Lesson

TDS on NRO interest and the treaty rate: TRC, Form 41 and the credit in Germany

Why Indian banks deduct tax on NRO interest, what the India–Germany treaty caps it at, the papers India asks for before applying the treaty rate, and how Indian tax is generally credited in the German return.

3 min read · Reviewed on 28 September 2026 by the founder

Made with AI assistance, reviewed by inWst

The idea in one line

India taxes interest on NRO accounts at source, the India–Germany treaty caps that Indian tax at a lower rate for someone living in Germany, and Germany credits Indian tax only up to that cap.

Why it matters

Interest on an NRO account is taxable in India for a non-resident, so the bank deducts tax at source (TDS) when it credits the interest. Since 1 April 2026 the deduction on payments to non-residents falls under section 393 of the Income-tax Act, 2025. Without treaty papers on file, banks generally deduct at the domestic rate for non-residents, which is higher than the treaty rate.

The double taxation agreement between Germany and India lets India tax interest paid to a German resident, but not above 10%^[1] of the gross interest when the recipient is the beneficial owner (Art. 11). Germany, where you are resident, then taxes the same interest and credits the Indian tax (Art. 23). German law credits foreign tax on capital income only as far as it was actually due: Indian tax above the treaty rate could have been reduced, so Germany does not credit that part (§ 32d(5) EStG). The difference is money that can only be claimed back in India.

NRE and FCNR interest works differently. India exempts NRE interest for a person resident outside India, and the Income-tax Act, 2025 keeps that exemption. With no Indian tax, there is nothing to credit in Germany, while Germany may still tax the interest.

How to check yours

For each NRO account and deposit, three items from the Indian side:

the interest credited, month by month, for the German calendar year;
the TDS deducted, from the bank's TDS certificate or the Annual Information Statement on the e-filing portal;
whether the bank applied the treaty rate or the domestic rate.

The free Indian income checker asks about NRO interest and whether a tax residency certificate is on file, and shows where the interest and the Indian tax generally go in the German return.

What people commonly do

Before India applies a treaty rate to a non-resident, it asks for at least two papers (section 159 of the Income-tax Act, 2025), and a bank may ask for more of its own. The first is a tax residency certificate (TRC) from the country of residence; for someone living in Germany, the German tax office issues it. The second is the information form, now Form 41, which replaced Form 10F under the new Act and is filed online on the Income Tax Department's e-filing portal. A common rule among advisers is to renew both every Indian tax year and give copies to each Indian bank that pays interest, since each bank decides its own deduction.

On the German side, the Indian tax up to the treaty rate generally goes in Anlage KAP, in the section for foreign taxes that can be credited, next to the interest itself. Individual cases, and any refund claim in India for tax deducted above the treaty rate, are a question for a Steuerberater in Germany and a chartered accountant (CA) in India.

Cross-border twist

The years do not line up. India's tax year runs from April to March; Germany's is the calendar year. A TDS certificate for an Indian year covers parts of two German years, so the interest and the tax need splitting by month. The same German year 2026 even spans two Indian laws: January to March 2026 fell under the Income-tax Act, 1961, and April onwards under the 2025 Act, with Form 10F before and Form 41 after.

Sources

60-second video script

Hook: Your Indian bank took tax on your NRO interest. Did it take too much?

Point 1: If you live in Germany, the India–Germany treaty caps Indian tax on interest at 10%^[1]. Without the papers, banks generally deduct more.

Point 2: The papers: a tax residency certificate from your German tax office and Form 41, which replaced Form 10F, filed on the Indian e-filing portal.

Point 3: Germany credits Indian tax only up to the treaty rate. Anything above it can only be claimed back in India. Ask a Steuerberater and a CA about your case.

Call to action: See where your NRO interest goes in the German return with the free checker at inwst.com/tools/indian-income.