Saturday Brain Storming Thought (231) 13/07/2024

NRO ACCOUNT

NRO Account

A Non-Resident Ordinary (NRO) Account is a popular way for many Non-Resident Indians (NRIs) to manage their deposits or income earned in India, such as dividends, pension, rent etc

This account allows you to receive funds in either Indian or foreign currency

NRO Account

1) Acronym

Non Resident Ordinary Account

2) Meaning

It is an account of an NRI to manage the income earned in India

3) Taxability

Interest earned is taxable

4) Repatriability

Can repatriate the interest amount, the principle amount can be repatriated within the set limits

5) Joint Account

Can be opened by an NRI along with an Indian citizen or another NRI

6) Deposits and Withdrawals

Can deposit in foreign as well as indian currency, and withdraw in Indian currency

7) Exchange Rate Risk

Not prone to risk

Features of NRO Account

1) Who can open a NRO Account

a) Any person resident outside India for putting through bonafide transactions in rupees

b) Individuals / entities of Pakistan nationality / origin and entities o Bangla desh origin require the prior approval of the RBI

c) Notification number FEMA 5(R) / 2016 – RB dated 01/04/2016 updated from time to time for LTV granted or under consideration persons

2) Type of Account

Current, Savings, Recurring or Fixed Deposit

3) Rate of Interest

As per guidelines issued by Department of Regulation

4) Permissible Transactions

For Credits –

Inward remittance, legitimate dues in india, transfers from other NRO accounts and any amount received in accordance with the Rules/Regulations/Directions under FEMA 1999

Debits –

Local payments, transfer to other NRO accounts, remittance of current income, settlement of charges on International Credit Cards

5) Tenure

No such restrictions on tenure

6) Repatriability

Not repatriable except for current income, and remittances by NRIs/PIOs upto USD 1 million per financial year in accordance with the provisions of FEMA 13(R)

Eligibility to open NRO Account

1) Age above 18 years

2) OCI/NRI/PIO and their spouses

3) Any foreign national, who is not a citizen of india

4) An Indian sent abroad by the Government of India / Public sector undertaking

Taxes for NRO Account

The earning received through your NRO account is taxable at 30% plus applicable surcharge and cess

TDS on NRO Account

The NRO Account TDS rate is 30%, and it applies to the interest earned on the account

If the interest earned on the NRO account is less than Rs 50,000 in a financial year, no TDS on NRO account is applicable

This means that NRIs with lower income may not have to pay tax on their NRO account income

Documents required to open NRO Account

1) Passport

2) Proof of Address – driving licence, Voters ID, Aadhar Card, job card issued by NREGA, letter issued by the National Population Register, Passport

3) Non – Residential status proof – Visa, Work permit, Residence permit from Indian passport holder, Overseas passport holder

4) For the seafarers account – passport and visa, contract letter

5) Permanent Account Number (PAN) card or form 60

6) Foreign Account Tax Compliance Act ( FATCA) declaration as applicable

NRI as per Indian act

1) A Non – Resident Indian (NRI) is a person resident outside India who is a citizen of india

2) Overseas Indians, officially known as NRI

3) As per section 6 of the Income Tax Act of 1961

4) Residence in India requires a stay in India of at least 245 days in a financial year or 365 days spread out over 4 consecutive years and at least 60 days in that year

When to choose NRO Account

1) Keep India based earnings in INR in India

2) Have an account to deposit income earned in India – rent, dividends etc

3) Open an account with a resident Indian (close relative)

4) Charges apply for repatriation

Benefits of NRO Account

1) An NRO account is useful for NRIs to manage their deposits, investments and income earned in India

2) NRIs can transfer their funds to their country of residence through an NRO account

3) NRIs are allowed to transform USD 1 million per year through their NRO accounts

4) NRO account holders need to pay income tax in india for gains

5) NRIs can invest in mutual funds, Indian bonds and more using their NRO accounts

6) Depositors can avail loans against their NRO fixed deposits at a lower interest than unsecured loans

7) A Joint NRO account ensures that someone who is back at home will seamlessly look after the financials

8) Nomination facility

Limitations of NRO Account

1) Major disadvantage of an NRO account is the cap of USD 1 million on the repatriation of funds

2) Interest income of an NRO account is subject to taxes as applicable

3) Currency exchange rate fluctuations can impact the funds value

4) Limited use

5) Documentation requirements

Purpose of NRO Account

1) Indian Income management

2) Payment of local dues

3) Safely and ease of access

Significance of NRO Account

1) Regulatory compliance

2) Tax management

3) Facilitates repatriation

4) Flexibility in operations

5) Consolidation of indian income

6) Educational insight

Steps to open NRO Account

1) Choose a Bank

2) Choose an account type

3) Application form

4) Necessary documentations

5) Attestation and Notarization

6) Submitting the application

7) Account verification

8) Account activation

NRO interest rates deviation

1) RBI’s decisions – RBI sets certain rates (like Repo Rate) which can impact bank interest rates

2) Banks performance – A bank in a strong position might give better interest to attract more people

3) Economic health – Things like inflation or how well India’s economy is doing can influence interest rates

4) Type of deposit – Fixed deposits, based on their duration, might have different interest rates

Funds for NRO Account

You can fund your NRO Account through income earned in India, transfers from other NRO accounts or remittance from abroad

COMPILED BY:-

Er. Avinash Kulkarni
9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer