Funds held in an NRO (Non-Resident Ordinary Rupee) account in India can be repatriated outside the country, subject to specific regulations and limits. An NRO account is designed for Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) to manage their income earned in India, such as rent, dividends, and property sale proceeds. While interest income from NRO accounts can be fully repatriated, there’s an annual limit of USD 1 million per financial year (April to March) for remitting other funds, such as those from the sale of assets. Current income like rent or pensions has no remittance limit. However, certain situations, including remittances exceeding the USD 1 million cap from non-current income, inheritance amounts above the limit, funds subject to disputed ownership, or unique scenarios like amnesty schemes, require prior approval from the Reserve Bank of India (RBI). Before any repatriation, all Indian income tax obligations, including Tax Deducted at Source (TDS), must be fulfilled, and necessary documents like Forms 15CA and 15CB, along with proof of funds source, must be submitted to the bank.
Who is eligible for opening a NRO account
Eligible Persons:
- Non-Resident Indians (NRIs)
A Non-Resident Indian (NRI) is usually an Indian citizen who lives outside of India for work, business, or other reasons, or who plans to stay outside of India for an unknown amount of time. Basically, it’s an Indian citizen who lives outside of India.
- Persons of Indian Origin (POI)
Foreign citizens (excluding Pakistan or Bangladesh) who have ever held an Indian passport or whose parents or grandparents were Indian citizens.
- Overseas Citizens of India (OCI)
People who have been enrolled as “OCI” cardholders under section 7A of the Citizenship Act of 1955.
People in these groups can open NRO accounts with banks for savings, current, recurring deposits, or fixed deposits.
Difference between NRO and NRE account
NRIs and PIOs can both open Non-Resident Ordinary (NRO) Accounts and Non-Resident External (NRE) Accounts, which are both in rupees. However, these two types of accounts are distinct in many ways. The NRO account is used to keep track of money made in India, like rent, dividends, and money from selling property. The NRE account, on the other hand, is used for putting money earned abroad into. When it comes to getting money back from the NRO account, one can only get back up to $1 million per financial year (April to March), after paying the right taxes and sending in the right paperwork. However, one can repatriate 100% of the interest from the NRO accounts. In contrast, both the capital and the interest in NRE accounts can be sent back home without any limits. Taxation is also different: interest income from NRO accounts is taxable and subject to TDS under the Income Tax Act, but interest from NRE accounts is not taxable at all. Lastly, NRO and NRE have different rules about who can hold them together. An NRI or an Indian resident can hold an NRO together with another NRI or an Indian resident (on a “former or survivor” basis), whereas an NRE can only be held together with another NRI or PIO and not an Indian resident.
Funds in an NRO account which typically accrue from income generated in India can be repatriated overseas, guideline for which is given under RBI circular of 2010.
RBI circular of 2010
Funds in NRO account can be repatriated outside India but they are required to fulfil certain criteria subject to the category in which they fall namely current income and non-current income.
If the money consists of “current income” such as rent, pensions, dividends, or interest, there is no limit on the amount that can be remitted. However, in the following case prior approval of RBI is required in order to take funds outside of India.
- Where the remittance exceeds the limit specified:
The Reserve Bank of India (RBI) only allows the transfer of up to USD 1 million per financial year (April–March) for money made by selling assets like property or mutual funds.
Banks authorized by the RBI can process remittances of current income without requiring RBI clearance, but transferring amounts sourced from non-current income above the USD 1 million cap must first obtain RBI approval.
- In case of Inheritance or legacy:
If an NRI receives an inheritance/deceased estate funds in India and wishes to remit more than the USD 1 million limit, prior RBI permission must be obtained. Furthermore, if the inheritance was from someone other than a person defined as a close relative under the Companies Act/Income Tax Act or inherited property is under litigation or disputed will, RBI approval is essential.
- Works subject to Disputed Ownership or Pending Litigation:
If the asset/income is subject to litigation, or is held jointly with stakeholders who are not NRIs or is not clearly owned in India, banks may ask the RBI approval before effecting a remittance which may otherwise fall under the USD 1 million limit.
- Unique Situations:
Some other (rarely-encountered unique situations) that would require RBI approval would be:
- Remittance of funds received associated with amnesty schemes.
- Remittance involving blocked accounts.
- Remittance on behalf of another person (legally, also known as an agent) who was not granted the power of attorney.
Before any remittance can occur, the money must adhere to all Indian income tax obligations, meaning, all taxes and Tax Deducted at Source (TDS) must be settled as given in under Section 195 of the Income Tax Act 1961 it also mandates to issue Forms 15CA (self-declaration) and Form 15CB (Chartered Accountant certificate) to the bank, to confirm, that taxes have been paid. If an NRI believes that the actual tax liability is lower than the TDS being deducted, they can apply for a Lower or Nil TDS Certificate under Section 197 of the Income Tax Act. According to RBI Master Direction – Reporting under Foreign Exchange Management Act, 1999 Along with the remittance request, Form A2 and PAN card, a copy of passport, proof of source of funds (such as rental receipt, or sale deed) and other documentation required by the bank must be submitted. The remittance can be submitted online or at a bank branch, but the timing of the remittance is dependent on satisfactory verification of documentation and banking approval and questions raised by the bank can ultimately impact the expediency of the end remittance. It should also be noted that, currency conversion is also incurred and bank charges on each transfer, and every transaction in a foreign currency counts against USD 1 million annual limit, therefore, the same bank for each transfer should be used, to avoid inadvertent violations of your annual allotment of USD 1 million every year, for clarity.
Author ; Supriya Kumari, a fourth-year BBA, LLB student at NLU
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