What is NRO Account

Non-Resident Indians (NRIs) often earn income in India through rent, dividends, interest, and other sources. Managing such income while residing abroad requires a reliable banking channel. The Non-Resident Ordinary (NRO) account provides NRIs with an effective way to manage and repatriate their Indian income. This guide explores everything you need to know about NRO accounts, their features, taxation, and how they differ from NRE accounts.

What is an NRO Account?

An NRO (Non-Resident Ordinary) account is a type of bank account that allows NRIs to manage income earned in India. This income can be from sources such as rent, dividends, pension, interest on savings, or any other income generated in India. While NRIs can also deposit foreign currency into NRO accounts, the primary purpose is to manage income earned in Indian Rupees (INR).

Unlike NRE (Non-Resident External) accounts, which are mainly for foreign income, NRO accounts are used to hold and manage Indian earnings. The funds in an NRO account are non-repatriable beyond a specified limit, which means that NRIs can only repatriate a certain amount abroad every financial year, subject to specific conditions.

Key Features of NRO Accounts

NRO accounts come with specific features tailored to manage Indian income for NRIs. Some of the main features include:

1. Currency Deposits: NRO accounts primarily deal in Indian Rupees (INR), though foreign currency can be deposited, which will be converted into INR.
2. Non-Repatriable Funds: The principal and interest earned in an NRO account can be repatriated, but only up to a limit of USD 1 million per financial year, following specific procedures.
3. Multiple Account Types: NRIs can open NRO savings accounts, current accounts, recurring deposit accounts, and fixed deposit accounts based on their financial goals and requirements.
4. Joint Account Facility: NRO accounts can be held jointly with another NRI or an Indian resident, making it a flexible option for managing finances with family members in India.
5. Interest Rates: NRO accounts offer competitive interest rates, particularly on fixed deposits, allowing NRIs to earn from their Indian savings or investments.
6. Nomination Facility: NRIs can nominate a person to manage their NRO account in the event of their death.

Types of NRO Accounts

NRIs have multiple options when it comes to managing Indian income through NRO accounts:

1. NRO Savings Account: This is the standard NRO account that allows NRIs to hold and manage Indian income while earning interest on the savings.
2. NRO Fixed Deposit Account: NRIs can open fixed deposit accounts under the NRO scheme to earn higher interest rates. The interest is taxable, but these accounts are an excellent option for long-term savings.
3. NRO Recurring Deposit Account: This account enables NRIs to deposit a fixed amount each month for a predetermined period, earning interest on the accumulated amount. It is ideal for systematic savings.
4. NRO Current Account: NRIs with business interests in India often use NRO current accounts to facilitate day-to-day business transactions. These accounts do not earn interest but provide high liquidity.

Benefits of NRO Accounts

NRO accounts offer several benefits, particularly for NRIs earning income in India. Some of the key advantages include:

1. Easy Management of Indian Income: NRO accounts provide a convenient way for NRIs to manage Indian income such as rent, dividends, or interest, without the need to open multiple accounts.
2. Access to Indian Investments: NRIs can use NRO accounts to invest in various financial instruments, including mutual funds, fixed deposits, and real estate.
3. Joint Account Flexibility: NRO accounts can be jointly held with a resident Indian, allowing NRIs to manage their Indian income with the help of family members.
4. Competitive Interest Rates: NRO accounts, particularly fixed and recurring deposit accounts, offer competitive interest rates that help NRIs earn from their Indian savings.
5. Repatriation of Funds: NRIs can repatriate up to USD 1 million from their NRO accounts each financial year, making it easier to transfer surplus funds abroad when needed.

