The legal system in India does not permit Indians working and earning abroad to manage their finances and transact through a normal savings account with a local Indian bank.
To solve this issue and make the lives of Non-Resident Indians living abroad more convenient, you should consider opening a Non-Resident Ordinary bank account.
This account is perfect for those who primarily have foreign income but also have a few income sources in India.
Non-Resident Ordinary (NRO) Account
A Non-Resident Ordinary account is a bank account opened in India under a Non-Resident Indian to allow them to manage their finances and income earned abroad and earned in India.
There are no restrictions regarding the source of income as long as it is earned in India.
This income could be through rent, dividends, pensions or interest.
However, the interest earned on a Non-Resident Ordinary account is taxed at 30% under the Income Tax 1961.
Who is eligible to open an NRO account?
A non-resident Indian is anyone who has lived outside India for at least 120 days in a year and has spent less than 365 days in India in the past four years.
All those who fit this criteria are eligible to set up an NRI account.
Anyone who leaves India with the intention to work in another country will have their residential status switched to an NRI automatically.
Is an NRO account repatriable?
While the interest amount in a Non-Resident Ordinary account can be repatriated, the principal amount one can remit is capped at one million USD for every financial year.
Are there any tax obligations on an NRO account?
The interest earned on an NRO account is also subject to tax as opposed to NRE accounts which are repatriable tax-free.
However, NRIs with NRO accounts can decrease their tax obligations in India by obtaining tax benefits as per the Double Taxation Avoidance Agreement that applies to many different countries including India.
Can you open a joint NRO account?
A Non-Resident Indian can open a joint NRO account with one or more NRIs or Indian citizens.
Therefore, setting up an NRO account may be a better option for those NRIS who want a joint account with family members back home.
This is an advantage compared to an NRE joint account which you can only open with another Non-Resident Indian.
How do withdrawals work?
With an NRO account you can deposit income both earned outside and inside India.
However, withdrawals from an NRO account can only be made in Indian Rupee denomination.
This is similar to an NRE account where you can deposit foreign currency but you can only withdraw the funds in Indian denomination.
Are there any exchange rate risks?
With an NRO account, if the deposit and withdrawal are both made in Indian Rupees, there is no exchange rate applied which saves an NRI from conversion loss and exchange rate fluctuations.
This is another advantage compared to opening an NRE account where experiencing conversion loss and exchange rate fluctuations is very common.
Which accounts can I open with an NRO account?
You can open the following types of accounts with an Non-Resident Ordinary Bank account in India:
- A current account
- A savings account
- A term deposit account
- A special term deposit account
- A recurring deposit account
Are there any other benefits of opening an NRO account?
Depending on the bank of your choice in India, you may also benefit from the following additional benefits and features to manage your finances:
- A Non-Resident Indian family card
- A local debit card
- A multi-city cheque book
- Internet banking
- SMS alerts
What documents are required to open an NRO account?
You will need to provide the following documents and personal information details to set up an NRO account in India:
- Proof of identity (through a copy of your passport or identity card)
- Proof of status as a Non-Resident Indian (through a copy of your visa, residency permit, work permit, Person of Indian Origin document or Overseas Citizen of India card)
- Proof of residence abroad (through a copy of your lease, utilities bill or bank statement)
- Proof of Indian residence address
- PIS permission letter
- Canceled cheque
An NRO account is used to manage funds generated from income sources in India.
Therefore, if you have sources of income earned in India, you should consider setting up an NRO account as an NRE account will not cater to your needs.
It simply allows you to transfer your money earned abroad to an account in India while avoiding any tax liabilities.
Having an NRO account allows you to manage your income earned in India within the country.
Again, these earnings can include rent, regular income, dividends or income earned from the sale of a property.