An NRO (Non-Resident Ordinary) account is a rupee-denominated bank account used by NRIs to manage income earned within India, such as rent, dividends, or pension. Unlike NRE accounts, the interest earned on NRO deposits is taxable in India at a base rate of 30% (plus cess). Repatriation is capped at USD 1 million per financial year, subject to tax clearance and specific documentation.
Why Every NRI Needs an NRO Account
Once you transition to NRI status, Indian law mandates that you convert your resident savings accounts into NRO accounts. It serves as the primary gateway for:
Managing Indian Income: Depositing local earnings like rental income or stock dividends.
Paying Local Bills: Handling EMI payments, utility bills, or insurance premiums in India.
Joint Holding: Unlike NRE accounts, you can hold an NRO account jointly with a resident Indian relative on a "Former or Survivor" basis.
How Taxation Works on NRO Accounts (2026 Rules)
The interest earned on your NRO savings and Fixed Deposits is fully taxable in India.
Standard TDS: A default Tax Deducted at Source (TDS) of 31.2% (30% tax + 4% cess) is applied.
DTAA Benefits: You can reduce this rate to 10%–15% by submitting a Tax Residency Certificate (TRC) and Form 10F, leveraging the Double Taxation Avoidance Agreement between India and your country of residence.
No Form 15G/H: NRIs cannot submit these forms to avoid TDS; filing an Income Tax Return (ITR) is the only way to claim a refund for excess tax deducted.
Repatriation Limits and Process
While NRE funds are freely transferable, NRO funds have specific regulatory guardrails:
Annual Limit: You can repatriate up to USD 1 million per financial year from your NRO account.
Certification: For any remittance exceeding ₹5 lakh, you must obtain Form 15CB (a certificate from a Chartered Accountant) and file Form 15CA on the income tax portal.
Source Verification: Banks require proof that taxes have been paid on the funds being sent abroad (e.g., sale deed for property or TDS certificates for interest).
Best Practices for NRO Management
Convert Promptly: Avoid penalties by converting your resident accounts to NRO status immediately after becoming an NRI.
Optimize FD Placement: If you have repatriable foreign funds, park them in an NRE FD instead for tax-free interest. Use NRO FDs only for Indian-sourced earnings.
Monitor Form 26AS: Regularly check your tax credit statement to ensure the bank has correctly credited the TDS deducted.
FAQs
Frequently Asked Questions (FAQs)
Is the principal amount in an NRO account taxable?
No, only the interest earned on the balance is taxable. However, if the principal came from a taxable source (like a property sale), you must ensure capital gains tax is paid before repatriation.
Can I transfer money from an NRO account to an NRE account?
Yes, but it is subject to the USD 1 million limit and requires a CA certificate (Form 15CA/15CB) to prove that applicable taxes have been paid on the NRO funds.
What is the TDS rate on NRO accounts for 2026?
The default TDS rate remains 31.2%. This includes a 30% base rate and a 4% Health and Education Cess.
Can I open an NRO account jointly with my resident parents?
Yes, NRIs can hold NRO accounts with resident Indian relatives on a "Former or Survivor" basis.
Do I need to file an ITR if I have an NRO account?
If your total Indian income (including NRO interest) exceeds the basic exemption limit, or if you wish to claim a refund for the 31.2% TDS deducted, filing an ITR is mandatory.
Can I deposit foreign currency into an NRO account?
Yes, you can deposit both foreign currency (which will be converted to INR) and Indian rupees into an NRO account.
Is a PAN card mandatory for an NRO account?
Yes, a PAN card is essential for tax compliance and to ensure TDS is tracked correctly in your Form 26AS.
What happens if I don't convert my resident account to NRO?
Holding a resident savings account as an NRI is a violation of the Foreign Exchange Management Act (FEMA) and can attract significant penalties.