on NRO fixed deposits? Let me answer you

. If you have an NRO (Non-Resident Ordinary) account, TDS is applicable on the interest income earned on the funds in that account. 

To avoid TDS on your NRO account, you can consider the following options:

• If your total income is below the taxable limit, you can submit Form 15G (for individuals under 60 years) or Form 15H (for senior citizens) to the bank. It ensures that TDS will not be deducted from the interest income.

• You can apply to the Income Tax Department for a Lower TDS Certificate (Form 13). If your total income is lower than the rate at which TDS is being deducted from your NRO account.

• India has Double Taxation Avoidance Agreements (DTAA) with several countries. You can claim benefits under the agreement. It includes a reduced rate of TDS or exemption from TDS on NRO account interest income.

• Consider transferring funds from your NRO account to an NRE (Non-Resident External) account. It is tax-free in India, and there is no TDS applicable on it.

• If you open a joint NRO account with a resident Indian, it can be clubbed with the resident Indian’s income. It lowers the overall tax liability.

• Consider investing in assets that are not subject to TDS, such as mutual funds or stocks.

This is

how to avoid tax on NRO account.

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My brother resides in the United States of America. Being an NRI, he was operating an NRO account in India. He expressed his concern about the high TDS rates. Hence, he enquired, “How to avoid TDS on NRO account?” 

Hence, he consulted a tax consultant who informed him that the deduction of TDS from the interest earned on the NRO account cannot be avoided.

The principal and interest earned in an NRO account are both fully taxable in India under the present income tax legislation, subject to tax deduction at source (TDS).

However, if you are a citizen of one of the nations with which India has a Double Taxation Avoidance Agreement (DTAA), the tax will be withheld in accordance with the terms of that DTAA.

The TDS rate applicable under the DTAA facility is typically between 10% and 15% depending on the nation of residence and the time of the current agreement.

You must submit a self-declaration in accordance with the bank format and the tax residency certificate of your resident country in order to use the facility.

All interest earned or paid on savings or fixed deposits in an NRO account will be subject to a flat TDS rate of 30%, a surcharge, and a 4% health and education cess. Interestingly, as interest income rises, the appropriate surcharge also increases.

It is impossible to avoid deducting TDS on interest payments made to NRO accounts.

However, 

• Under Section 80TTA of the Income Tax Act of 1961, NRIs are qualified to get a tax deduction on interest income earned on a savings account up to Rs 10,000 in a given fiscal year.

• This means that if the total interest income you get from one or more NRO savings accounts during a financial year is less than Rs 10,000, you are eligible for an income tax refund. It should be noted that the deduction only applies to the interest on NRO savings accounts; it does not apply to NRO fixed deposits.

I hope this answer suffices for your query about “How to avoid TDS on NRO account?” Even though you must pay TDS on NRO accounts, there are some tax deductions you may take advantage of when filing your income tax returns to help you pay less in taxes overall.

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