NRO Account: Meaning, Taxation & Working
Managing money across countries sounds simple until you actually do it. Think of the rent you earn from letting out your apartment, or dividends earned from mutual funds. You face the actual problem when this money remains in your regular savings account, or your bank suddenly flags it.
As an NRI, you might face this problem. Ultimately, several questions land you in a dilemma, like which account should you use? Can money earned in India be transferred abroad? Why do you think your income is being taxed at the current rate? This is where an NRO account becomes important.
Read on to understand what an NRO account is, how it works, and the tax implications associated with the account. You’ll learn how it differs from an NRE account and how to open one seamlessly.
TL;DR - Summary
- What it is: - A Non-Resident Ordinary account helps NRIs manage the income that they earn in India.
- Regulation: - The RBI regulates NRO accounts under FEMA, and it is mandatory to open one when you change your residential status.
- Taxation: - The interest earned from this account is taxable at 30% in India, along with surcharge and cess.
- Repatriation: - Each financial year, repatriation is allowed up to $1 million after taxes.
- Purpose: - An NRO account is suitable for managing income from rent, dividends, pension, and property sale proceeds in India.
What is an NRO Account?
NRO stands for Non-Resident Ordinary account. This type of bank account is designated for NRIs so that they can manage the income they earn in India, like rent, dividends, or pension. No foreign earnings flow into the NRO account. This account is maintained in Indian Rupees.
The Reserve Bank of India (RBI) is responsible for governing this account as per FEMA (Foreign Exchange Management Act) norms. When an Indian resident becomes an NRI, the existing savings accounts that the person may be holding are automatically converted to an NRO account. If you continue to use a regular savings account, you may face compliance issues.
For instance, you live in Dubai and earn a monthly rental income of ₹50,000 from your apartment in Bangalore. This income is deposited automatically into your NRO account.
What are the Features of an NRO Account?
An NRO account is similar to a regular bank account in many ways. However, NRIs must adhere to certain rules. It’s important to understand these NRO account details to know all the features.
- NRO accounts can be of different categories. For instance, you can open savings, current, and recurring deposit accounts along with fixed deposits.
- In an NRO account, NRIs are entitled to deposit money earned through rental income, pension, dividends, interest, and property sale proceeds. For instance, if a property is sold in India for ₹70 lakhs, the amount is credited to the NRO account of the NRI.
- During each financial year, you can transfer money abroad up to USD 1 million, which is calculated after paying taxes.
- An NRI is entitled to jointly hold an NRO account with another NRI. You can even hold a joint account with an Indian resident if certain conditions are met.
- The NRO account minimum balance varies from one bank to another. Usually, it ranges between ₹10,000 and ₹75,000 for a savings account.
- You may receive a deposit in a foreign currency. Through the NRO account, it gets converted into INR.
Now, let’s understand why NRIs need this type of account in terms of their practical benefits.
What are the Benefits of an NRO Account?
An NRO account solves a very practical problem. It helps NRIs find a compliant way so that they can manage their income from India. Here are the key benefits of having an NRO account:
- You can collect your earnings from India in your NRO account. This helps them to manage them in one place.
- An NRO account helps you stay compliant with FEMA and RBI rules. Banks may delay transactions if an NRI doesn’t have this account. They may also request additional documentation or even flag your account.
- The repatriation facility helps you transfer funds through your NRO account to other countries whenever you want. As a result, NRIs can fund their expenses abroad, moving their returns earned from India.
- It becomes easy to manage local payments through an NRO account. You may use it to pay your utility bills, EMIs on loans, and manage family expenses.
- When you have an NRO account, you can continue investing in fixed deposits, mutual funds, and real estate in India even when you live abroad.
NRE vs NRO vs FCNR(B) Accounts: Differences and Similarities
Most NRIs face a dilemma while choosing between NRO, NRE, and FCNR(B) accounts. The following comparison table explains differences between these accounts across crucial parameters:
Both NRE and FCNR(B) accounts are used to manage foreign income, but their purposes differ. In an NRE account, funds are held in Indian Rupees, meaning returns are influenced by exchange rate movements.
In contrast, an FCNR(B) account allows deposits in foreign currency, which eliminates exchange rate risk against the Indian Rupee. FCNR(B) is specifically for NRIs who want to park foreign earnings but maintain a banking relationship in India.
Suppose you invest ₹10 lakh in fixed deposits in India. In an NRO FD account, the interest will be taxed at 30%. On the contrary, this interest would be tax-free in an NRE FD account. In case of an FCNR FD, there’s no currency risk, and the income remains free from tax. This difference can impact the returns significantly.
The biggest difference between NRE and NRO account is taxation. NRE and FCNR interest is tax-free in India, while interest in an NRO account is taxed at 30% + cess. This can cost NRIs lakhs of rupees annually.
Who Needs an NRO Account?
Do you earn income from India while living abroad?
Rent, pension, dividends, or property sale proceeds
You need an NRO account for:
Rental income
Rent from property in India
Pension
From an Indian employer
Dividends
From mutual funds or stocks
Property sale
Proceeds from Indian property
✅ Open an NRO account
NRO may not be required
If you earn income only from foreign clients — freelancing, consulting, or exporting services — an NRO account is not the right fit.
