NRO Account: Rules, Taxes, Repatriation, and NRE Comparison

A Non-Resident Ordinary (NRO) account is a rupee-denominated bank account that lets someone living outside India hold, spend, and partially repatriate income earned inside India. It is the account rent, dividends, pensions, consulting fees, and property sale proceeds are supposed to flow into once you have moved abroad. Interest on the balance is taxed in India at 30% plus a 4% health and education cess, and the Reserve Bank of India limits outward repatriation to USD 1 million per financial year. Both rules are set by the Foreign Exchange Management Act (FEMA) framework the Reserve Bank administers.

Who Can Open One

Any person resident outside India under FEMA can open an NRO account with an authorized dealer bank. That includes Indian citizens living abroad and persons of Indian origin who are citizens of countries other than Bangladesh or Pakistan. Nationals of those two countries need prior RBI approval.¹

FEMA’s definition of non-resident is not the same as the Income Tax Act’s, and the gap catches people out. Under FEMA you become a person resident outside India the moment you leave the country for employment, business, or any purpose suggesting an indefinite stay abroad. There is no 182-day waiting period. Someone who accepts an overseas job and departs is immediately non-resident under FEMA, even if the Income Tax Act still treats them as resident for the same financial year.

If you held a PIO card, you will now submit an Overseas Citizen of India (OCI) card instead; the PIO scheme was withdrawn in January 2015 and existing cards are treated as OCI cards.²

What Happens to Your Existing Resident Account

Once your status changes under FEMA, you are legally required to convert any resident savings account, current account, fixed deposit, or recurring deposit into an NRO account, or close it. The obligation starts when you become non-resident, not when you get round to updating your bank records.

The penalties sit in Section 13 of FEMA and they are not trivial. The Reserve Bank can impose a fine of up to three times the account balance at the time of the violation. Where the amount cannot be quantified, a flat penalty of ₹2 lakh applies. A daily fine of ₹5,000 runs from the first day of non-compliance until you fix it.³ Banks can also freeze a resident account without warning once they learn the holder is an NRI, cutting off access until the conversion is done.

Conversion itself is routine. You submit a conversion request signed by all account holders, a self-attested PAN copy (or Form 60), proof of your overseas address, and KYC documents certified by a designated authority. Many banks accept these by registered email, courier, or in person. After conversion, your domestic debit card is cancelled and replaced with an NRO debit card, and TDS on interest begins applying straight away.

What Can Go Into and Out of an NRO Account

The RBI’s master circular sets out exactly what can be credited. Permissible deposits include foreign remittances through normal banking channels, foreign currency brought in during a visit to India (cash above USD 5,000 needs a currency declaration form), and all legitimate Indian-source earnings: rent, dividends, pension, interest, consulting fees, and salary earned in India. Sale proceeds from Indian assets, including inherited property, also go here. A resident Indian relative can make rupee gifts into the account, subject to the Liberalised Remittance Scheme limit of USD 200,000 per financial year.¹

On the spending side, the account handles local obligations without constant overseas transfers. Most NRIs use it to pay EMIs on home or car loans taken in India, property taxes, utility bills, insurance premiums, and maintenance charges on Indian property. Payments work through net banking, NEFT, RTGS, or the domestic debit card. Consolidating all Indian income and outflows in one place makes annual tax filing considerably easier.

Property Sales and Inheritance

When you sell Indian real estate or inherit property, the proceeds must be deposited into your NRO account before you can move the money abroad. The buyer is legally required to deduct TDS on the sale amount. You then use Forms 15CA and 15CB (below) to repatriate the after-tax proceeds within the USD 1 million annual limit. One flat restriction: proceeds from the sale of agricultural land, plantation property, and farmhouses cannot be repatriated at all.

Account Types, Interest Rates, and the Debit Card

NRO accounts come in four forms: savings, current, recurring deposit, and fixed deposit.¹ All are denominated in Indian Rupees, whatever the source of the money.

