An NRO account is a rupee-denominated bank account that lets a Non-Resident Indian receive and manage income earned inside India, such as rent, dividends, pension, and interest. Current income in the account can be sent abroad without a ceiling; capital funds are capped at $1 million per financial year. Interest earned in the account is taxable in India, and if you live in the United States, the balance and the interest both carry U.S. reporting obligations of their own.
The account is governed by the Foreign Exchange Management Act (FEMA) of 1999 and can be opened as a savings, current, fixed deposit, or recurring deposit account, depending on whether you want everyday access or a higher interest rate on parked funds.
Who Can Open One
Anyone classified as “resident outside India” under FEMA can open an NRO account with an authorized dealer bank for legitimate rupee transactions.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account Three groups typically use these accounts:
- Non-Resident Indians (NRIs): Indian citizens who have left India for employment, business, or any other purpose indicating an indefinite stay abroad. Under FEMA, a person who has resided in India for 182 days or fewer during the preceding financial year is treated as resident outside India.
- Persons of Indian Origin (PIOs): citizens of any country other than Bangladesh or Pakistan who at any time held an Indian passport, or whose parents or grandparents were Indian citizens, or who are married to an Indian citizen.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account
- Overseas Citizens of India (OCIs): OCI cardholders qualify on the same terms as PIOs.
NRO vs. NRE: Which One You Actually Need
Most NRIs hold both accounts because they do different jobs. An NRO is for money that originates in India; an NRE (Non-Resident External) is for money that originates abroad. The differences that matter:
- Source of funds: NRO accepts Indian income and foreign remittances. NRE accepts only foreign income.
- Tax on interest: NRO interest is taxable in India, with TDS at 30% plus cess. NRE interest is tax-free in India.
- Repatriation: NRE balances move abroad freely with no cap. NRO capital funds are capped at $1 million per financial year and require tax-compliance paperwork.
- Currency: both are held in Indian rupees, so exchange-rate movement affects you either way when you convert back to dollars.
If you only need somewhere in India to park your U.S. salary and keep full flexibility to send it back, an NRE account is cleaner. The NRO becomes necessary the moment you have Indian-source income that needs a home.
What You Can Deposit
The NRO is designed as a catch-all for your financial life in India. Permissible credits include inward remittances from outside India, legitimate dues earned within India, and transfers from other NRO accounts.2Reserve Bank of India. FAQs – Display In practical terms, the common deposits are:
- Rental income from Indian property
- Dividends from Indian stocks
- Pension payments from former Indian employers or government schemes
- Interest on Indian fixed deposits and other financial instruments
- Sale proceeds from Indian property, mutual funds, or shares
Foreign currency remittances, such as transfers from your U.S. bank account, are permitted and get converted to rupees at the exchange rate on the day of credit.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account Transfers from NRE or FCNR(B) accounts into your NRO are also allowed.
Sending Money Abroad from an NRO Account
This is where the account gets tricky. The repatriation rules depend on the type of income, and the $1 million ceiling does not apply to everything.
Current Income Has No Cap
Rent, dividends, pension, and interest are freely repatriable with no dollar limit. You need certification that Indian taxes have been paid, but there is no ceiling on how much current income you can send out in a year.3Ministry of External Affairs. Remittance Facilities for Non-Resident Indians
Capital Funds Are Capped at $1 Million Per Financial Year
Proceeds from selling property, redeeming mutual funds, or receiving an inheritance can be repatriated up to $1 million per financial year (April through March). The cap applies to the combined total across all your NRO accounts and eligible Indian assets.3Ministry of External Affairs. Remittance Facilities for Non-Resident Indians Inherit property and sell it for $2 million, and you will need two financial years to move the full amount.
Form 15CA and Form 15CB
Before any bank processes an outward remittance, you must file Form 15CA, an online declaration submitted through the Indian income tax portal confirming that applicable taxes have been paid.4Income Tax Department. Form 15CA FAQs
Form 15CB, a Chartered Accountant’s certificate verifying the nature and tax treatment of the remittance, is required only when the remittance or aggregate remittances exceed ₹5 lakh during the financial year.5Income Tax Department. Form 15CB User Manual Some guides and even some bank branches insist the CA certificate is always mandatory. It is not, though most NRIs sending capital funds will cross the ₹5 lakh threshold quickly.
Banks may also ask for supporting documents showing the source of funds: sale deeds for property transactions, legal heir certificates or a will for inherited assets, and portfolio statements for investment redemptions. If the inherited property came from another non-resident, RBI approval may be required before the bank processes the remittance.
How India Taxes NRO Interest
Interest earned in an NRO account is taxable in India under the Income Tax Act of 1961. Banks deduct Tax at Source at a flat rate of 30% on interest credited to the account. Add the 4% health and education cess, and the effective withholding reaches 31.2% before any surcharge that may apply based on your total Indian income.