Tax Implications of NRO Accounts

One of the critical aspects of an NRO account is its tax implications. Income earned in India and deposited into an NRO account is subject to Indian tax laws. Here’s a detailed look at the taxation of NRO accounts:

1. Income Tax: Any income deposited in an NRO account, such as rent, dividends, pension, or interest, is subject to income tax in India. NRIs are required to pay taxes on this income as per their income tax slab.
2. Tax Deducted at Source (TDS): Banks deduct TDS on the interest earned in NRO accounts. For NRIs, the TDS rate on interest income is 30%, which is higher than the rate for resident Indians.
3. Double Taxation Avoidance Agreement (DTAA): India has signed DTAA with several countries, allowing NRIs to avoid paying tax on the same income twice. Under DTAA, NRIs can claim tax credits in their country of residence for the taxes paid in India on income deposited into the NRO account.
4. Capital Gains Tax: NRIs investing in India through NRO accounts are subject to capital gains tax if they sell assets like property, stocks, or mutual funds. The tax rate depends on whether the gains are classified as short-term or long-term.

How to Open an NRO Account?

Opening an NRO account is a simple process. NRIs can either visit a bank branch in India or apply online. Here is a step-by-step guide to opening an NRO account:

1. Select a Bank: NRIs can open NRO accounts in most major Indian banks, such as State Bank of India (SBI), ICICI Bank, HDFC Bank, and Axis Bank. Each bank offers different services and interest rates, so it’s essential to compare before choosing.
2. Complete the Application Form: The NRO account opening form can be filled online or at the bank branch. This form requires personal details such as name, overseas address, and contact information.
3. Submit Required Documents: NRIs need to provide specific documents to open an NRO account, including:
   • A valid passport with relevant pages showing personal details and visa.
   • Proof of NRI status, such as a valid visa, work permit, or resident permit.
   • Address proof for both overseas and Indian addresses (if applicable).
   • Recent passport-sized photographs.
   • PAN card (if applicable).
4. Verification Process: The bank will verify the documents and personal details. Some banks may require NRIs to visit the branch for in-person verification, while others offer online verification.
5. Fund the Account: Once the verification process is complete, NRIs can fund their NRO account by depositing Indian or foreign currency. The foreign currency will be converted into Indian Rupees at the prevailing exchange rate.
6. Activate Online Banking: Once the account is active, NRIs can enable online banking services to manage their NRO account from anywhere in the world.

Documents Required for an NRO Account

To open an NRO account, NRIs need to submit the following documents:

1. Passport: A copy of the valid passport with relevant pages showing personal details and visa.
2. Proof of NRI Status: Documents like a valid visa, work permit, or residence permit.
3. Address Proof: Proof of overseas address (utility bill, bank statement) and Indian address if applicable.
4. Photographs: Recent passport-sized photographs for the account opening process.
5. PAN Card: A PAN card is required if the NRI has taxable income in India.

Differences Between NRO and NRE Accounts

Although both NRO and NRE accounts cater to NRIs, there are some significant differences between the two:

1. Purpose: NRO accounts are used to manage income earned in India, while NRE accounts are for foreign earnings remitted to India.
2. Repatriation: NRO accounts allow limited repatriation of up to USD 1 million per financial year, while NRE accounts provide full repatriability of both principal and interest.
3. Taxation: Interest earned in NRO accounts is taxable in India, while interest earned in NRE accounts is tax-free.
4. Currency: NRO accounts primarily deal in Indian Rupees, while NRE accounts accept deposits in foreign currencies, which are converted into INR.

Importance of NRO Accounts for NRIs

NRO accounts are vital for NRIs managing Indian income. They offer a seamless way to handle earnings like rent, dividends, and pension, while also providing access to Indian investments. NRO accounts also come with joint account and nomination facilities, ensuring flexibility in managing family finances.

Conclusion

NRO accounts are an essential tool for NRIs who earn income in India. Whether it’s rent, dividends, or interest income, NRO accounts offer a convenient way to manage finances in Indian Rupees while still allowing limited repatriation of funds abroad. By understanding the features, tax implications, and benefits of NRO accounts, NRIs can make informed decisions to manage their Indian income effectively.