Savings interest at major banks currently runs about 2.50% to 3.00% per annum for standard balances, with some banks offering higher tiered rates on larger balances.⁴⁵ Fixed deposits do better, generally from about 3% on short tenures to over 7% for one- to three-year terms at major banks. The exact rate depends on the bank, the deposit amount, and the lock-in period.

One detail that surprises people: the debit card issued with an NRO account is typically domestic-only. It works at ATMs and point-of-sale terminals within India but cannot be used for international transactions or overseas ATM withdrawals. If you need international card access to your Indian funds, that is better served by an NRE account debit card. NRO accounts do come with full internet banking, NEFT and RTGS transfers, and the ability to pay bills or EMIs within India.

You can hold an NRO account jointly with another NRI without restriction. To add a resident Indian, that person must be a close relative as defined under the Companies Act, 1956, and the account must be operated on a former-or-survivor basis.⁶ You can also grant a power of attorney to someone in India to handle day-to-day transactions, though the POA holder is bound by the same repatriation limits and conditions as you.⁷

Tax on Interest and How to Reduce the Withholding

Interest earned on an NRO account is fully taxable in India, and the bank deducts tax at source before crediting interest. The default TDS rate is 30%, plus the 4% health and education cess, bringing the effective withholding to about 31.2%.

If you are a tax resident of a country that has a Double Taxation Avoidance Agreement (DTAA) with India, you can reduce the withholding. India has DTAAs with over 90 countries. Under the India-US treaty, for example, the rate on interest income drops to 15% for individual account holders, and 10% if the interest comes from a loan granted by a bank or similar financial institution.⁸ To claim the lower rate, submit a Tax Residency Certificate from your country of residence and a self-declaration to your bank before interest is credited. Miss that window and you will be withheld at 31.2%, then have to claim a refund when filing your Indian income tax return.

Beyond income tax, 18% GST applies to banking service charges, including currency conversion fees when money enters or leaves the account. These are separate from TDS and appear as line items in your statements.

Repatriating Money Out of India

The RBI allows NRIs to repatriate up to USD 1 million per financial year (April through March) from an NRO account. The limit covers both principal and accumulated interest, and it applies to the total moved during the year, not to each transaction.⁷

Before any money leaves the country, two tax compliance documents are needed. Form 15CB is a certificate from a Chartered Accountant confirming that all applicable taxes have been paid on the funds being sent abroad. It is required when the remittance (or aggregate remittances during the financial year) exceeds ₹5 lakhs.⁹ Form 15CA is a self-declaration you file online through the income tax portal, backed by the CA’s 15CB report. Your bank will not process the outward remittance without both. Expect to pay a Chartered Accountant somewhere between ₹2,000 and ₹15,000 for the 15CB certificate, depending on the amount and complexity involved.

You can also transfer funds from an NRO account into an NRE account (which is freely repatriable) rather than sending the money directly abroad. The same USD 1 million annual cap and tax clearance requirements apply. This is a useful move if you want funds readily available for future repatriation without repeating the paperwork each time.

NRO or NRE: Which One You Need

Most NRIs end up needing both. The core distinction is simple: an NRO account holds income you earn in India; an NRE (Non-Resident External) account holds money you earn abroad and send to India.

Taxability: NRO interest income is taxable in India at 30% plus cess. NRE interest income is completely tax-free in India.
Repatriation: NRO funds face the USD 1 million annual cap and require Forms 15CA and 15CB. NRE funds, both principal and interest, are freely repatriable with no limit and no tax paperwork.⁷
Deposit sources: NRO accepts both Indian-source income and foreign remittances. NRE accepts only foreign-currency remittances or transfers from other NRE or FCNR accounts.
Currency exposure: both hold rupees, but money in an NRE account came in as foreign currency and converts back freely; NRO balances expose you to the rupee rate when you eventually repatriate.
Debit card: NRO typically issues a domestic-only card. NRE accounts often come with an international debit card.

