By Apalka Bareja and Vidhi Oberoi
Non-Resident Ordinary (NRO) Account is an account held by a Non-Resident Indian (NRI) which allows him/her to deposit the saving and earnings earned from Indian sources in the NRO account. NRO Account allows the holder to repatriate the Indian earnings to his/ her country of residence. In simple words, NRO account allows to efficiently manage the earnings earned in India such as rental income, dividend, pension etc.When a person resident in India leaves India for taking up employment in another country, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his/ her existing account should be designated as an NRO account. After an individual becomes an NRI, he/she cannot continue with his/her saving/ current account in India and is required to convert the same to an NRO Account to do any banking transaction in India.
Foreign Exchange Management (Deposit) Regulations, 2016
Foreign Exchange Management (Deposit) Regulations, 2016 (hereinafter referred to as “Regulations”) lays down that an authorized dealer or an authorized bank may accepts deposits under the NRO Account Scheme. Schedule 3 of the Regulations lays down the provisions governing NRO Scheme in India.
Key provisions of the NRO Scheme
- Eligibility – Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transactions in Indian currency. Individuals/ entities of Pakistani and Bangladeshi nationality are required to obtain prior approval from RBI before opening the NRO account.
- Types of Accounts – NRO accounts may be opened/ maintained in the form of current, savings, recurring or fixed deposit accounts.
- Permissible Credits to NRO Account –
- Proceeds of remittances received in any permitted currency from outside India through banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.
- Legitimate dues in India of the account holder.
- Transfers from other NRO accounts.
- Permissible Debits to NRO Account –
- All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by RBI.
- Remittance outside India of current income in India of the account holder net of applicable taxes.
- Transfers to other NRO accounts.
- Settlement of charges on International Credit Cards issued by authorised dealer banks in India to NRIs or PIOs.
- Remittance of funds held in NRO accounts- Balances in NRO accounts are not eligible for remittance outside India without the general or specific approval of Reserve Bank. Where an account is opened by a foreign tourist visiting India, with funds remitted from outside India or by sale of foreign exchange brought by him to India, authorised dealers may convert the balance in the account at the time of departure of the tourist from India to foreign currency for payment to the account holder provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.
- Joint Accounts – The accounts may be held jointly with residents on ‘former or survivor’ basis. NRIs and/or PIOs may hold NRO account jointly with other NRIs and/or PIOs.
- Operation by Power of Attorney – Authorised dealers/ authorized banks may allow operation on an NRO account in terms of a Power of Attorney, provided such operations are restricted to (i) all local payments in rupees including payments for eligible investments subject to compliance with relevant regulations made by the Reserve Bank; and (ii) remittance outside India of current income in India of the non-resident individual account holder, net of applicable taxes. The resident Power of Attorney holder shall not repatriate outside India funds held in the account under any circumstances other than to the non-resident individual account holder himself nor shall make payment by way of gift to a resident on behalf of the non-resident account holder nor transfer funds from the account to another NRO account. Any remittance outside India shall be within the ceiling as may be prescribed by the Bank from time to time and subject to tax compliance.
Tax deduction on interest earned on NRO account
The interest earned on an NRO Account is taxable. The interest will attract TDS (tax deducted at source) at the rate of 30%. Also, the amount of money that can be repatriated is restricted to up to $1 million per financial year.
As per the Foreign Exchange Management Act (FEMA), 1999 when the resident status of an individual changes to that of an NRI, the existing resident saving bank account is required to be closed or the same is required to be converted into an NRO account.
Under Section 13 of the Foreign Exchange Management Act, 1999, in case of violation of the above-mentioned provision, the individual shall be liable to pay penalty up to three times the amount involved or up to INR 2 lakh if the amount is not quantifiable. A further penalty of INR 5000 per day may be applicable in case of a continuing offence.