NRO Account

Introduction

Non-Residents Indians often struggle with managing their finances when they have earnings abroad as well as in India. Some of their problems include tracking bank accounts and repatriating money to their home account. An NRO account is a solution to such problems and an easy way for NRIs to deal with their finances. Dive into this article to understand more about the NRO account meaning, features, benefits, and more.  

What is an NRO Account?

An NRO account is a rupee-denominated account for NRIs. If you are wondering what NRO full form is, it’s a Non-Resident Ordinary account. Using an NRO bank account, NRIs can easily manage their income in India, including interest, dividends, and other sources. 

An NRO account supports money transfers in foreign locations. Moreover, you can deposit money in Indian rupees as well as foreign currency. But withdrawals are only possible in Indian rupees. 
 

Why Do You Need to Open an NRO Account?

According to FEMA guidelines, NRIs are not allowed to open a savings account in India. Once a change in their residence status gets declared, an NRI needs to transform their savings account into a Non Resident Ordinary account. 

The account will enable NRIs to transfer their Indian income abroad. The account is also useful for transferring all their savings to India. An NRO bank account is also useful for facilitating investments in India. It is particularly suited for NRIs with income-earning assets in India. 
 

Features of an NRO Account

Once you know what is an NRO account, you should start learning its different features:

●    NRIs can transfer or repatriate both the interest and principal amount from an NRO account.
●    Depositors are allowed to transfer the principal amount of up to Rs 1 million in a financial year after paying the applicable taxes. 
●    The income tax rate on an NRO account is 30% and is deductible at source. 
●    The income of an NRI in India gets deposited in an NRO account. It can include rent, pensions, dividends, and more. 
●    NRIs can avail of loans against an NRO account.
●    An NRO account can be managed from any part of the world via internet banking facilities. Moreover, account holders also get international debit cards. 
●    Two or more individuals can have a joint NRO account. But at least one person needs to be an NRI, OCI, or PIO. The second holder can be an Indian. But if both NRO account holders stay outside India, they can give someone in India a power of attorney to handle the account.
●    A nomination facility is also available for an NRO account.  
●    NRIs are allowed to invest in mutual funds, recurring deposits, term deposits, and more using their NRO account. The Government of India covers the term deposit of up to Rs 1,00,000. 
●    When an NRI comes back to India, their NRO account must be converted into a resident account. 
●    According to NRE and NRO account RBI guidelines, the funds from an NRO account cannot be transferred to an NRE account. 
 

Eligibility Criteria to Open an NRO Account

NRIs, Persons of Indian Origin, and Overseas Citizens of India are eligible to create an NRO account. The following people are eligible to open an NRO account:

●    Seafarers
●    Student studying abroad
●    Foreign students in India
●    Foreign tourists on a short visit to India 
 

Benefits of an NRO Account

The different benefits of an NRO account are as follows:

●    An NRO account is useful for NRIs to manage their deposits, investments, and income earned in India. 
●    NRIs can transfer their funds to their country of residence through an NRO account. NRIs are allowed to transform $1 million per year through their NRO accounts. But they need to pay income tax in India for gains.
●    NRIs can invest in mutual funds, Indian bonds, and more using their NRO accounts. 
●    Depositors can avail of loans against their NRO fixed deposits at a lower interest than unsecured loans. 
●    A joint NRO account ensures that someone back at home will seamlessly look after the financials. 
 

Limitations of NRO Accounts

Apart from an NRO account, NRIs also open a Non Resident External or NRE account. Similar to an NRE account, the deposits are held in Indian currency. But the NRE and NRO full form is not the only difference between the two types of accounts.

One of the major disadvantages of an NRO account is the cap of USD 1 million on the repatriation of funds. Moreover, the interest income of an NRO account is also subject to taxes. 
 

Difference Between an NRO and a Resident Account

The difference between an NRO account and a resident account can be understood from this table:

Tax Rules for Interest Income from NRO Account

If you are wondering whether an NRO account is taxable, the answer is yes. In India, interest earned on deposits in an NRO account is taxable. Interest earned on the funds in an NRO account is subject to TDS or tax deducted at source. Apart from the applicable surcharge and cess, the interest income in an NRO account is applicable to a tax of 30%. 

Documents Required to Open an NRO Account

The documents required to open an NRO account are as follows:

●    Valid passport copy
●    NRI status proof via valid Residence/ Employment Visa copy or Residence/ Work permit
●    Form 60 or a copy of an Indian PAN card
●    Proof of an Indian and an overseas address according to the Customer Identification Policy
●    Recent passport-size photograph

Seafarers need to submit their current work contract and a copy of the CDC. They also need to submit the last page of the disembarkation stamp and FEMA declaration to confirm their NRI status. 
 

Conclusion

An NRO account is extremely crucial and lucrative for NRIs. The ability to pay bills and transfer funds in India using an NRO account comes in quite handy. Even though income on funds in an NRO account is taxable, it’s still worthwhile because of the attractive interest rates.