TDS on Interest Paid to an NRI

TDS on interest to an NRI varies by instrument — NRO deposits generally attract 30%, while external commercial borrowings and specified bonds carry concessional rates as low as 4-9%.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

30% (NRO deposits) or 4-9% (specified ECBs/bonds)

Section & code

Section 393(2), Sl. No. 17, Code 1057

Forms typically needed:

Form 15CA Form 15CB if above threshold

Cross-Border TDS Decision Helper

Nature of payment

Payee has valid PAN?

TRC + Form 41 furnished?

Indicative Act rate

20%

Domestic Act rate under Section 393(2) for royalty/FTS to a non-resident non-company — doubled from 10% by Finance Act 2023 (effective 1 April 2023), unchanged since. Classify carefully: royalty and FTS have different treaty definitions.

Without a TRC and Form 41, the treaty rate can't be applied — the Act rate above governs until documentation is furnished.

This is a decision aid, not a filing determination — always confirm classification and the exact treaty article with a professional before remitting.

Not all interest to an NRI is taxed the same way

Interest paid to a non-resident spans a wide range of instruments — NRO (Non-Resident Ordinary) savings/fixed deposit interest, interest on external commercial borrowings (ECBs) from a foreign lender, interest on specified government or corporate bonds, and interest on loans from NRIs to Indian businesses. Each of these can carry a different rate, since the domestic Act provides dedicated concessional provisions for several categories rather than applying one flat non-resident interest rate across the board.

NRO deposit interest: the most common retail scenario

Interest on an NRI's NRO account (as opposed to NRE accounts, where interest is generally tax-exempt for the NRI since the deposit is in foreign-sourced funds converted to rupees under specific conditions) is fully taxable in India, and banks deduct TDS at 30% (plus applicable surcharge and cess) by default, since NRO interest doesn't benefit from any of the specific concessional provisions available to ECBs or specified bonds. A DTAA may reduce this if the NRI furnishes TRC and Form 10F, and the specific treaty's interest article caps the rate below 30%.

Concessional rates for external commercial borrowings and bonds

Interest paid by an Indian business to a foreign lender under specified external commercial borrowing arrangements, or interest on specified infrastructure bonds, rupee-denominated (Masala) bonds, and similar instruments, is eligible for a concessional rate — commonly cited in the 4-9% range depending on the specific instrument and the borrowing's compliance with conditions set by the relevant provision. This is a meaningfully lower rate than the 30% NRO default, reflecting a policy intent to encourage foreign capital inflows into specified debt instruments.

Businesses structuring foreign borrowing should specifically confirm the loan/bond qualifies for the concessional category (registration, tenure, and end-use conditions typically apply) rather than assuming any foreign-currency loan automatically gets the lower rate — a loan that doesn't meet the specified conditions falls back to the general non-resident interest treatment.

NRI-to-Indian-business loans need careful classification

Where an NRI individual (rather than a foreign bank or bondholder) lends money directly to an Indian business, the interest is generally taxed under the standard non-resident interest framework rather than the ECB concessional provisions (which are typically aimed at specific registered borrowing categories), unless the loan specifically qualifies under one of those provisions — check the loan's structure and registration status, not just the fact that the lender happens to be an NRI.

Worked example

NRO fixed deposit interest of ₹4 lakh for the year

An NRI holds an NRO fixed deposit earning ₹4,00,000 interest for the year. The bank deducts TDS at 30% (₹1,20,000) plus applicable surcharge and cess, since NRO interest doesn't qualify for any concessional provision. If the NRI is resident in a treaty country with an interest article capping the rate below 30% and furnishes TRC and Form 10F to the bank, the bank may apply the lower treaty rate instead — many NRIs don't realize this option exists and simply accept the 30% default deduction.

Common mistakes & litigation traps

Assuming all NRI interest gets the low ECB-style concessional rate

The concessional 4-9% range applies to specific registered borrowing categories, not to ordinary NRO deposit interest or informal NRI-to-business loans that don't meet the specified conditions.

NRIs not claiming available DTAA relief on NRO interest

Many NRIs simply accept the default 30% bank deduction without furnishing TRC/Form 10F, missing out on a potentially lower treaty rate they were entitled to.

Treating NRE account interest and NRO account interest identically

NRE interest is generally exempt for the NRI under specified conditions, while NRO interest is fully taxable — conflating the two leads to incorrect TDS treatment.