BackNon Resident Ordinary (NRO) account: Money transfer to taxation explained
Any amount which is remitted to India from abroad through proper banking channel can be credited in the NRO or Non Resident Ordinary account
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All banking and investment transactions of a non-resident in India are regulated under Foreign Exchange Management Act (FEMA). Non-resident Indian citizens and Persons of Indian Origin (PIO) are collectively referred as non-resident Indians (NRI). They 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.
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 under the provisions of FEMA irrespective of his physical stay in India. Once you become a non-resident you should intimate your bank about you having become a non-resident immediately. On receipt of such intimation the banks will designate all your existing bank account/s as NRO account. You can also open a fresh NRO account after becoming a non-resident. 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. However, a citizen of Pakistan or Bangladesh requires a prior permission to open NRO account in India.
An NRO account can be opened jointly with any resident or any other NRI. All NRO accounts are rupee denominated and 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, a non-Indian citizen who is a Person of Indian Origin (PIO) can also open NRO account in India. Your NRO account can also be operated by any resident holding your power of attorney.
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. NRI can deposit foreign currency upto $5,000, while in India, duly supported by currency declaration form. Money can also be transferred to NRO account from NRO account of any other NRI. All your regular Indian incomes income like rent, dividends, pension etc. can also be credited to your NRO account. A resident who is your close relative can also make gift or lend money to you in Indian rupee and the same can be deposited in your NRO account. Sale proceeds of property owned by an NRI can likewise be deposited in the account.
Upto $1 million can be remitted outside India or transferred to your NRE account every year subject to some procedural compliances from NRO account. 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 India on non-repatriation basis.
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 it but banks are required to deduct tax at source on interest credited on all NRO accounts including NRO savings account. All Individual and HUF whether residents or non-resident 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 fixed deposits and recurring deposits accounts maintained by an NRI, is taxable for resident as well as NRIs. A resident can submit form no. 15 G or 15H for non deduction of tax at source on such income but the same facility is not available to a non-resident.
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.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.
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