NRO Account
An NRO (Non-Resident Ordinary) account is a rupee-denominated bank account in India maintained by an NRI to manage income earned within India — such as rent, dividends, pension, or interest — and is subject to Indian income tax on interest earned.
While the NRE account was designed for foreign earnings remitted to India, the NRO account served the opposite purpose: managing money that originated from Indian sources. An NRI who continued to receive rent from a property in Mumbai, dividends from shareholdings in Indian companies, maturity proceeds from an Indian life insurance policy, or pension from a former Indian employer needed an NRO account to receive and manage these inflows.
A key distinction between NRO and NRE accounts was their repatriability. Under FEMA rules, repatriation from an NRO account was restricted to USD one million per financial year, inclusive of taxes paid. Any repatriation beyond this limit or involving certain categories of income required specific RBI approval. This limitation reflected the fact that NRO balances represented income earned within India's regulatory perimeter, unlike NRE balances which represented foreign earnings brought in.
Interest earned in an NRO account was taxable in India at the applicable rate. Banks deducted TDS at 30 percent (plus surcharge and cess) on NRO interest for NRIs, which was significantly higher than the 10 percent TDS applicable on domestic resident accounts. NRIs from countries with which India had a Double Taxation Avoidance Agreement (DTAA) could apply for a lower TDS rate by submitting a Tax Residency Certificate (TRC) and Form 10F to the bank, potentially reducing the TDS to 10–15 percent depending on the treaty provisions.
Conversion of NRE accounts to NRO accounts and vice versa was a regulated activity. When an NRI returned to India on a permanent basis and regained resident status, NRE accounts were required to be redesignated as resident accounts or NRO accounts within a specified period. Failure to do so violated FEMA and could attract penalties.
NRO accounts were available as savings accounts, current accounts, fixed deposits, and recurring deposits. The funds in an NRO account could be freely used for all local payments in India — property maintenance, family support, investing in domestic instruments — without the currency conversion complexity of an NRE account. Joint holding with a resident Indian close relative was permitted on a 'former or survivor' basis, which was useful for NRIs who wanted a trusted resident family member to manage transactions on their behalf.