NRO Accounts: Taxable but repatriable up to a limit

In our NRI personal finance series this time we look at the rules governing Non-Resident (Ordinary) Accounts.

Below are some of the dos and don’ts for an NRO Account, according to the Reserve Bank of India:

  • Any person residing outside India can open an NRO account for putting through bonafide transactions in rupees.
  • Individuals/ entities of Pakistan nationality/ origin and entities of Bangladesh origin require the prior approval of the Reserve Bank of India.
  • A citizen of Bangladesh/Pakistan belonging to minority communities in those countries i.e. Hindus, Sikhs, Buddhists, Jains, Parsis and Christians residing in India can open only one NRO account with a bank subject to some conditions.
  • NRO accounts may be held jointly in the names of two or more NRIs/PIOs. They may be held jointly with residents. And only in Indian Rupees
  • NRO account can be savings, current, recurring and fixed deposits. The fixed deposits period can be as long as the resident Indian accounts.
  • Deposit inward remittances, legitimate dues in India and transfers from other NRO accounts
  • Rupee gift/ loan made by a resident to a NRI/ PIO relative within the limits prescribed under the Liberalised Remittance Scheme may be credited to the latter’s NRO account.
  • The account can be debited for local payments, transfers to other NRO accounts or remittance of current income abroad.
  • NRIs, PIOs can repatriate or take abroad only up to USD1 million from their balances in their NRO account. subject to conditions specified in Foreign Exchange Management (Remittance of Assets) Regulations, 2016.
  • Funds can also be transferred to a Non-Resident External account within this USD1 million limit
  • NRO balances are taxable. Loans can be taken against the deposits. They cannot be used for relending, for agricultural/plantation activities or investment in real estate. Not permitted are loans outside India on the back of the NRO account.
  • If you give a Power of Attorney to someone, they are restricted to withdrawals for permissible local payments in rupees, remittance of current income to the account holder outside India or remittance to the account holder himself through normal banking channels. While making remittances, the limits and conditions of repatriability will apply.
  • NRO accounts may be designated as resident accounts after the account holder moves back to India for an uncertain period.
  • Likewise, when a resident Indian becomes a person resident outside India, the existing resident account should be designated as NRO account.
  • An NRO account can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banks or by sale of foreign exchange brought by them to India. The balance may be paid to the account holder at the time of his departure from India provided the account has been maintained for six months and the account has not been credited with any local funds, other than interest accrued thereon.
  • Individuals of Bangladesh nationality can open an NRO account subject to the individual(s) holding a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned.

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Note: Connected to India articles on NRI personal finance are intended to help Non-Resident Indians (NRIs) understand the increasingly complex world of financial investments.