NRO Account Rules Every NRI Must Know: Deposits, Tax on Interest, and the $1 Million Repatriation Limit Explained

What Is an NRO Account and Who Needs One?

A Non-Resident Ordinary (NRO) account is a special bank account for Indians who have become Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), or Persons of Indian Origin (PIOs). If you earn income in India after moving abroad—such as rent, dividends, or pension—the Reserve Bank of India (RBI) requires you to route that money through an NRO account instead of a regular Indian savings account.

What Funds Can Be Deposited Into an NRO Account?

NRO accounts are designed to manage your Indian income and assets. RBI rules are strict about sources of funds you can deposit:

• Indian income: Rent from property, dividends, pensions, and other local earnings after you acquire non-resident status.
• Transfers from Indian accounts: You can move funds from your earlier resident bank account, another NRO account, an NRE or FCNR (B) account.
• Remittances from abroad: Send money into your NRO via formal banking channels.
• Personal cheques from foreign accounts: Directly deposit using your overseas bank’s cheque, subject to clearing.
• Foreign currency or travellers’ cheques: Deposit cash or cheques, but remember RBI requires a currency declaration if you bring in over USD 5,000 (cash) or USD 10,000 (traveller’s cheques) on one trip.
• Proceeds from non-repatriable investments: If you invested in Indian assets where you can’t freely move money out, interest or maturity payouts can be deposited here.

NRO Interest Tax: What NRIs Should Expect

Unlike NRE and FCNR accounts, NRO account interest is fully taxable in India.

• TDS (Tax Deducted at Source) applies to all interest—typically at 30% (plus surcharge and cess, if applicable), unless you claim a lower rate under a tax treaty with your country of residence.
• Indian income tax return: If your total Indian income (across all sources) exceeds the exemption limit, you must file an Indian income tax return. Otherwise, tax is usually limited to the TDS.
• No special tax benefit: Unlike NRE accounts, there is no exemption from Indian tax on NRO interest. Even if interest is small, banks will deduct TDS upfront.

Repatriation Limits: How Much Money Can You Move Out?

NRO accounts do NOT allow unlimited outward remittance. You face strict controls:

• USD 1 million (or equivalent) per financial year: This is the maximum you can send from your total NRO balance (including sale proceeds of assets and current earnings), after paying applicable taxes. If you need to repatriate more, RBI approval is required—this is rare and not guaranteed.
• Repatriation Steps:

1. Tax compliance: You must provide proof that all Indian taxes due on the money have been paid. This usually means Form 15CA/CB and a Chartered Accountant’s certificate.

2. Source check: The bank will ask for documents proving the origin of funds, especially for large or unusual transfers.

• No daily access: You can withdraw Indian Rupees in India, but you can only repatriate up to the annual cap in tradable foreign currency (like USD, EUR, GBP) abroad.

NRO vs NRE Accounts: Spot the Key Differences

What Should NRO Account Holders Watch Out For?

1. Never pool remittances with untaxed Indian income: Source documentation is essential. If you cannot prove the legality of deposits, repatriation may be delayed or denied.
2. Do not use resident accounts: Once you become NRI, using a resident savings account is illegal—convert it to NRO immediately.
3. Claim TDS refund if eligible: File your Indian tax return if TDS exceeds your actual tax due, or if tax treaty rates are lower.

Example: Repatriating Money from Indian Rental Income

Suppose you are an NRI with ₹20 lakh annual rental income in India:

• Deposit this into your NRO account.
• Bank deducts TDS on interest earned.
• At year-end, after paying Indian income tax on the rental income and filing Form 15CA/CB, you can repatriate up to USD 1 million (convert using prevailing RBI rate). Any excess must wait until the next financial year.

Documentation Required

• Currency declaration form (if depositing cash or traveller’s cheques above limits)
• CA certificate (Form 15CB) and Form 15CA (for outward remittance)
• Proof of tax paid for the amount being repatriated

Bottom line: An NRO account allows NRIs, OCIs, and PIOs to legally manage and remit Indian earnings, but it comes with taxation and annual repatriation hurdles. Get your paperwork right to avoid compliance delays.