NRO Account: Meaning, Eligibility, Benefits and NRO Vs NRE

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Article Content

What is an NRO Account?
Why do you need to open an NRO Account?
Features of an NRO Account
Eligibility criteria to open an NRO Account
Benefits of an NRO Account
Difference between an NRO and a resident account
What is an NRE Account?
Differences between NRE account and NRO account
Frequently Asked Questions

Non-Resident Ordinary (NRO) Account is a bank account for NRIs in India to deposit their Indian income like rents, dividends, and interest. The interest is fully repatriable. However, the principal amount is repatriable subject to certain limits. Also, the interest income is taxable in India at the individual’s income tax slab rates. The deposits in this account are not subject to exchange rate fluctuations. This article covers NRO account, its benefits, its similarities and difference with NRE account in detail.

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What is an NRO Account?

A Non-Resident Ordinary (NRO) Account is an NRI account denominated in Indian rupee. Through this NRI bank account, one can manage the income they earn in India. An NRI can deposit the dividend, interest, rest, and other income that they earn in India in this account. This account facilitates the money transfer outside India. One can deposit money in both Indian rupee and foreign currency. However, the withdrawals happen only in Indian rupees.

NRO account can be a savings account, current account, fixed deposit account or recurring deposit account. An NRI can open this account jointly along with a resident or non-resident Indian. One can repatriate the interest amount, but the principal amount is repatriable only within certain limits. The maximum amount that an NRI can transfer in a financial year is USD 1mn. Also, the NRO account is not subject to any exchange rate fluctuations. Hence one need not worry about exchange rate risk while repatriating the money abroad.

Through an Non-Resident Ordinary account, an NRI can invest in India. They can also get a loan against NRO fixed deposits at an interest lower than regular loans. Also, the interest income that one earns from this NRI savings account is taxable. Moreover, the interest income is subject to TDS. The interest that one earns is added to their income and is taxable at the respective income tax slab rates. The account is also subject to a gift tax and wealth tax.

Why do you need to open an NRO Account?

As per FEMA guidelines, an NRI cannot have a savings account in India. After their residence status has changed, the NRI has to convert their regular resident savings account to Non-Resident Ordinary account. To manage their income in India, NRIs can choose an NRO account.

This account will help NRIs to transfer their Indian income abroad. They can also transfer all their savings in India abroad through this account. This NRI bank account facilitates investments in India. This account best suits NRIs who have income earning assets in India.

Features of an NRO Account

Following are the features of NRO Account:

The NRI account holders are free to transfer or repatriate the interest and principal amount.
Depositors can transfer principal amount up to INR 1 million in a financial year after paying the applicable taxes.
The interest on NRO rupee account is taxable at 30% and is deductible at source.
The income that one earns in India is deposited in the NRO rupee account. The income may include dividend, rent, pension, etc.
The account can be operated from anywhere in the world through internet banking facilities. Banks also offer international debit cards for this account.
NRIs can opt for loans against their NRO deposits.
Two or more persons can jointly open the account. However, at least one individual has to be an NRI, PIO or OCI. The second holder can be an Indian. Furthermore, if both the account holders reside abroad, then they can choose an Indian individual to have the ‘power of attorney’ to operate the account.
NRIs can invest in term deposits, recurring deposits, mutual funds, etc., through this account. Also, the term deposit up to INR 1,00,000 is covered by the Government of India.
Nomination facility is available for Non-Resident Ordinary accounts.
The Non-Resident Indian holding the Non-Resident Ordinary account moves back to India and becomes a resident of India, then the account has to be converted into a resident account.
Funds cannot be transferred from an NRO account to an NRE account.

Eligibility criteria to open an NRO Account

Following is the eligibility criteria to open an Non-Resident Ordinary account:

Non-Resident Indians, Person of Indian Origin, and Overseas Citizen of India can open the NRO account.
Student studying abroad
Seafarers
Foreign Students studying in India
Foreign Tourists on a short visit to India
Also, there has to be an Indian Resident as a power of attorney for the Non-Resident Ordinary account.

Benefits of an NRO Account

Following are the Non-Resident Ordinary account benefits:

This NRI savings account helps the account holders to manage their NRO deposit, investments, and income earned in India.
NRI can take back the fund to their country of residence (home country) through NRO account. They can easily transfer USD 1 million a year. However, they have to pay Income Tax in India for gains.
The account accepts deposits in Indian currency. An individual may have some recurring income, such as rent or dividend in India.
With this account, NRIs can invest in India. For example, they can invest in mutual funds and Indian bonds.
Depositors can get a loan against their NRO fixed deposits. The interest on the loan is usually lower than unsecured loans.
One can jointly hold the account with an Indian resident to manage the financials back home seamlessly.

