NRO Account

What is an NRO Account?

An NRO account is a bank account specifically for NRIs which allows them to maintain their income and investments in their home country, India. An NRO account is necessary for an NRI because the Foreign Exchange Management Act mandates the conversion of a savings account into an NRO account if an individual obtains the NRI status. 

Features of an NRO Account 

The key features of an NRO account are:

• Flexible Account and deposit types: An NRO account can be opened as a savings or current account. If you wish to earn higher interest on your deposit, you can also open an NRO account as a recurring or a fixed deposit. There is no maximum limit to how much you can deposit in an NRO account.
• Mandatory conversions: It is mandated by FEMA regulations to convert your domestic account, savings or current, to an NRO  account. You can also open various NRO accounts across different banks. 
• Versatile source of deposits: An NRO account is eligible to receive deposits from various sources such as
  • Domestic earnings: any income earned within India can be deposited into the account
  • Funds received as foreign currency from foreign accounts are converted into rupees and deposited into the account.
  • Funds can be received from other NRO accounts. You can also receive funds from other NRE and FCNR accounts. 
• Account operations and joint holdings: An NRO account can be opened by a single person or can be held jointly with other NRIs. You can also hold the account with a resident Indian. Along with holdings, an Indian resident can also be appointed as a mandate holder to run the daily operation of the account. 
• Repatriation limits: Any day-to-day income can be sent abroad without any applied fee or limit. Any income from capital assets can be sent abroad with a maximum of $1million during a financial year.  
• NRO Tax implications: Unlike NRE accounts, any holdings in an NRO account are subject to taxation as per the current taxation laws. The interest earned on your NRO savings is fully taxable, and banks are obliged to deduct 30% tax at source on your interest.

Benefits of an NRO Account

Let's look at the benefits of an NRO account:

• Consolidated management of Indian Income: You can directly deposit all the income earned within India into your NRO account. This income can include income earned from rents, pensions, dividends, interest from investments and proceeds from any investment. You can deposit as much money as you want in your NRO account without any upper limit. 
• Higher interest rates: The interest rate on NRO accounts is generally higher than the standard savings account interest rates. Your income from Indian sources deposited in the account can be moved into an NRO FD or RD, which will earn you a handsome interest. 
• Hassle-free local operations: The account allows you to pay utility bills and loan repayments for your family back home from the NRO account even when you are abroad. You can also automate these transfers for even easier operations.
• Easy investment operations: You can also easily invest directly into various financial instruments using your NRO account. Any earnings and maturity proceeds from your investments can also be directly credited into your NRO account. 
• Repatriation options: You can transfer your day-to-day income into your overseas account without any upper cap on the transfer amount. Any income generated from a capital investment can also be transferred into your overseas account; however, with a limit of $1 million across all transfers in a single financial year.
• Flexibility: NRO accounts also allow for high levels of flexibility in operation and account holdings, as you can open a joint NRO account with an NRI or a resident Indian who is a relative. You can also appoint a mandate holder to manage your day-to-day transactions in your home country.

Why Open an NRO Account?

For an NRI, opening an NRO account becomes essential due to the following reasons:

• Mandated by FEMA: In any circumstance, if your status changes from a Resident Indian to a Non-Resident Indian, you will have to convert your existing current or savings account into an NRO account. You can also open a completely new NRO account if needed. 
• Managing Indian source income: All income that you earn from India, including your day-to-day income and income from capital investments, can easily be deposited into an NRO account. In addition to deposits, you can also directly transfer your money into Indian holdings or holdings abroad. 
• Direct gateway to invest in the Indian market: An NRO account is eligible to make direct investments in the market. You can make investments in any financial instruments, including indian mutual funds, equity and debt instruments, FFDs, or real estate. 
• Earning high yield: NRO accounts also offer high interest rates. Your bank balance can earn a healthy interest. You can also open an NRO FD or RD to increase your income from the interest generated on your deposits.
• Managing expenses for relatives: An NRO account can also be used to make day-to-day transactions in India. You can use your account to pay bills, Loan repayments and also allow a resident in India to handle your day-to-day transactions in India. 

How to Open an NRO Account?

To open an NRO account, you usually need to follow these steps:

• Choose a Bank: Select a bank in India that offers NRO accounts. Many major banks, both public and private, provide this service.
• Gather Required Documents:
  • Proof of Identity
  • Proof of Address (Overseas address proof like a utility bill or rental agreement)
  • PAN Card
  • Visa/Work Permit (If applicable)
  • KYC (Know Your Customer) Documents (As required by the bank)
• Visit a Branch or Open Online:
  • In-Person: Visit a branch of your chosen bank in India or abroad.
  • Online: Many banks offer online NRO account opening facilities. You can fill out the application form and submit the required documents online.
• Fill the Application Form: Provide accurate information about your personal details, income sources, and purpose of the account.
• Submit Required Documents: Submit the scanned copies of the required documents as per the bank's guidelines.
• Complete the Verification Process: The bank may require additional verification, such as a video call or physical document submission.
• Account Activation: Once the verification process is complete, your NRO account will be activated.

Tax Impact on NRO Account

Taxation on Interest accrued on your deposits 

• Any interest earned on NRO account deposits is fully taxable, irrespective of the account being a savings account, an RD or a FD.
• 30% TDS is deducted from your interest along with any applicable surcharge and cess.

Double taxation avoidance agreement (DTAA) 

You can claim a lower rate of TDS if India has signed a DTAA with the country of your residence and the provisions of the agreement allow you to do so. You will be required to submit the following documents at your bank to qualify for the deduction under the Income Tax Act. 

• A tax residency certificate 
• Online copy of form 10F
• A declaration confirming that you have no permanent establishment in India 

Taxes on capital gains and investments 

If you use an NRO account to invest in the Indian market and invest in assets such as Indian Mutual funds, equity or debt instruments, any gains earned on such investments will be treated as capital gains and will be taxed as short-term capital gains or long-term capital gains as per the type of investment instrument you have chosen and your period of holding. 

How to Choose Between an NRO and NRE Account?

Many people get confused when choosing between a Non-Resident External account and a Non-Resident Ordinary account. However, the choice can easily be made depending on the source of your money, the usage of your money and the need for flexibility in account management. The following table lists the factors that can help you choose between the two accounts. 

Conclusion

An NRO account is one of the best ways to receive money from your income sources in India. Since it is compulsory to open an NRO account once a person gains the NRI status, it is essential to know about the ins and outs of NRO to be able to operate it efficiently. As mentioned before, an NRO account can also be used to make investments. You can read about the best investment plans for NRIs and choose a plan to create a healthy source of income in your home country.