What Is an NRO Account? Meaning, Features, Taxation, and Rules

Moving abroad rarely means cutting financial ties with India. Many NRIs continue to earn rent from a flat in Gurgaon, receive dividends from Indian shares, draw a pension, or hold fixed deposits opened years ago. All of this income is generated in India, and FEMA requires it to be managed through a specific type of account: the NRO account.

This article explains what an NRO account is, who needs one, what can be deposited into it, how it is taxed, how much can be repatriated, and how it differs from an NRE account.

What Is an NRO Account?

An NRO account (Non-Resident Ordinary account) is a bank account in India that allows a Non-Resident Indian (NRI) to receive and manage income earned in India. The account is maintained in Indian rupees.

Typical credits to an NRO account include rental income, dividends, pension, interest from Indian investments, and sale proceeds of Indian assets. NRIs can also deposit money received from abroad into an NRO account, which makes it more flexible than an NRE account in terms of what it can hold.

NRO accounts are governed by the Foreign Exchange Management Act, 1999 (FEMA) and the rules issued by the Reserve Bank of India (RBI).

Who Needs an NRO Account?

An NRO account can be opened by:

• Non-Resident Indians (NRIs): Indian citizens living outside India
• Overseas Citizens of India (OCIs): Foreign nationals of Indian origin holding an OCI card

An NRO account becomes necessary for anyone who has continuing income in India after becoming a non-resident. Under FEMA, once a person becomes an NRI, they are not allowed to keep operating a regular resident savings account. Their existing resident account must be converted into an NRO account, or closed.

What Money Can Be Deposited in an NRO Account?

An NRO account accepts funds from both Indian and foreign sources. Permitted credits include:

• Rent from Indian property
• Dividends from Indian shares and mutual funds
• Pension from an Indian employer or government
• Interest on Indian investments and deposits
• Sale proceeds of property, shares, or other assets in India
• Inward remittances from abroad through banking channels
• Transfers from another NRO account or from an NRE account
• Foreign currency tendered during a visit to India, subject to declaration rules

This flexibility is one of the main reasons NRIs keep an NRO account alongside their NRE account.

What Types of NRO Accounts Are Available?

Banks offer NRO accounts in the same formats as regular accounts:

NRO savings account: Used for receiving income, making payments in India, and managing everyday transactions.

NRO current account: Suited to NRIs with frequent or business-related transactions in India.

NRO fixed deposit: Allows NRIs to invest surplus funds for a fixed period. Tenures typically start from as little as seven days, depending on the bank.

NRO recurring deposit: Lets NRIs save a fixed monthly amount over a set period.

What Are the Key Features of an NRO Account?

Rupee-denominated: The account is held in Indian rupees, and foreign deposits are converted at the prevailing exchange rate.

Accepts Indian and foreign funds: Both Indian-sourced income and money remitted from abroad can be credited.

Limited repatriation: Unlike the NRE account, funds in an NRO account cannot be freely sent abroad. Repatriation is subject to limits and tax compliance.

Taxable interest: Interest earned is taxable in India, and the bank deducts TDS at source.

Joint holding with residents: An NRO account can be held jointly with a resident Indian or with another NRI, usually on an "either or survivor" basis. This makes it convenient for NRIs who want a family member in India to operate the account.

Nomination and power of attorney: NRIs can appoint a nominee and can also authorise a resident through a power of attorney to handle local payments.

How Is an NRO Account Taxed?

Taxation is the most important difference between NRO and NRE accounts.

Interest is taxable: Interest earned on NRO savings and fixed deposits is treated as income in India and taxed at the applicable rate.

TDS on interest: Banks deduct TDS on NRO interest at the rate applicable to non-residents, which is generally 30% plus surcharge and cess. This is considerably higher than the rate applied to resident depositors.

DTAA benefit: If India has a Double Taxation Avoidance Agreement (DTAA) with the NRI's country of residence, a lower rate of TDS may apply. To claim this, the NRI usually needs to submit a Tax Residency Certificate (TRC), Form 10F, and a self-declaration to the bank.

Refund through ITR: If the TDS deducted is higher than the NRI's actual tax liability, the excess can be claimed back by filing an income tax return in India.

Since tax rates and procedures may change, NRIs should check the latest rules before the start of each financial year.

How Much Money Can Be Repatriated From an NRO Account?

Repatriation from an NRO account works in two parts.

Current income: Income such as rent, interest, dividends, and pension can be remitted abroad after applicable taxes have been paid.

Other balances: Beyond current income, NRIs can repatriate up to USD 1 million per financial year from NRO balances. This includes sale proceeds of property and other assets in India, provided the assets were acquired in accordance with the rules.

For repatriation, banks generally require Form 15CA, filed online by the remitter, and in many cases Form 15CB, a certificate from a chartered accountant confirming that taxes have been paid.

Can Money Be Transferred From NRO to NRE Account?

