NRO tax rules 2026 leave the actual amount NRIs pay unchanged: interest is still withheld at 30 percent plus a 4 percent cess, an effective 31.2 percent for most depositors. What has genuinely moved, since 1 April 2026, is the law that authorises that deduction, Section 393(2) of the Income-tax Act, 2025, not the Section 195 that appears in almost every NRI banking guide written before this year.
The Income-tax Act, 2025 came into force on 1 April 2026, replacing the six-decade-old Income-tax Act, 1961, according to the Income Tax Department’s own press release confirming the changeover. The new Act keeps existing tax policy intact while restructuring how it is organised, and one of the sections that moved is the one NRO, NRE and FCNR account holders actually deal with every time a bank deducts tax before crediting interest.
Section 393 now sets out the framework for TDS on payments other than salary, and its second sub-section, 393(2), is where the old Section 195 rule on payments to non-residents now sits, confirmed to take effect from the same 1 April 2026 date as the wider Act.
None of this changes what actually gets deducted. NRO interest, whether from a savings account or a fixed deposit, is still withheld at a base rate of 30 percent, plus a 4 percent health and education cess, for a standard effective rate of 31.2 percent on interest income up to 50 lakh rupees in a year.
Above that threshold, a surcharge applies on a rising scale, and the effective rate climbs from roughly 34.3 percent to as high as 42.7 percent for the largest interest earners, before cess is added. What has changed is the paperwork trail behind that number. A tax computation, a bank’s TDS certificate or an accountant’s letter that still cites “Section 195” is not wrong about the amount, but it is citing a provision that no longer exists in its old form for any deduction made from 1 April 2026 onward.
What actually changed under the Income-tax Act, 2025 for NRI account holders?
The rate NRIs pay has not moved. What moved is the numbering. Section 195 of the 1961 Act, which authorised tax deduction on payments to non-residents including NRO interest, rent and most other India-sourced income, is now Section 393(2) of the Income-tax Act, 2025.Separately, the forms used to certify and declare outward remittances from an NRO account, previously Form 15CA and Form 15CB, have been renamed Form 145 and Form 146 for any remittance made on or after 1 April 2026, while 15CA and 15CB remain valid only for remittances completed before 31 March 2026. Both changes are administrative, not a tax increase, but they matter the moment a bank, auditor or new accountant cites the old numbers on paperwork dated after the changeover.
The renumbering does not touch the underlying difference between the three account types, which remains the actual decision NRIs have to make. An NRE account holds foreign earnings, is maintained in rupees, pays interest that is fully tax-free in India, and allows unrestricted repatriation of both principal and interest. An NRO account is built for India-sourced money, rent, dividends, a pension, proceeds from selling property, and its interest is fully taxable at the 31.2 percent default rate described above, with repatriation capped at 1 million US dollars in a financial year against the correct certification.
An FCNR account sits apart from both, held in a foreign currency rather than rupees, which removes exchange-rate risk on the deposit itself, and its interest is also tax-free in India in the same way NRE interest is. The question worth asking is not which account is technically superior but which one matches where the money actually came from, since NRE and FCNR are both closed to India-sourced income regardless of how attractive their tax treatment looks next to an NRO account.
How NRIs abroad can legally cut the 31.2 percent NRO tax rate
The 31.2 percent figure is a default, not a ceiling every NRI has to accept, and this is the part of the NRO tax rules 2026 that most default advice skips over. India’s Double Taxation Avoidance Agreements, or DTAA, with the countries most of this publication’s readers live in set lower withholding rates on interest income than the domestic default, and a bank will apply the DTAA rate instead of 31.2 percent if the depositor actually claims it.
For NRIs resident in Australia, the United Kingdom, the United States and Canada, the treaty rate on interest is 15 percent. For NRIs in New Zealand, it is 10 percent. For NRIs in the United Arab Emirates, the treaty rate on interest is 12.5 percent for most depositors, dropping to 5 percent only where the interest is paid on a loan to a bank or financial institution rather than an individual account holder, which is not the situation of a typical NRO depositor.
The UK and US treaties carry a similar structure, with a lower 10 percent rate reserved for interest paid to banks and financial institutions rather than to individual depositors, so an individual NRI in either country should expect the 15 percent rate to apply to their own account.
None of these lower DTAA rates apply automatically. A bank defaults to the domestic 31.2 percent withholding unless the account holder submits a Tax Residency Certificate from their country of residence for the relevant year, along with a self-declaration in Form 10F and a PAN, before interest is paid or credited. Submitting the paperwork after the fact does not undo tax already withheld at the higher rate; it has to be claimed back through an income tax return filed in India for that year, which is a slower and more paperwork-heavy route than getting the certificate to the bank first.
For an NRI who has never done this before, the certificate itself is issued by the tax authority of the country of residence, the Australian Taxation Office, HMRC, the IRS, Inland Revenue New Zealand, the Canada Revenue Agency or the UAE’s Ministry of Finance, and typically needs to be renewed every financial year rather than filed once.
What the NRO tax rules 2026 mean for repatriating money out of India
The repatriation rules that sit alongside all of this are unchanged in substance. The 1 million US dollar annual cap on NRO account remittances, and the requirement for a chartered accountant’s certification before a bank will process the transfer, both continue under the new Act, only the certifying forms have new numbers. Property sold by an NRI, pension income, rental income and matured fixed deposits all still route through the same certification step before the money can leave India, and an NRI relying on paperwork or advice written before April 2026 should specifically check whether it references the old form numbers rather than assume nothing has changed.
What NRIs are asking now that Section 195 has a new number
Does the Income-tax Act, 2025 mean NRIs now pay more tax on NRO interest?
No. The default withholding stays at 30 percent plus a 4 percent cess, an effective 31.2 percent for most depositors. What changed is that this deduction is now authorised under Section 393(2) rather than the old Section 195, with no change to the actual amount withheld.
How does an NRI actually get taxed at the lower treaty rate instead of the 31.2 percent default?
By submitting a Tax Residency Certificate from their country of residence, a completed Form 10F, and their PAN to their Indian bank before interest is paid, so the bank applies the treaty rate at source. Claiming it back later requires filing an Indian income tax return for that year instead.
Do NRIs need new paperwork to repatriate money from an NRO account now?
Only going forward. Form 15CA and Form 15CB remain valid for any remittance completed before 31 March 2026. Remittances made on or after 1 April 2026 use the renamed Form 145 and Form 146, though the underlying 1 million US dollar annual limit and chartered accountant certification requirement have not changed.