If you earn rent in India, receive a pension, or collect dividends from Indian investments, that money must go into an NRO account. Overseas salary that you want to park in India for family expenses or investment goes into an NRE account. Routing Indian income through an NRE account creates compliance problems.

Extra Reporting If You Live in the United States

NRIs living in the US face a reporting layer that has nothing to do with Indian tax law. An NRO account is a foreign financial account under US rules, and failing to report it can trigger penalties far harsher than the IRS charges for underpayment.

FBAR (FinCEN Form 114)

If the combined value of all your foreign financial accounts (NRO, NRE, FCNR, any foreign brokerage) exceeds $10,000 at any point during the calendar year, you must file an FBAR with the Financial Crimes Enforcement Network. The threshold is aggregate: three accounts holding $4,000 each trigger the requirement. Whether the account earned any income is irrelevant.¹⁰ The FBAR is filed electronically through the BSA E-Filing system, not with your tax return. Civil penalties for non-willful violations are adjusted annually for inflation and can reach well into five figures per violation.

FATCA (Form 8938)

Separately, the Foreign Account Tax Compliance Act requires US taxpayers to report specified foreign financial assets on Form 8938, filed with the annual tax return. Thresholds are higher than the FBAR’s:

Unmarried filers: foreign asset value exceeds $50,000 on the last day of the tax year or $75,000 at any point during the year.
Married filing jointly: exceeds $100,000 on the last day or $150,000 at any point.
Married filing separately: same thresholds as unmarried filers.

Those thresholds apply to taxpayers residing in the US; if you live abroad, the thresholds are higher. Form 8938 is only required if you are otherwise required to file a US income tax return.¹¹

FBAR and Form 8938 are separate requirements with different thresholds, different filing destinations, and different penalties. Filing one does not excuse the other. This is the single most common compliance mistake US-based NRIs make with their Indian accounts.

Opening the Account

Opening a fresh NRO account requires a standard documentation package driven by the RBI’s KYC norms.¹² The exact list varies between banks, but you should expect to provide:

Identity proof: a valid Indian passport, or a foreign passport along with your OCI card.
Non-resident status proof: your work permit, employment visa, student visa, green card, or an equivalent document from your country of residence.
PAN card or Form 60. PAN is mandatory for current accounts; for savings, Form 60 may be accepted where Indian income falls below the basic exemption limit.¹³
Address proof for both your overseas and Indian addresses, typically utility bills, bank statements, or a rental agreement.

Banks generally require self-attested copies, and remote applicants may need the documents attested by the Indian consulate or embassy in their country. Many banks accept scanned uploads for preliminary review and then request physical copies by courier to a centralized processing cell in India.

Verification generally takes one to three weeks after the bank receives your physical documents. During that period the bank validates your passport, visa, and PAN details against government databases for anti-money laundering compliance. Once activated, you get a confirmation with the account number and instructions for the initial deposit. Most banks ask for a minimum opening deposit, commonly between ₹10,000 and ₹50,000, to activate the debit card and internet banking.

If you already hold a resident account at the same bank and have recently become non-resident, converting that account is usually faster than opening a new one. The bank preserves your existing account number and linked services while switching the regulatory classification and applying NRO tax treatment going forward.

1
Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account
2
High Commission of India, Pretoria. Merger of PIO and OCI Cards
3
India Code. Foreign Exchange Management Act 1999 – Section 13
4
State Bank of India. SBI NRI Services – NRO Savings Bank Interest Rate
5
DBS Bank India. NRO Savings Account Interest Rates
6
Reserve Bank of India. Inclusion of Non-Resident Close Relative as Joint Holder in Resident Bank Accounts
7
Reserve Bank of India. Accounts in India by Non-residents
8
Embassy of India, Washington D.C. TDS (Withholding Tax) Rates Under Indo-US DTAA
9
Income Tax Department. Form 15CA FAQs
10
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
11
Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
12
Reserve Bank of India. FAQs on Master Direction on KYC
13
ICICI Bank. NRO Account: Features, Rules, and Uses for NRIs