NRO Account (Non-Resident Ordinary Account)

Definition

A Non-Resident Ordinary (NRO) account is a rupee-denominated Indian bank account that NRIs use to receive income arising in India — rental receipts, dividends, pensions, sale proceeds of Indian property — as well as foreign remittances. Regulated under the Foreign Exchange Management (Deposit) Regulations 2016 — RBI Master Direction FEMA.5(R)/2016-RB — the NRO account is the designated repository for India-sourced income. Unlike the NRE account, NRO funds are treated as non-repatriable except within a USD 1 million cap per financial year under RBI Master Direction on Remittance Facilities for NRIs under FEMA.

Eligibility + How to Open

Any NRI, PIO, or OCI is eligible to hold an NRO account. Resident Indians who are subsequently going abroad must convert their existing resident savings account to NRO status by notifying the bank — this is mandatory under FEMA 1999 once a person qualifies as NRI. Account types include savings, current, recurring deposit, and fixed deposit. KYC documents required:

• Passport (Indian or foreign) with valid visa
• Proof of NRI status (employment visa, work permit, or student visa)
• Overseas address proof not older than 3 months
• PAN card (mandatory for high-value transactions and TDS credit)

Joint accounts are permitted with resident Indian close relatives as joint holders. The resident relative cannot operate the account independently. Video-KYC is available at most scheduled commercial banks under RBI Video-KYC Master Direction 2021.

Tax Treatment

Interest on NRO deposits is fully taxable in India. TDS is deducted at 30% plus applicable surcharge plus 4% health and education cess under Section 195 of the Income Tax Act 1961, regardless of the amount. This rate can be reduced under a DTAA — for example, the India-UK DTAA (Article 11) caps interest withholding at 15%, and the India-US DTAA limits it to 15% for beneficial owners. To claim the DTAA rate, the NRI must furnish a Tax Residency Certificate (TRC) from the country of residence along with Form 10F. Excess TDS withheld beyond actual liability can be claimed as a refund by filing an ITR in India under Sections 237-240 of the IT Act.

Repatriation / Remittance Rules

NRO funds are non-repatriable in the general sense, but repatriation up to USD 1 million per financial year is permitted under RBI Master Direction on Remittance Facilities for NRIs, subject to:

• Submission of Form 15CA (self-declaration on incometax.gov.in) and Form 15CB (Chartered Accountant certificate for amounts exceeding Rs 5 lakh)
• Documentary evidence that funds represent income arising in India and applicable taxes have been paid or TDS deducted
• Authorised Dealer (AD) bank approval

The USD 1 million cap includes both current and capital account transactions. Property sale proceeds beyond this cap require specific RBI approval.

Worked Example

Rajesh, an NRI in Dubai, earns Rs 8 lakh annually in Indian rental income from two flats in Pune. The bank deducts TDS at 31.2% (30% plus 4% cess) = Rs 2.49 lakh. Under the India-UAE DTAA with a valid Tax Residency Certificate, Rajesh may be eligible for a reduced withholding rate. He files an Indian ITR-2, claims deductions under Section 24(a), and receives a refund of Rs 40,000 excess TDS. He then remits Rs 5 lakh from the NRO account to his Dubai account by filing Form 15CA online and obtaining Form 15CB from his CA, staying within the USD 1 million annual cap.

Common Mistakes

• Not furnishing TRC + Form 10F: Banks default to 31.2% TDS. Without a valid Tax Residency Certificate, the reduced DTAA rate is unavailable and overpaid TDS must be recovered via ITR.
• Exceeding USD 1M without RBI approval: Repatriating more than USD 1 million in a financial year without RBI approval is a FEMA violation — penalties can be three times the amount remitted.
• Treating NRO and NRE as interchangeable: Foreign income must go to NRE; Indian-source income must go to NRO. Cross-crediting violates FEMA.

See Also

• NRE Account
• Non-Repatriable Funds
• DTAA (Double Taxation Avoidance Agreement)
• NRI Investing from Abroad — Complete Guide
• HDFC Bank

Primary Sources

• RBI Master Direction FEMA.5(R)/2016-RB — rbi.org.in
• Income Tax Act 1961, Section 195 — incometax.gov.in
• RBI Master Direction on Remittance Facilities — rbi.org.in

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