NRE Interest Income applicability

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If you are a resident taxpayer filing under Section 44AD and have received interest from an NRE account, this interest is generally taxable. It should be reported under the 'Income from Other Sources' section of your tax return, not as part of your presumptive income. While NRE interest is typically exempt for non-residents, the exemption for residents is conditional and often denied based on FEMA status. It's also advisable to have your bank redesignate your NRE account to a resident account to avoid future discrepancies.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)

07 July 2026 I am a resident taxpayer filing my return under Section 44AD and have received interest of ₹356 from my NRE account. Kindly clarify whether this interest is exempt or taxable. If it is exempt, please specify the relevant section under the Income-tax Act under which the exemption is available; if taxable, please confirm whether it should be reported under the head "Income from Other Sources."

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

07 July 2026 Whether the assessee is NRI or resident?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

13 November 2026 Since you are a resident, the NRE interest of Rs 356 is taxable and should be shown under "Income from Other Sources".

1. Exemption is conditional: Section 10(4)(ii) of the Income-tax Act, 1961 exempts NRE interest only for an individual who is a "person resident outside India" under FEMA (or who has RBI permission to maintain the account). Tribunal rulings have denied the exemption where the holder had become resident under FEMA, even though the account was still being held. The test is FEMA status, not merely the account type.

2. Head and rate: report the interest under Income from Other Sources at normal slab rates for the year in which it is credited. It is not part of the presumptive income under Section 44AD; show it separately in Schedule OS of ITR-4 (or ITR-3).

3. Deduction: under the old regime, interest on a savings-type NRE account may be covered by Section 80TTA (up to Rs 10,000). No such deduction is available under the default new regime (Section 115BAC).

4. FEMA compliance: a resident should not continue an NRE account. Ask the bank to redesignate it as a resident account (or move the balance to an RFC account) under the FEM (Deposit) Regulations, 2016. Otherwise the bank keeps treating the interest as exempt, with no TDS or AIS reporting, which can later create a mismatch.

Overall Summary: NRE interest is exempt only while the holder is a non-resident under FEMA. For a resident filing under Section 44AD, the Rs 356 is taxable under Income from Other Sources, and the account itself should be redesignated.

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