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What Is The TDS Applicable On NRO Fixed Deposits?
Fixed deposits by Non Residents Indians (NRIs) is rather popular. There are various types of fixed deposits, including the popular NRE Deposits, FCNR (B) deposits and the NRO Deposits.
For that you will have to make an application and comply with the requisite procedures.
Why NRE Fixed Deposits Are Better Than NRO Fixed Deposits?
NRE fixed deposits are far better than NRO fixed deposits, because there is no TDS. Not only is there no TDS, but, the entire interest income is exempt from tax. Read difference between NRE and NRO Account
In case of NRO deposits, the interest is not exempted from tax. Also, it is easier to repatriate money from a NRE account, rather than an NRO account.
The question is why do NRIs than open a NRO Fixed Deposit and not NRE? The answer is simple: you can make a NRE fixed deposit only with remittance sent from abroad or from another NRE Account. On the other hand NRO Accounts would include all credit from within India.
Let's take an example for easy understanding. If you are a NRI, who has a rental income of say Rs 4 lakhs in India, there is no way you are able to deposit the amount in a NRE account, unless your tenant has agreed to make payment from his NRE account. That is not possible.
So, you are going to have rental income from India. You may have several other sources of income in India, which you have to place in a NRO Account. You cannot use domestic savings account for the purpose. As an NRI you are not allowed to maintain a domestic savings account.
So, you would have balances in your NRO account, which you would place a NRO FD, which would than attract a TDS of 30.9 per cent.
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