What is an NRO Account?
An NRO (Non-Resident Ordinary) account is a bank account specifically designed for Non-Resident Indians (NRIs) to manage income earned in India, such as rent, dividends, or pensions. NRIs can deposit funds from both Indian and foreign sources into this account, making it a flexible savings account. Income in an NRO account is subject to Indian tax laws and is taxable. The bank deducts TDS (Tax Deduction at Source) on interest and other earnings from the account.
Additionally, NRIs can repatriate up to USD 1 million per financial year from their NRO accounts after paying the necessary taxes, making it a flexible option for managing Indian income while living abroad.
NRO Account Tax Rules for NRIs
The income earned in an NRO account is taxable under Indian law. Here are key points regarding the taxation of NRO accounts:
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Tax Rate: Interest earned on the NRO account is taxed at a flat rate of 30%, plus applicable surcharges and cess.
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Tax Deducted at Source (TDS): Banks deduct TDS on interest earnings before crediting the amount to the account holder's balance. This means NRIs receive interest income net of tax.
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Income Sources Subject to Tax: The following types of income are taxable:
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Interest earned from the NRO account
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Rent from properties in India
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Salary or consulting fees earned in India
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Capital gains from investments in India
Illustration of NRO Account Taxation
Consider an NRI who earns ₹1,00,000 as interest from their NRO account in a financial year. The tax implications would be as follows:
| Income Type |
Amount (INR) |
TDS Rate |
TDS Amount (INR) |
Net Income After TDS (INR) |
| Interest |
₹1,00,000 |
30% |
₹30,000 |
₹70,000 |
In this example, the bank deducts ₹30,000 as TDS, leaving the NRI with ₹70,000.
Double Taxation Avoidance Agreement (DTAA)
To mitigate the risk of being taxed twice on the same income, India has signed Double Taxation Avoidance Agreements (DTAA) with various countries. This allows NRIs to claim tax credits for taxes paid in India against their tax liabilities in their country of residence. To avail of these benefits, NRIs must submit:
Benefits of Investing in a NRO Account
Following are the key benefits for an NRI for investing in a NRO Account in India:
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Tax Benefits: Earnings in an NRO account are subject to tax, but interest earned is eligible for tax deductions under the Income Tax Act.
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Convenient Fund Transfers: Easy transfer of funds between India and abroad for NRIs.
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Multi-Currency Options: Allows you to maintain both Indian rupees and foreign currency in one account.
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Repatriation Facility: You can repatriate funds to your foreign account after paying applicable taxes.
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Secure Investment: Provides safety and security under Indian banking regulations.
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Interest Rates: Offers competitive interest rates compared to regular savings accounts.
Income Tax Returns for NRO Account
For Non-Resident Indians (NRIs) with Non-Resident Ordinary (NRO) accounts, understanding the Income Tax Return (ITR) filing process is crucial.
Deadlines for filing income tax returns vary based on taxpayer categories. Here are the critical dates for FY 2023-24:
| Category |
Due Date |
| Individuals/HUFs |
July 31, 2024 |
| Businesses (requiring audit) |
November 15, 2024 |
| Businesses requiring transfer pricing reports |
November 30, 2024 |
| Revised Returns |
December 31, 2024 |
| Belated Returns |
December 31, 2024 |
Consequences of Late Filing
If an NRI fails to file their ITR by the due date:
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Interest Penalty: Interest at a rate of 1% per month on any unpaid tax under Section 234A.
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Late Fee: A penalty of up to ₹5,000 under Section 234F if total income exceeds ₹5 lakh; reduced to ₹1,000 if below this threshold.
Forms to Use by NRIs
NRIs must select the appropriate ITR form based on their income sources:
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ITR-2: For NRIs with income from house property, capital gains, or other sources.
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ITR-3: For NRIs involved in business or professional activities in India.
Wrapping Up
An NRO account is taxable in India. The tax in NRO accounts applies to both interest income and repatriated funds. It's important for Non-Resident Indians to understand NRO account taxation to ensure compliance with tax regulations and avoid penalties. Proper planning can help manage the tax burden effectively.
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