NRO Account Management In India – A Guide For Non-Residents

1. NRO Account Management In India – A Guide For Non-Residents When individuals move abroad, they often continue to earn income in India – through rent, interest, or dividends. To manage such earnings in compliance with FEMA regulations, Non-Resident Ordinary (NRO) accounts become essential. NRO account management in India ensures smooth financial operations, regulatory adherence, and tax compliance for NRIs, PIOs, OCIs, and foreign nationals. This blog explores the key features, rules, and practical aspects of effectively managing NRO accounts while living outside India. Understanding the NRO Account – A Transition, Not a Transformation NRO stands for Non-Resident Ordinary – a designation that applies to bank accounts held by persons who are residents outside India under FEMA. These accounts are primarily used to manage income originating in India and to facilitate day-to-day financial transactions. Consider this real-world scenario: For example, if Ms. Jyoti, a resident of India, migrates to Canada, becomes a non- resident and informs the bank of her change of status, the bank would re- designate her resident bank accounts as NRO accounts. The resident account is not converted or transferred to NRO but just re-designated as NRO in the banking system and for reporting to RBI. This re-designation ensures compliance with FEMA and accurate reporting to the Reserve Bank of India (RBI). Even after

2. re-designation, Jyoti can operate her account as usual – making payments, transferring funds, and accessing banking services. While she would get a new NRO cheque book, she may still be able to use her old resident cheque book to withdraw or transfer funds from the NRO account. Who can open and maintain an NRO Account? Only person resident out of India under FEMA can open NRO accounts. The NRO accounts can be Savings, Current, Recurring or Fixed Deposit accounts. NRO Accounts can be opened as a single holder or as a joint holder with other non- residents or with close relative residents. Eligible individuals include: Non-Resident Indians (NRIs) Persons of Indian Origin (PIOs) Overseas Citizens of India (OCIs) Foreign nationals This flexibility makes NRO accounts a preferred choice for non-residents who wish to retain an active financial presence in India while meeting all regulatory requirements. Currency and risk: The Rupee denomination factor An important aspect of NRO account management in India is understanding currency exposure. NRO account is denominated in Indian Rupees (INR) and the account holder assumes the currency risk. For example, if Jyoti transferred C$100,000 at Rs. 50/C$ and credit Rs. 5,000,000 in the NRO FD account. If rupee depreciates to Rs. 55/C$, the value in Jyoti’s currency would become C$90,909 i.e. a loss of C$9,091. Such currency fluctuations can significantly impact the actual value of the funds when viewed from an international perspective. Interest rates and deposit tenure Notably, NRO account holders enjoy interest rates that align with those offered on resident accounts. This includes fixed deposits, where the minimum tenure is seven days – consistent with domestic banking norms. This parity ensures that non-residents do not miss out on competitive interest returns merely due to their overseas status. Flexibility in withdrawal

3. Given the dynamic nature of financial planning, access to premature withdrawals becomes essential. Recognizing this, banks permit premature withdrawal of NRO deposits. However, they may levy penalties at their discretion. The applicable interest rate on prematurely withdrawn deposits follows the terms explained under standard banking policies, giving depositors clarity and options based on their needs. Managing Credits and Debits in an NRO Account One of the core pillars of effective NRO account management in India is understanding the permissible credits and debits. NRO accounts can be credited with a legitimate local source or remitted from abroad through a normal banking channel and can be used for all local payments as well as making investments in India on a non-repatriable basis. The remittance of current income like interest, dividend, rent, etc. is freely allowed after payment of tax and a CA certificate. Remittance out of balance held in NRO account or sale proceeds of assets is allowed up to US$ 1 million or equivalent per year for the bona fide purposes. Loans against NRO deposits Loans may be granted by the bank to non-resident account holders and to third parties against the security of NRO fixed deposits. However, the borrowed funds must be used as per the restrictions laid out in general banking regulations. In cases where the loan was sanctioned during residency and the individual subsequently attains NRI status, the bank may allow continuance of the loan/ overdraft facilities. Payment of interest and repayment of loan may be made by inward remittance or out of legitimate resources in India. This provision ensures that pre-existing financial obligations can transition smoothly even after a change in residential status. Status reversal: From Non-Resident back to Resident In the event of a return to India and reclassification as a “Resident” under FEMA, your NRO account must be re-designated as a resident rupee account. However, during the temporary visit to India, the account continues to be treated as an NRO account – offering flexibility without administrative burden during short- term stays. Nature of income and taxation rules Income from NRO accounts is typically derived from interest on savings and deposits. This income is taxable in India and subject to Tax Deducted at Source

4. (TDS). Interest on an NRO account is chargeable to tax for NRIs and TDS @ 31.2% is deducted. While an NRI can claim the DTAA benefit and lower the TDS to 10- 15%, he/she would need to obtain the Tax Residency Certificate (TRC) and submit it to the bank to deduct TDS at the DTAA rates. This is a crucial step in optimizing post-tax returns and avoiding dual taxation. Need help with NRO account management in India, DTAA filing, or repatriation? ExpertNRI helps NRIs handle financial, legal, and tax matters while ensuring compliance with FEMA and RBI regulations. Whether you're a new NRI or a seasoned global citizen, managing your NRO account in India effectively is key to maintaining smooth financial operations across borders. From understanding permissible transactions and repatriation limits to tax rules and status transitions, each element plays a role in your overall financial health. The NRO account is not just a compliance requirement; it’s a bridge that connects your life in India with your life abroad. With proper management, the NRO account serves as an effective financial instrument for non-residents with ongoing interests in India. Resource: NRO Account Management In India – A Guide For Non-Residents