NRI FD TDS in 2026: How Section 195's ~31.2% Withholding Works, and How a DTAA Cuts It

By Nitish Bharadwaj · Published Sep 5, 2026 · 6 min

NRO fixed deposit interest falls under Section 195, not the Section 194A threshold residents get — banks deduct TDS starting at roughly 31.2% (30% plus 4% cess, more with surcharge) from the first rupee, with no exemption limit. A Double Taxation Avoidance Agreement can lower this to 10-15% depending on the NRI's country of residence, but only after submitting PAN, a Tax Residency Certificate, and Form 10F to the bank. This guide covers the exact rates, the paperwork needed, and how to claim over-deducted TDS back via ITR.

If you're an NRI with a fixed deposit in India, the TDS on your interest almost certainly isn't computed the way it is for a resident depositor. Resident FD interest is taxed under Section 194A, with no TDS at all until interest crosses ₹40,000 a year (₹50,000 for senior citizens). NRO FD interest for a non-resident falls under an entirely different provision — Section 195 — which has no threshold whatsoever: TDS applies from the very first rupee of interest, at a rate that starts north of 30%. Here's how the two provisions differ, what determines your exact TDS rate, and how a Double Taxation Avoidance Agreement (DTAA) can bring that number down substantially, provided you submit the right paperwork before your bank credits the interest.

Why NRO FD Interest Falls Under Section 195, Not 194A

Section 194A — the provision covering a resident Indian's bank FD — exempts the first ₹40,000 of annual interest from TDS (₹50,000 for senior citizens), and applies a flat 10% (or 20% without PAN) beyond that. Section 195 governs any payment made to a non-resident, and it carries no exemption threshold built in: the moment your NRO FD credits any interest, TDS applies to that full amount, not just the portion above a limit. This is the single biggest practical difference NRIs miss — assuming their FD interest works the same way a resident's does, then being surprised at how much lower the credited amount is than the stated rate implies. This only affects an NRO account; NRE and FCNR deposit interest is fully exempt from Indian tax under Sections 10(4) and 10(15), so Section 195 has nothing to withhold there in the first place — see our NRE vs NRO FD guide if you haven't yet decided which account to open, or our FCNR deposit guide for the third option.

The Default Rate: Around 31.2%, Before Any DTAA Relief

Without treaty relief, banks deduct TDS on NRO FD interest at 30% plus a 4% health and education cess — an effective 31.2% — and add a surcharge on top once your total income crosses the relevant threshold, which can push the effective rate as high as roughly 35.88% at the steepest surcharge slab. Most individual NRO depositors don't cross into the higher surcharge bands purely on FD interest, so 31.2% is the number to expect by default. Compare that to a resident's flat 10% under Section 194A, and it's clear why NRIs who don't act on it end up with a meaningfully larger chunk of their interest withheld at source than a resident depositor would see on an identical FD.

Claiming the Lower DTAA Rate: PAN, TRC, and Form 10F

A DTAA rate isn't applied automatically — you have to submit three documents to your bank, ideally before the FD's interest is credited for the year rather than after: your PAN, a Tax Residency Certificate (TRC) issued by your country of residence's tax authority (typically valid for a single financial year, so it needs renewing annually), and Form 10F, a self-declaration covering details the TRC doesn't already capture. Missing PAN entirely triggers Section 206AA, which overrides any treaty benefit and forces TDS at whichever is highest among the treaty rate, the domestic rate, or 20% — meaning skipping PAN can cost more than just losing the DTAA benefit. Submit the paperwork at the start of the financial year or when opening the FD; banks generally don't retroactively adjust TDS already deducted in past quarters once the year has moved on, so waiting until tax-filing season to sort this out means living with the higher deduction for that year regardless.

Getting Over-Deducted TDS Back Through Your ITR

If your bank deducted TDS at the standard ~31.2% because you hadn't submitted DTAA paperwork in time — or even at the correct treaty rate while your actual liability works out lower still — the fix is filing an Indian income tax return. Most NRIs with only FD interest and no business income file ITR-2, reporting the interest as income from other sources and computing tax at the rate they're actually entitled to under the treaty. The TDS already deducted shows up in Form 26AS and the Annual Information Statement (AIS); claim it as a credit against your computed liability, and the excess comes back as a refund. Our Form 26AS vs AIS reconciliation guide covers how to match these TDS entries line by line before you file, since a mismatch there is one of the most common reasons an NRI's refund gets delayed or queried.

The core mistake to avoid is treating NRO FD interest like a resident's FD — checking the credited amount only at tax season and assuming the standard 10% withholding residents see. Section 195 withholds far more by default, but between a properly submitted DTAA claim and a straightforward ITR-2 filing to recover any remaining excess, an NRI depositor can usually bring their effective tax on NRO FD interest close to what the treaty actually allows — largely a matter of submitting the right forms at the right time rather than accepting the default rate as final.