Cutting Withholding Through the Tax Treaty
If you live in a country that has a Double Taxation Avoidance Agreement with India, you can claim a lower withholding rate. For U.S. residents, the India-U.S. treaty caps NRO interest withholding at 15%, roughly half the domestic rate.6Embassy of India, Washington D.C. TDS Withholding Tax Rates Under Indo-US DTAA
To claim the treaty rate, give your bank a Tax Residency Certificate issued by the IRS (or your country’s tax authority) and file Form 10F electronically on the Indian income tax portal. Some banks also want a self-declaration under the DTAA and a copy of your PAN card. Submit these before the start of each financial year. Submit them late and the bank will withhold at 30%, leaving you to file an Indian tax return to claim the excess as a refund.
Why the PAN Card Matters
Without a Permanent Account Number linked to your NRO account, Section 206AA of the Income Tax Act requires TDS at the higher of the applicable rate or 20%. Since the standard NRO rate is already 30%, the practical hit falls on NRIs claiming DTAA benefits: no PAN means you lose the 15% treaty rate and get bumped to at least 20%.
U.S. Reporting If You Live in the United States
India taxing your NRO interest is only half the picture. The U.S. taxes its residents and citizens on worldwide income and requires separate disclosure of foreign accounts. Miss these filings and the penalties can dwarf the underlying tax.
FBAR (FinCEN Form 114)
If the combined value of all your foreign financial accounts, including NRO, NRE, FCNR, and any overseas brokerage or retirement accounts, exceeds $10,000 at any point in the calendar year, you must file an FBAR electronically with FinCEN by April 15, with an automatic extension to October 15.7Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) The threshold is aggregate, not per account. An NRO with $6,000 and an NRE fixed deposit with $5,000 puts you over.
FATCA (Form 8938)
FATCA imposes a separate reporting requirement on your annual tax return using Form 8938. Thresholds are higher than the FBAR and depend on filing status:8Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
- Single filers living in the U.S.: more than $50,000 on the last day of the year or more than $75,000 at any time.
- Married filing jointly, living in the U.S.: more than $100,000 on the last day or more than $150,000 at any time.
- Single filers living abroad: more than $200,000 on the last day or more than $300,000 at any time.
- Married filing jointly, living abroad: more than $400,000 on the last day or more than $600,000 at any time.
FBAR and FATCA are not either-or. Meet both thresholds and you file both. They go to different agencies, and the penalties for non-filing run independently.
Foreign Tax Credit for Indian TDS
You do not pay full tax to both countries on the same interest. The Indian TDS on your NRO interest qualifies for a foreign tax credit on your U.S. return, claimed with Form 1116, and reduces your U.S. tax liability dollar for dollar up to the U.S. tax attributable to that foreign income.9Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit If your only foreign-source income is passive and total foreign taxes paid stay at $300 or less ($600 for joint filers), you can claim the credit directly on the 1040 without filing Form 1116. For most NRIs with meaningful NRO balances, the Indian TDS crosses that line and Form 1116 is the standard route.
If You Already Have a Resident Account in India
If your status has changed to NRI, you are legally required to notify your bank and have your existing savings or current account redesignated as an NRO account. Continuing to operate a resident account after becoming a non-resident violates FEMA, and the penalties are steep: up to three times the amount held in the account, or ₹2 lakh if the amount cannot be quantified, plus a daily penalty of ₹5,000 until the violation is corrected.10India Code. Foreign Exchange Management Act 1999 – Section 13
Conversion means submitting a redesignation form with proof of overseas address, passport details, a Tax Identification Number from your country of residence, and a declaration that only legitimate Indian income will flow into the account. Your existing debit card and checkbook get cancelled and reissued against the NRO account. Any joint holding with a resident Indian automatically shifts to “former or survivor” mode, so the resident holder can no longer operate the account independently while you are alive.
Joint Holders and Power of Attorney
An NRO account can be held jointly by two or more non-residents, which works for spouses or siblings managing shared Indian assets. Every joint holder must independently meet the NRI, PIO, or OCI test.
A joint holding with a resident Indian is also allowed, but only on a “former or survivor” basis.2Reserve Bank of India. FAQs – Display The resident cannot operate the account or make withdrawals while you are alive; the role is limited to inheriting control on your death.
If you need someone in India to handle day-to-day banking, you can grant a Power of Attorney to a resident relative. The PoA holder’s authority is restricted to withdrawals for permissible local rupee payments, remittance of current income to you abroad, and transfers to you through normal banking channels.11Reserve Bank of India. Accounts in India by Non-Residents The PoA holder cannot repatriate capital funds or make investment decisions from the account, and any repatriation done through the PoA still runs into the same limits and documentation you would face handling it yourself.