All you need to know before opening an NRO account

For NRIs, opening an Non-resident Ordinary Rupee (NRO) account is probably one of the first things on their checklist once they land in a foreign country. If you are also planning to open an NRO bank account, then here are some things you need to understand.

What is an NRO bank account?

Besides being mandatory as per foreign exchange guidelines, it is the perfect avenue to receive and withdraw money in India. An NRO account is typically used to handle income generated from domestic sources (dividends, pension, rent, interest, etc.) and carry out transactions in Indian currency for local payments, EMIs, or investments.

The account is created for NRIs to park their local earning and build a corpus for future use in India. It is maintained in INR denomination and can be held as a savings, current, or a fixed deposit. Funds can be deposited in both Indian and foreign currency but withdrawn only in Indian rupees.

Now that you have a brief idea about NRO bank accounts, let’s take it a step further to understand 3 important features about its working.

Tax Liability

Since the NRO bank account functions like a resident account, it is liable to income tax, wealth tax, and gift tax. The tax on the interest earned is deducted at source as per the slab rate at 30% + surcharge + education cess. An NRI may claim a tax rebate of up to Rs 10,000 for interest earned while filing the tax return in India. He/she can also avail concessions in the resident country if India has a Double Taxation Avoidance Agreement (DTAA) in place. Therefore, it’s important to be aware of the tax rules applicable in both countries.

Rules of Repatriation

Repatriation refers to the movement of funds from the homeland to the country of residence by converting the INR into the foreign currency of choice. Unlike the non-resident external (NRE) account and the foreign currency non-resident bank deposits (FCNR-B) that are freely repatriable, the Reserve Bank of India (RBI) has imposed certain conditions on an NRO account. Only the interest earned on the deposit is repatriable. Overall a remittance of USD 1 million can be made during an assessment year subject to applicable taxes. Furthermore, the remitter must submit an undertaking and a certificate from a chartered accountant stating that all taxes have been duly paid.

NRO Joint Accounts

An NRO bank account can be opened jointly in any of the authorised banks with a resident in India (a close relative) on a “former or survivor" basis. This is a big plus for NRIs who want to extend financial support to their loved ones in India. It must be noted that the joint account can only be operated by the ‘former’, but if the primary account holder dies, the ‘survivor’ is eligible to operate the account. An NRI can also allocate the power of attorney to a trustworthy person in India to manage financial transactions/NRO bank accounts on his/her behalf.

Final Takeaway

If, as an NRI, you want the flexibility to deposit foreign currency and also manage your earnings from domestic sources smoothly in India, an NRO account is an ideal option.