An Non-Resident Ordinary Rupee (NRO) account is a savings or current account held by NRIs in India in order to manage their income earned in India. NRO account-holders can deposit and manage their accumulated rupee funds without any hassle with this account. The account allows NRIs to receive funds in Indian or foreign currency.
One can apply for an NRO account jointly with a resident Indian or even an NRI. They can transfer money from their current NRE account. However, the interest they earn in this account is subject to Tax Deducted at Source (TDS).
It may be noted that as per the Foreign Exchange Management Act (FEMA) guidelines, it is illegal for NRIs to have saving accounts in their name in India. It is mandatory for them to convert all their savings (money earned abroad) to a Non-Resident rupee (NRE) or NRO. Continuing to use the savings account in the home country can attract hefty penalties.
Opening an NRE or NRO account is a viable option for NRIs to manage their income. For those who are not aware, both NRE and NRO accounts are Indian rupee accounts. You can open them as savings as well as current accounts. Also, the average monthly balance you must maintain for both the account is Rs 75,000. These accounts can help them in two ways. One, they can send the money they earn abroad to India anytime. Two, they can also retain their income from India (via any assets) in the home country itself.
However, one must know that NRO accounts have limited access for repatriation. An NRO account restricts you from remitting more than $1 million (Rs 7.14 crore) inclusive of taxes during an assessment year. You can repatriate the interest amount freely, but the principal amount can be repatriated only within the set limits. It also requires an undertaking along with a certificate from a Chartered Accountant (CA). Repatriation for NRE account holders, on the other hand, is free for both the principal and the interest amount.
It is worth mentioning that the interest earned in NRO account and credit balances are subject to respective income tax bracket. They are also subject to applicable wealth and gift tax. You can avail the reduced tax benefit under the Double Taxation Avoidance Agreement (DTAA).
An NRI can open a joint NRO account with one or more NRIs or Indian citizens. However, there can be a joint NRE account only with another NRI. Withdrawals from both the accounts can be made only in Rupees. In case of an NRO account, if the deposit, as well as the withdrawal, is made in rupee, there is no exchange rate risk involved; whereas, in case of an NRE account, currency fluctuations make you prone to exchange rate risks.
Published on 4 December 2019
Source: ET Now News