All you wanted to know about Non Resident Ordinary (NRO) Account ?
Non resident Indian citizens and persons of Indian Origin (PIO) who are collectively referred as Non Resident Indians (NRI), are allowed to have three types of bank accounts in India. Non Resident Ordinary (NRO) , Non Resident External (NRE) account and Foreign Currency Non resident (FCNR) Account in India. In this articles we will discuss all the banking and taxation aspect of an NRO account.
Who can open a Non Resident Ordinary (NRO) Account
As soon as a person leaves India with an intention to stay outside India for an indefinite period, he becomes a non resident and he should intimate his existing banker about he having become a non resident. The bank on receipt of such intimation designates his existing bank account/s as NRO account. Even a non resident person can a open a fresh NRO account afterwards also. A person who is not an NRI can also open the NRO account during his visit to India for the limited purpose during his stay in India
The NRO account can be opened jointly with any resident or any other NRI. This account is rupee denominated. However a citizen of Pakistan or Bangladesh requires a prior permission to open NRO account in India. NRO account can be in the form of a saving account, current account, Recurring account or a fixed deposit account. In addition to Indian citizen who has become non resident even non Indian citizens who are person of Indian Origin (PIO) can also open NRO account in India. This account can also be operated by a resident power of attorney holder.
What debits and credit are allowed in NRO account
Any amount which is remitted to India from abroad through proper banking channel can be credited in the NRO account. In addition, the NRI, while in India, can deposit foreign currency upto $5000 duly supported by currency declaration form. Money can also be transferred to NRO account from NRO account of any other NRI. Any regular income like rent, dividends, pension etc. of the NRI can also be credited to his NRO account. A resident who is close relative of the NRI can also make gift or lend money to NRI in Indian rupee and the same can be deposited in his NRO account. Sale proceeds of property owned by the NRI can likewise be deposited in the account.
The money in NRO account can be used for making remittances outside India upto $ 10 lakhs every year subject to some procedural compliances. The money in NRO account can also be used for making regular local payments in rupee like rents for property, taxes. This amount can also be used for making investments in non repatriation basis in India.
Tax and TDS provisions on interest on NRO account
Though for resident Indians interest on savings bank account is taxable but there is no provision for deduction of tax at sources on saving bank account interest. However in case of interest on NRO savings account the banks are required to deduct tax at 20% plus applicable surcharge. Both residents and non residents are entitled to a deduction under Section 80 TTA for an amount upto Rs. 10,000/- in respect of interest on Saving bank account.
Interest on NRO account, in the form of fixed deposits and recurring deposits maintained by a NRI, is taxable for resident as well as NRIs. However a resident can submit form no. 15 G or 15H for non deduction of tax at source on such income, a non resident is not eligible to submit such forms. The applicable TDS rate for NRI is 20% as against 10% applicable for resident Indians.
Transfer from NRO account to NRE Account or Remittance from NRO account outside India
Transferring money from NRO account to an NRE account is treated like a foreign remittance and you are required to follow the procedure prescribed. You need to obtain a Chartered Accountant’s certificate and submit the same to the bank. In case the amount to be transferred represents any income which is taxable in India, the CA is required to certify that adequate taxes in respect of the money to be transferred have been duly paid.
- “Non Resident Ordinary” (NRO)
After having explained you about the “Non Resident Ordinary” (NRO) Account , let us now understand all about the Non Resident External (NRE) account.
Who can open this account and currencies in which this account can be opened
This account can only be opened by a person of Indian Origin or a person who has become a non resident under FEMA (Foreign Exchange Management) Act. Unlike the NRO account which can come into existence after you inform the banker about you having become a non resident the NRE account can only be opened after you have become an NRI uner FEMA. The NRE account can only be opened by you only personally and not by your power of attorney holder. You can maintain more than one NRE accounts in India. An NRE account/s can be jointly opened with any other NRIs but not with any other resident. Moreover a person of Pakistani or Bangladeshi citizenship can not open the NRE account.
Money between various NRE accounts can be freely transferred without any limit. Like NRO account an NRE account can be in various forms eg. Saving bank, Current Account, Fixed Deposits, recurring deposit etc. An NRE account can be opened only in Indian Rupees and no other currencies.
Please note that once you come back to India for good, you need to intimate the bank and the bank will redesignate your existing NRE accounts as resident accounts and the banking and taxation provisions apply accordingly.
What amounts can be credited in the account and what debits are allowed in NRE account
The NRE account is , for all practical purposes, treated as your bank account in a foreign country so money credited in this account can be freely remitted outside India without any restrictions. Since amounts lying in your NRE account can be freely remitted outside India without any limit, the RBI permits only limited amounts to be credited in these accounts. All the money remitted from outside India in any permitted currency can be freely credited in the NRE account. Likewise any amount realised on cheque drawn on your account in foreign currency can also be freely credited. Moreover proceeds of any draft or traveller cheques issued outside India can also be also credited to the NRE account.
You can also credit all the income as well as the sale proceeds of the investments made in India whether in government securities or in shares/bonds of Indian Companies, which were made on repatriation basis. Under repatriation facility you are allowed to send back the money, realised and income on the amounts invested, outside India without any restrictions. The investments on repatriation basis can only be made from an NRE or FCNR (Foreign Currency Non Resident) account or by direct remittances from outside India.
You can also tender any foreign currency, during your visit to India, which was brought by you and declared on the foreign currency declaration form while landing in India as long as you are a non resident under FEMA.
The NRE account can be used for the purpose of making investments in India either on repatriation basis or on repatriation basis. Money lying to the credit in this account can also be remitted outside India freely as well can be used for local payments. This account can also be used for payment of EMI of home loans. Loans can also be obtained against security of balance in these accounts in India as well as outside India.
Transfer between NRO and NRE Account
The amounts lying in your NRE account be freely transferred to your NRO account but for transferring money from NRO account to NRE account you need to pay the applicable taxes on such money if applicable and follow the prescribed procedure including a certificate from Chartered Accountant. It may please be noted that once the money is transferred from NRE account to NRO account, it can not again be freely transferred to NRO account and the facility, attached with money in NRE account, to freely remit the same outside India without any limit gets lost. So think twice before you transfer your money from NRE account to NRO account.
Taxation of interest on NRE account
Any interest on the NRE account is fully exempt under Section 10(4)(ii) of the Income Tax Act without any limit. Since the interest on such deposits is fully exempt the bank will not deduct any tax on such interest at source. However the interest on NRE account will become fully taxable once you become a resident under the FEMA.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)
By Balwant Jain (CA, CS and CFP)The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at firstname.lastname@example.org and @jainbalwant