Many non-resident Indians (NRIs) have properties in India that they usually rent out or invest in shares in the Indian stock market. NRIs cannot directly collect the proceeds from these investments into their overseas bank accounts. For this purpose, NRIs prefer to open a non-resident ordinary (NRO) account in India. This type of bank account enables them to collect their earnings from sources within India and use them for their expenses abroad. But besides this, there are many other uses and limitations of NRO accounts that NRIs need to know. Here is a detailed breakdown of all these and more.
What is an NRO account?
Before opting to open NRO account online, you need to know what this account is and who is eligible for it. An NRO account is technically an Indian Rupee-denominated bank account. It can be either a savings, or fixed deposit account
It can be said that a non-resident ordinary (NRO) account is the opposite of a non-resident external (NRE) account. While an NRE account is used to deposit foreign income into an account based in India, an NRO account is used to deposit Indian income in an Indian bank account.
The reason that NRO accounts exist is that they enable NRIs to easily deposit and manage their income earned in India (like rental income or income from stock dividends). Some banks, like IDFC FIRST Bank, offer these facilities online so you can independently do it sitting abroad.
When to use an NRO account?
Opening an NRO account is the same as the typical NRI account opening process. But before going through with it, you need to know whether you actually need it. There are several uses of an NRO account, and if you have any of the requirements given below, then you should proceed with the account opening process.
- If you earn rental income from a real estate property in your name, located in India, that you have rented out.
- If you receive a pension (whether government or military) or even annuity payments in India.
- If you have invested in Indian stocks, mutual funds, or fixed deposits and receive regular dividends or interest payouts from these.
- If you wish to use your income earned in India to pay for equated monthly instalments (EMIs), taxes, or even indulge in household expenses of family members residing in India.
Therefore, when you open an NRO account online, you can conduct both incoming and outgoing transactions through it. This makes it a versatile banking tool for NRIs who wish to collect their income from sources within India and use it for expenses within India, while residing abroad themselves.
Repatriation rules and limits
Before choosing the option of NRI account opening in India, there are certain rules and limits to an NRO account as per the regulations of the Foreign Exchange Management Act (FEMA) of 1999.
- In the case of a fixed deposit in an NRO account, the principal amount and the interest earned can only be repatriated to your overseas location up to USD 1 million per financial year.
- Whenever you choose to repatriate funds from your NRO account to your overseas location, you will have to pay off any pending taxes applicable to your earnings.
- In the case of repatriating funds or linking further sources of income generated in India with your NRO account, proper documentation and bank approvals are necessary.
If you have an NRO account with banks like IDFC FIRST Bank, then an expert is sure to guide you through all these rules and regulations.
Who needs an NRO account?
Given all the uses and limitations of NRO accounts, it is clear that it is only beneficial for those who are looking to:
- Save their income earned from sources within India.
- Transact regularly using their income earned domestically within India.
- Repatriate funds abroad from their income earned in India.
- Moved abroad, and you currently have a regular savings account in India.
In the last case, you should apply to convert your regular savings account into an NRO account before you move abroad.
The takeaway
Since NRO accounts are so vital for NRIs, it is essential to choose the right type of NRO account. It is advisable to carefully evaluate your income, expenses, assets, and liabilities and then apply for the right type of NRO account.
