Taxability of Interest on NRE and NRO Account

Taxability of Interest

1. NRE Accounts:
o Neither the balance nor the interest earned on NRE accounts is taxable in India.
o Both the principal amount and interest are fully repatriable without restrictions.
2. NRO Accounts:
o Interest earned is taxable at a base rate of 30%, with additional surcharges and cess based on the total interest earned:
 Interest up to ₹50 lakhs: TDS at 31.2% (30% tax + 4% cess).
 Interest between ₹50 lakhs and ₹1 crore: TDS at 34.32% (30% tax + 10% surcharge + 4% cess).
 Interest above ₹1 crore: TDS at 35.88% (30% tax + 15% surcharge + 4% cess).
o Repatriation of the principal amount is limited to USD 1 million per financial year, subject to applicable taxes and documentation. Interest
amounts can be freely repatriated after tax deductions.

Tax Treatment Overview

• NRE Accounts:
o Tax-free (no income tax, wealth tax, or gift tax) in India.
o Full repatriation allowed for both principal and interest.
• NRO Accounts:
o Subject to Indian income tax, wealth tax, and gift tax.
o TDS applies as per applicable rates and surcharges.

Key Considerations

1. Documentation for Transfers: Transferring funds from an NRO to an NRE account requires compliance with tax regulations. This includes obtaining:
o Chartered Accountant’s Certificate (Form 15CB).
o Submission of Form 15CA to the Income Tax Department.

2. Financial Planning: Consult with financial advisors or tax professionals to stay updated on regulations and optimize your financial decisions.