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An NRO Account (Non-Resident Ordinary Account) is a bank account in India specifically designed for Non-Resident Indians (NRIs) to manage their income earned in India. It allows NRIs to deposit and manage funds originating in India, such as rental income, dividends, pension, or any other earnings.
Key Features of an NRO Account
- Purpose:
- To manage income earned in India by NRIs.
- Non-repatriable funds, except for certain limits.
- Currency:
- Funds in the account are maintained in Indian Rupees (INR).
- Joint Account:
- Can be held jointly with another NRI or a resident Indian.
- Deposit Sources:
- Income earned in India (e.g., rent, dividends, salary, or proceeds from the sale of assets).
- Transfers from other NRO accounts.
- Repatriation of Funds:
- Repatriation is allowed up to USD 1 million per financial year for bonafide purposes, subject to documentation and payment of applicable taxes.
- Types of NRO Accounts:
- Savings Account.
- Current Account.
- Fixed Deposit Account.
- Recurring Deposit Account.
Taxability of NRO Account
Income in an NRO account is taxable in India as per the Income Tax Act, 1961. The tax treatment depends on the type of income and the source of funds.
1. Tax Rates on Income in NRO Account
| Income Type | Tax Rate |
|---|---|
| Interest on NRO Account Deposits | 30% (plus applicable surcharge and cess) |
| Rental Income | As per the applicable tax slab rates. |
| Dividends | Taxed at the applicable slab rate. |
| Capital Gains (e.g., sale of assets) | As per capital gains tax rules. |
2. Tax Deduction at Source (TDS)
- Interest earned on an NRO account is subject to 30% TDS (plus surcharge and cess).
- TDS is applicable even if the income is below the taxable limit.
- NRIs can claim a refund of excess TDS deducted by filing an income tax return.
3. Double Taxation Avoidance Agreement (DTAA)
- NRIs may benefit from DTAA if their home country has an agreement with India.
- This can reduce the effective tax rate on interest income.
- NRIs must submit Form 10F, Tax Residency Certificate (TRC), and other documents to avail DTAA benefits.
4. Exemptions and Deductions
- Interest income on an NRO savings account is not eligible for deduction under Section 80TTA.
- Other exemptions or deductions depend on the specific income type and compliance with tax rules.
Repatriation Rules
- Funds from an NRO account can be repatriated up to USD 1 million per financial year after taxes.
- Repatriation requires a certificate from a Chartered Accountant in Form 15CB and filing Form 15CA with the Income Tax Department.
Comparison: NRO vs. NRE Account
| Feature | NRO Account | NRE Account |
|---|---|---|
| Purpose | Manage income earned in India. | Park foreign income in India. |
| Taxability | Taxable in India. | Fully tax-free (interest exempt). |
| Repatriation | Limited to USD 1 million/year. | Fully repatriable. |
| Currency | Indian Rupees (INR). | Indian Rupees (INR). |
Key Benefits of an NRO Account
- Manage Indian income conveniently while abroad.
- Joint account option with a resident family member.
- Access to Indian banking facilities, including net banking and fixed deposits.
Who Should Open an NRO Account?
- NRIs earning income in India from sources like:
- Rent from property.
- Dividends from investments.
- Pension or other retirement benefits.
- Those needing to maintain funds in INR for expenses or investments in India.
Would you like detailed guidance on opening an NRO account, repatriation procedures, or tax-saving strategies?