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NRE and NRO interest when you are an Australian tax resident

You have been told your NRE interest is tax-free, but that is only true in India, not on your Australian return.

You keep money in Indian NRE and NRO accounts, and you have heard, correctly, that NRE interest is tax-free. The catch nobody mentions is that this is an Indian rule, and you are a tax resident of Australia, which taxes your worldwide income. So the interest India chooses not to tax is still fully taxable in Australia, and because India took nothing, there is no India tax to offset against the Australian bill. This is one of the most common and expensive misunderstandings for Indians in Australia, and it is worth getting straight.
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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

NRE interest is exempt in India under Section 10(4) while you are a non-resident, so India charges nothing and deducts no TDS. But that exemption is Indian only. As an Australian resident taxed on worldwide income, you must include the NRE interest in full on your Australian return, and because no India tax was paid, there is no foreign income tax offset to reduce the Australian tax, so you bear the full Australian tax on it. NRO interest, by contrast, is taxable in India with TDS under Section 195, which the treaty caps at 15% if you lodge a tax residency certificate and Form 10F, and Australia taxes it too but gives you an offset for that 15%.

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Full guide: How much TDS is deducted on an NRO account, and how to lower it

Related situations

Why tax-free NRE is only half the story

In India, interest on an NRE account is exempt under Section 10(4), for as long as you hold the status of a person resident outside India. India charges no tax and the bank deducts no TDS, which is where the tax-free reputation comes from. That reputation is accurate, but only inside India.

Australia taxes its residents on their worldwide income, and it does not recognise India's NRE exemption. So the NRE interest is ordinary assessable income on your Australian return, taxed at your Australian rates in full. And here is the sting: the foreign income tax offset only credits foreign tax you actually paid, and on NRE interest India took nothing, so there is no offset at all. The result is that tax-free NRE interest is taxed in full in Australia, with nothing to soften it. Many people carry large NRE balances assuming the interest is genuinely tax-free and are caught out when their Australian accountant adds it in.

NRO interest works differently

NRO interest is taxable in India. The bank deducts TDS under Section 195 at 30% plus surcharge and cess, but the India-Australia treaty caps the tax on interest at 15%, and you get that lower rate by lodging a tax residency certificate and Form 10F with the bank before the interest is paid. If you do not, the bank deducts the full 30% and you are left recovering the difference.

On the Australian side, the NRO interest is assessable too, but because India did tax it, you get a foreign income tax offset for the India tax. The important detail is that the offset is limited to the tax correctly payable under the treaty, that is 15%. So if the bank over-deducted at 30% because you had not lodged Form 10F, Australia will still only credit 15%, and the extra 15% has to be reclaimed from India by filing an Indian return, not from the Australian tax office. Lodging the Form 10F up front is what keeps the two sides aligned.

What's involved

What the CA actually does

  1. 1

    We flag the NRE reality

    We make sure your NRE interest is reported on the Australian side, since it is tax-free only in India, so it is not missed and later penalised.

  2. 2

    We cap the NRO TDS at the treaty rate

    We lodge your tax residency certificate and Form 10F so the bank deducts 15% on NRO interest, not 30%, keeping it in line with the Australian offset.

  3. 3

    We recover any over-deduction

    Where the bank already took 30%, we file the Indian return to reclaim the excess above 15%, since Australia will not credit it.

  4. 4

    We supply the offset figures

    We give your Australian accountant the India-tax-paid detail on the NRO interest so the offset is claimed correctly.

What to have ready

Documents you'll typically need

  • Your NRE and NRO interest for the year
  • Any TDS the bank deducted on NRO interest
  • Your tax residency certificate and Form 10F, if lodged
  • Your PAN and Australian tax details

References on this page

  • NRE interest is exempt in India (Section 10(4)) only while you are a non-resident; India deducts no TDS
  • Australia taxes worldwide income, so NRE interest is fully assessable there, with no offset because no India tax was paid
  • NRO interest is taxable in India, TDS under Section 195 capped at 15% by the treaty with a TRC and Form 10F
  • Australia taxes the NRO interest too and gives a foreign income tax offset for the 15% India tax

Frequently asked questions

Common questions

Yes. NRE interest is exempt in India, but that is an Indian rule. As an Australian resident taxed on worldwide income, you include it in full on your Australian return, and because India took no tax, there is no offset, so you pay the full Australian tax on it.

It is tax-free in India, not in Australia. The India exemption has no effect on your Australian tax, and unlike taxed income it brings no foreign income tax offset, so for an Australian resident it is fully taxed.

It is taxable in India, with TDS under Section 195 that the treaty caps at 15% if you lodge a tax residency certificate and Form 10F. Australia taxes it too but gives an offset for the 15%, so the double tax is mostly relieved.

Only up to the treaty rate of 15%. The extra 15% has to be reclaimed from India by filing an Indian return, not credited by Australia. Lodging Form 10F up front avoids the over-deduction in the first place.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

NRO account: what it costs and what it caps

Right now: Interest taxed at 30% plus surcharge and cess; repatriation capped at USD 1 million a financial year

Where it works differently

A TRC and Form 10F (Form 41 from 1 Apr 2026) are furnished
The treaty rate applies to the interest, commonly 10-15% under Article 11 instead of 30% plus surcharge.
s.90(2). This is the single largest recurring recovery item for most NRIs.
Remitting out
Form 15CA is needed, plus Form 15CB from a CA where the remittance is chargeable and above Rs 5 lakh in the year.
Rule 37BB.
Joint holders
The USD 1 million ceiling is per person per financial year, so joint holders each have their own.
FEMA 13(R).

Commonly got wrong

  • NRO interest is taxed at 30%. Incomplete. Surcharge and 4% cess sit on top, and a treaty can cut it to 10-15%.30% plus surcharge and cess by default, but 10-15% under most treaties if you hold a TRC and file Form 10F.

Related

If this matched your situation, these go further

Indian rental income when you are an Australian tax residentHolding Indian mutual funds as an Australian tax residentProving the tax you paid in India, to claim a foreign tax credit abroadNRI ITR filing (we file for you)DTAA TDS recoveryRepatriation unblock (15CA / 15CB)Form 10F generator15CA / 15CB filing

NRE and NRO interest on your Australian return?

Tell us your balances and the TDS. A practising CA will cap the NRO tax and get the reporting right on a free call, no obligation.

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