Difference between an NRO and a resident account

Following are the differences between an NRO account and a resident savings account:

Basis of Difference	NRO Savings Account	Resident Savings Account
Eligibility	Non-Resident Indian, Persons of Indian Origin,	Indian Citizens, clubs, associations, etc.
Definition	NRO savings account is a rupee denominated account for NRIs to deposit their Indian income.	Savings account for Indian residents to deposit their income or savings.
Joint account	An NRI can open an NRO account jointly with an NRI or Indian citizen.	An Indian resident can open a joint account with another Indian resident.
Minimum deposit	The minimum deposit to open an NRO account in India is INR 10,000.	The minimum deposit to open a savings account in India is as low as INR 0 for some banks.
Taxation	The interest income is subject to tax as per the income tax slab rate. NRIs can reduce their tax liability by availing DTAA benefits with a few countries.	If the interest income is subject to tax as per income tax slab rate.
Repatriation	The deposits made in this account is repatriatable to the NRI’s country of residence with certain limits.	Deposits made in this account cannot be repatriated to accounts abroad.

What is an NRE Account?

An NRE account is a rupee denominated account that an NRI can open in India to deposit their foreign currency earnings. This account can be a current account, savings account, or deposit account. An NRI can open an NRE savings account individually or jointly only with another NRI.

These accounts are highly liquid, and the amount in them is fully repatriable to the NRI’s country of residence (home country). The interest earned on this account is completely tax-free. The depositors need not pay any tax on the interest earned in this account. The account can be operated from anywhere in the world through internet banking facilities. Banks also offer international debit cards for this account.

Through an NRE savings account, one can invest in India along with carrying business and personal banking facilities in India. NRE accounts are exposed to exchange rate risk as deposits are made in foreign currency, and withdrawal happens in Indian currency. NRE accounts are best suitable for NRIs who want to invest in India and have a family they want to send money to in India. One can transfer funds from an NRE account to another NRE and NRO accounts.

Differences between NRE account and NRO account

Following is the table explaining the differences between NRE and NRO account:

Basis of Difference	NRO Account	NRE Account
Definition	NRO accounts are for depositing income earned in India. To manage their income in India, NRIs can choose an NRO account.	NRE accounts are for depositing overseas earnings in India.
Repatriability	There are no restrictions. One can transfer/ repatriate USD 1 million in a year from an NRO account with the help of a chartered accountant.	The deposits and the interest earned on them are fully repatriable.
Taxation	The income from the NRO account is taxable. NRIs can reduce their tax liability by availing benefits under the Double Taxation Avoidance Agreement with a few countries.	Interest that one earns on NRE deposits is tax-free in India.
Deposit and Withdrawal currency	Deposits can be in Indian as well as foreign currency. However withdrawals in Indian currency.	Can deposit in foreign currency and withdraw in Indian Rupee.
Deposit Rules	One can deposit any amount in foreign currency. Furthermore, rupee denominated funds originating in India can be deposited only in NRO accounts.	One can deposit any amount in foreign currency.
Fund Transfer	Funds from one NRO account can be transferred to another NRO account to the other. However, they cannot be transferred to another NRE account.	One can transfer funds from an NRE account to another NRE or NRO account.
Joint Account	NRO account does not have any restrictions, and one can open it with a resident Indian as well.	The joint account holder for an NRE account has to be an NRI.
Currency Fluctuations	NRO account deposits are not exposed to currency fluctuations.	The NRE account deposits are exposed to exchange rate fluctuations and also currency loss.

Frequently Asked Questions

Why is an NRO account required?

An Non-Resident Ordinary account is a rupee denominated account that facilitates the money transfer outside India with no exchange rate risk. Therefore, an NRI needs an Non-Resident Ordinary account to manage the income that they earn in India.

What is the difference between an NRO and a resident account?

The most basic difference between an Non-Resident Ordinary account and savings account is that an NRIs and PIOs can only open the NRO account. However, Indian residents can only open the resident savings account.

Is money deposited in an NRO account taxable?

The money deposited in Non-Resident Ordinary accounts is the Indian earnings of an NRI. The interest income from the Non-Resident Ordinary account is taxable in India. However, the tax rate depends on the individual’s income tax slab rate. Moreover, the bank deducts TDS at 30%. Also, NRIs can reduce their tax liability by availing benefits under the Double Taxation Avoidance Agreement or DTAA benefit with a few countries.

Can we deposit Indian rupees in an NRO account?

Yes, Non-Resident Ordinary accounts accept deposits in Indian currency.

Can parents deposit money in my NRO account?

Yes, parents can deposit money in their child’s Non-Resident Ordinary account.

What is the interest rate for NRO accounts?

The NRO fixed deposit rates vary from bank to bank. The interest rates are in the range of 2.75% to 7.35%. Also, senior citizens have higher interest rates.