Yes. An NRI can move funds from an NRO account to an NRE account, but the transfer counts towards the USD 1 million annual limit and requires tax compliance and supporting documents.

Transfers in the opposite direction, from NRE to NRO, are freely allowed.

What Is the Difference Between an NRO Account and an NRE Account?

Both accounts are rupee-denominated and available to NRIs, but they serve very different purposes.

Source of funds: An NRE account can receive only foreign earnings. An NRO account is designed for Indian income, though it can also accept foreign remittances.

Repatriation: NRE funds are fully repatriable. NRO funds can be repatriated only within the USD 1 million per financial year limit, apart from current income after tax.

Tax on interest: NRE interest is tax-free for non-residents. NRO interest is taxable, with TDS deducted by the bank.

Joint holding: An NRE account can be held jointly with a resident relative only on a former-or-survivor basis. An NRO account can be held jointly with a resident on an either-or-survivor basis, allowing the resident to operate it freely.

Exchange rate risk: Both accounts are held in rupees, so both carry exchange rate risk when funds are converted back into foreign currency.

In practice, most NRIs benefit from holding both accounts: the NRE account for money earned abroad and the NRO account for money earned in India.

How Is an NRO Account Useful for NRI Property Owners?

For NRIs who own or invest in property in India, the NRO account plays a central role.

Receiving rent: Rental income from Indian property must be credited to an NRO account. The tenant is generally required to deduct TDS before paying rent to an NRI landlord.

Receiving sale proceeds: When an NRI sells property in India, the sale proceeds are usually credited to the NRO account, particularly if the property was bought using Indian funds or through a home loan.

Paying for property: NRIs can also use NRO funds to buy property in India, as FEMA permits payment through NRO accounts.

Home loan repayment: EMIs on an NRI home loan can be paid from the NRO account, especially when the rent from the same property is credited there.

Paying property-related expenses: Property tax, maintenance charges, utility bills, and society dues can be conveniently paid from the NRO account.

Repatriating after sale: Once taxes are paid, sale proceeds in the NRO account can be repatriated within the annual limit using Form 15CA and Form 15CB.

What Documents Are Required to Open an NRO Account?

Banks generally ask for:

• Passport (copy of relevant pages)
• Valid visa, work permit, residence permit, or OCI card
• Overseas address proof
• Indian address proof, if available
• PAN card, or Form 60 where PAN is not available
• Recent passport-size photographs
• Completed account opening form and KYC documents

If an existing resident account is being converted, the bank will usually ask for proof of the change in residential status, along with an updated KYC.

What Happens to an NRO Account When an NRI Returns to India?

When an NRI returns to India permanently, the NRO account must be redesignated as a resident account. This is usually a simple process, since the account is already rupee-denominated and linked to Indian income. The account holder needs to inform the bank and submit proof of return, after which the account continues as a regular savings or current account.

Final Thoughts

An NRO account is the practical home for everything an NRI continues to earn in India. It keeps rental income, dividends, pension, and sale proceeds compliant with FEMA, offers the flexibility of joint holding with family members, and provides a structured route for repatriation. While its interest is taxable and repatriation is limited, it is an essential account for any NRI who owns property or investments in India.

Used alongside an NRE account, it allows NRIs to keep foreign and Indian money clearly separated, which makes tax filing, compliance, and future repatriation far easier.

Frequently Asked Questions (FAQs)

1. Is it mandatory for an NRI to convert a resident savings account into an NRO account?

Yes. Under FEMA, once a person becomes an NRI, their resident savings account must be converted into an NRO account or closed.

2. Can I hold an NRO account jointly with my parents in India?

Yes. An NRO account can be held jointly with resident Indians, including parents, and they can operate it if the account is on an either-or-survivor basis.

3. Is interest on an NRO account tax-free?

No. Interest on an NRO account is taxable in India, and the bank deducts TDS at the rate applicable to non-residents.

4. Can I reduce TDS on my NRO interest?

Yes. If India has a DTAA with your country of residence, you may be able to claim a lower rate by submitting a Tax Residency Certificate, Form 10F, and a self-declaration to the bank.

5. Where should rent from my property in India be credited?

Rental income from Indian property must be credited to an NRO account, not an NRE account.

6. How much money can I send abroad from my NRO account?

Current income such as rent, interest, and dividends can be remitted after taxes. In addition, up to USD 1 million per financial year can be repatriated from NRO balances, including sale proceeds of property.

7. What are Form 15CA and Form 15CB?

Form 15CA is a declaration filed online by the person making a foreign remittance. Form 15CB is a certificate from a chartered accountant confirming that the applicable tax has been paid. Banks usually require them before processing repatriation from an NRO account.

8. Can I deposit foreign currency into an NRO account?

Yes. An NRO account can receive inward remittances from abroad, although money deposited this way becomes subject to NRO repatriation limits.