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NRO Accounts 101: All you should know about NRO accounts


A Non-Resident Ordinary (NRO) Account is a common way for many Non-Resident Indians (NRIs) to handle their Indian deposits or earned income including dividends, pensions, rent, etc. This account lets you receive funds in either Indian currency or foreign currency. Nevertheless, as NRO accounts are held in Indian currency and can not be repatriated freely into any foreign currency, only Indian currency can be withdrawn.

Why do you need to open a NRO account ?
An NRI can not have a savings account in its name at any bank in the country In accordance with the Foreign Exchange Management Act ( FEMA). When their residential status changes, it is compulsory for NRIs to have their accounts converted to either an NRE or NRO account. Continuing with your old saving account therefore would result in penalties.
To easily transfer your money to India at any time and to avoid any penalty, it is, therefore, necessary for an NRI to open an NRE or NRO account. If you withhold money earned from any assets / properties held in your home country in India this account will help you. Therefore, the method of exchanging funds and keeping earnings in your home country is clearly simplified. Furthermore, you can also check various financial institutions such as an NRO account by SC, to know more about the benefits, features, and eligibility criteria to understand which lender is best suited for you.

How to open an NRO account- Step by Step Guide.

  1.  If there is a resident account of an NRI in India, it can be switched to an NRO account; Once the documents are given and verified post submission, the existing current FD/savings account is redesignated as NRO account. Otherwise, there is always an option to open a new NRO account.
  2. The necessary documentation and proofs stating the NRI status of the account holder is NRI is required to be provided as per the Indian Income Tax laws for NRI accounts.
  3. A form is required to be filled if an NRI is changing its resident account to an NRO account. It then needs to be signed by all account holders.
  4. The list of documentations which require in the procedure is identity proof, proof of foreign address, NRI status proof, along with a couple of photographs.
  5. A new account opening form needs to be filled up for the new NRI account opening, the NRI along with the documents.
  6. Either student status, job detail, resident permit in the overseas destination, or dependent visa status can be provided for the 'Proof of Residence Abroad.'
  7. An attestation by the notary, Indian embassy, or branch of an Indian bank with an overseas branch for the proof of residence abroad also needs to be done.
  8. As most banks ask to provide proof of financial transactions abroad, a copy of the same should be kept by an NRI in case the bank asks for one. It can be either a cheque drawn on an overseas account or in the form of a credit card statement for the last six months.
  9. As soon as the bank receives all the documentation and is verified along with the initial amount, the new NRO account is opened.
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Benefits of an NRO account that you should know

Repatriation Advantages: Another important advantage of NRI Accounts is repatriation benefits. NRO Saving Accounts allow smooth movement of funds because you can repatriate both, the principal and interest abroad. Funds in your NRO Account are repatriable only post payment of applicable taxes.

Minimum Balance Requirement: You don’t need to maintain high balances in your NRO Account. Many banks have dropped their minimum balance requirement significantly. Nowadays, most banks require just Rs. 10,000 as a minimum balance.

Safeguarding earnings: Non-resident individuals may have sources of domestic earnings, such as property let out rent, stock market dividend income, etc. These funds can only be deposited to financial institutions through an NRO account, thereby ensuring the safeguarding of all domestically generated earnings.

Increased credit availability: An NRI can opt for fixed deposit loans against NROs to meet any emergency expenses occurring either in India or in the respective country of residence. Because these lines of credit are provided against collateral (e.g., NRO FD), the interest rate is also significantly lower than that of unsecured loans.

Limitations of NRO accounts: Such accounts are subject to tax liabilities. The principal paid and the interest are also tax-deductible at a flat rate of 30 percent. However, under section 80TTA of the Income Tax Act, NRIs may avail of an exemption from tax on their interest.

An NRO account cannot be used to hold foreign exchange. Since they are used to deposit the earnings inside India, these accounts can only hold INR.

Taxation on NRO accounts

An NRO account is taxed at 30% of the total income accrued in India, as per the Income Tax Act of 1961. Additionally, a cess at 3% is applicable to the overall tax liability. Interest earned through such accounts is also taxable. Nonetheless, under Section 80TTA, interest income under Rs. 10,000 waivered, while NRIs reporting a total earning higher than the stipulated interest income are taxed.

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