No Indian income source💡 Receiving payments from abroad? A cross-border platform like Skydo may be a better fit for you
An NRO account is not necessary for everyone. It caters to some specific situations. These accounts are necessary for:
- NRIs having a source of rental income in India
- Those who receive a pension from an employer based in India
- People earning dividends from investments made in India
- When an NRI sells property in India
This not only applies to NRIs, but also Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) who are eligible to open NRO accounts and operate under FEMA regulations.
For instance, a freelancer moves from India to Canada but continues to earn a rent of ₹40,000 per month from a flat in Bangalore. This individual would need an NRO account.
If you are a freelancer or a business in India that receives payments from abroad, an NRO wouldn’t be the right solution. A cross-border payment platform like Skydo can help you receive international payments with better exchange rates and full compliance.
How Is an NRO Account Taxed in India?
↓ What happens to ₹70,000 gross interest (example)
TDS
−₹21,000
30% flat rate
Surcharge
Varies
By income slab
Cess
4%
On TDS amount
Net received
~₹47,600
After deductions
DTAA benefit — reduce your TDS rate
Claim if your country has a tax treaty with India
Under India-US DTAA, TDS drops from 30% to 15%. Submit TRC and Form 10F to your bank before April to avoid full deduction.
As an NRI, it’s important to understand the NRO account tax rules, as it directly affects your returns.
TDS on NRO Interest and Other Income
An interest rate of 30% applies as Tax Deducted at Source (TDS), along with a surcharge. 4% cess on interest income may also apply. The TDS is deducted by banks before interest is credited.
Claiming DTAA Benefits to Reduce Tax
Get Tax Residency Certificate
Issued by tax authority in your country of residence
Fill Form 10F
Submit on the Income Tax portal along with TRC
Submit self-declaration to bank
Bank applies the reduced treaty rate going forward
Do this before April — if you wait, TDS gets deducted at 30% and you will need to file for a refund
NRIs can reduce their tax burden under the Double Taxation Avoidance Agreement (DTAA). However, you’re eligible for this benefit only if your country of residence has a double-taxation treaty with India. Here’s how you can claim DTAA benefits:
- Get the Tax Residency Certificate (TRC)
- Fill out Form 10F and submit the document
- A self-declaration has to be provided to the bank
Under the India-US DTAA, for instance, NRIs can reduce their tax liability from 30% to 15%.
Repatriation and the Form 15CA/15CB Process
To transfer money abroad, NRIs must follow the current repatriation norms.
Per year, an amount of $1 million is allowed. As part of the formalities, you need to fill out Form 15CA and Form 15CB.
Form 15CA involves an online self-declaration that the sender has to file on the income tax portal. With Form 15CB, a certificate from a chartered accountant is required for remittances that exceed ₹5 lakh in a single transaction.
If the amount exceeds $1 million, an approval from the RBI is necessary. Here’s what the process requires:
- Submit a request for remittance through your authorized dealer bank
- Provide supporting documents like your source of funds, tax clearance, and the purpose of remittance
- The bank will forward the application to the RBI for review
- The approval depends on regulatory checks and accurate documentation
Submit your TRC and Form 10F to the bank proactively before April. If you wait, your TDS will get deducted at 30%, which means you will again need to file for a refund.
How to Open an NRO Account?
💻 Online Process
From anywhere in the worldVisit your bank's website
Go to the NRI banking section and select NRO account
Upload documents
Passport, visa, overseas address proof, PAN, photographs
Complete video KYC
Short video call with bank representative to verify identity
🏭 Offline Process
Visit a branch in India or abroadVisit an Indian bank branch
Can be done at an Indian bank or its overseas branch
Submit physical documents
Passport, visa, overseas address proof, PAN, photographs
In-person KYC verification
Bank verifies documents and processes the application
Here are the documents required and the formalities NRIs must follow to open an NRO account.
Documents Required
Among the most important documents required to open an NRO account are:
- Passport
- Visa or work permit
- Proof of overseas address
- PAN card
- Passport-size photographs.
If you’re converting the account, an NRI declaration and updated KYC will also be required.
Opening Process
NRIs can open an NRO account through both online and offline methods.
- Online process: If you decide to apply online, visit the website of your bank and upload the documents. A video KYC has to be completed as part of the formalities.
- Offline process: In case you want to apply offline, visit any of the Indian banks or branches of an Indian bank in your home country and submit the documents.
- Time taken: The process takes around 3-7 days to get activated.
NRIs also have the option to entrust an Indian resident with the Power of Attorney, who can operate their account on their behalf.
With an NRO account, you can manage income earned from India seamlessly even when you’re residing abroad. However, if you earn from clients abroad, the challenge lies in receiving your payments efficiently. With Skydo, you get a simpler alternative as NRIs can create virtual accounts in multiple currencies. Explore Skydo Now!
Can I deposit more than ₹10 lakh in my NRO account?
Yes, you can deposit more than ₹10 lakh in your NRO account as there is no upper limit. NRIs can credit large amounts like property sale proceeds or rental income accumulated over months.
Is the interest earned on an NRO account taxable?
What is the minimum balance required for an NRO account?
Can an NRI hold both NRE and NRO accounts at the same time?
How much money can I repatriate from an NRO account each year?
