An NRO account is a rupee-denominated bank account that lets someone living outside India receive and manage money earned inside India, such as rent, dividends, pensions, and interest. Indian citizens who have moved abroad, along with Overseas Citizens of India (OCI) and Persons of Indian Origin (PIO), use it to keep Indian-source income in one place while staying within India’s foreign exchange rules. Interest on the balance is taxable in India, and there is a cap on how much you can send overseas each year, so the account is worth understanding before you open one.
Who Can Open an NRO Account
Eligibility depends on your residency status under India’s Income Tax Act. If you spend fewer than 182 days in India during a financial year (April 1 through March 31), you are generally treated as a non-resident. Under the Foreign Exchange Management Act (FEMA), any Indian citizen who moves abroad for work, business, or any purpose suggesting an indefinite stay is required to redesignate existing resident bank accounts as NRO accounts.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account The same requirement applies to OCI and PIO cardholders who hold foreign passports.
Banks offer NRO accounts as savings accounts, current accounts, or fixed deposits. You can hold one jointly with another non-resident or with a resident Indian relative on a “former or survivor” basis.2Reserve Bank of India. NRO Account FAQs
NRO Account vs. NRE Account
Non-residents can hold two main types of bank accounts in India, and picking the wrong one costs you in tax and flexibility. The Non-Resident External (NRE) account is for money earned outside India, such as your foreign salary. The NRO account is for money earned inside India.
- Interest on an NRE account is tax-free in India. Interest on an NRO account is taxable.
- NRE balances can be sent abroad freely, with no ceiling. NRO balances can be repatriated only up to $1 million per Indian financial year, and only after tax-clearance paperwork.3Reserve Bank of India. Master Circular on Remittance Facilities for Non-Resident Indians
- Both are denominated in Indian rupees, but NRE deposits convert your foreign currency into rupees at the time of deposit.
- Moving money from NRE to NRO is straightforward. Moving from NRO to NRE is permitted but requires documentation showing applicable taxes have been paid.
Many NRIs keep both: an NRE account for foreign earnings and an NRO account for Indian income.
What You Can Put In and Take Out
The NRO account is meant to collect income originating in India. Typical deposits include:4Indian Institute of Banking and Finance (IIBF). Master Circular on Non-Resident Ordinary Rupee (NRO) Account
- Rent from Indian real estate you own
- Dividends from Indian-listed stocks
- Pensions from a former Indian employer or government scheme
- Interest on Indian fixed deposits and bonds
- Proceeds from selling Indian property or other assets
- Maturity payouts from Indian life or general insurance policies
You can also deposit inward remittances sent from abroad. On the spending side, NRO funds cover local expenses like utility bills, property taxes, home maintenance, domestic mutual fund investments, and family support in India.
One boundary worth knowing: the account cannot be used to make foreign exchange available to someone living in India in exchange for a rupee reimbursement.5Reserve Bank of India. Foreign Exchange Management (Deposit) Regulations, 2016 It is not an informal currency exchange channel.
How the Income Is Taxed in India
Interest and other income earned inside the account are taxable in India, and the bank deducts Tax Deducted at Source (TDS) automatically before crediting interest. For most NRIs the TDS rate on interest is 30 percent. With the 4 percent health and education cess added, the effective rate reaches 31.2 percent on interest up to ₹50 lakh in a financial year. Higher surcharges apply at larger income thresholds.
Reduced Rate Under the India-US Tax Treaty
If you are a U.S. tax resident, the India-U.S. Double Taxation Avoidance Agreement caps Indian tax on NRO interest at 15 percent of the gross amount.6Internal Revenue Service. Tax Convention With the Republic of India To get the reduced rate, give your bank two documents before it deducts TDS:
- A Tax Residency Certificate issued by the IRS, proving you are a U.S. tax resident.
- Form 10F, a self-declaration filed with Indian tax authorities under Section 90 of the Income Tax Act to claim treaty benefits.
If you miss the paperwork and TDS comes off at the full 31.2 percent, you can file an Indian income tax return afterward to claim a refund of the excess.
Sending Money Out of India
Repatriating NRO funds is allowed, with a ceiling and paperwork. NRIs and PIOs can send up to $1 million per Indian financial year from their NRO balances and asset sale proceeds combined.3Reserve Bank of India. Master Circular on Remittance Facilities for Non-Resident Indians The cap covers all remittances from NRO sources, not just interest.
Before the bank processes a transfer, you file two tax-clearance forms with India’s Income Tax Department:7Income Tax Department. Form 15CA FAQs
- Form 15CA, a self-declaration filed online that reports the remittance. If your total remittances for the year do not exceed ₹5 lakh, only Part A is required.
- Form 15CB, a certificate from a Chartered Accountant confirming that applicable Indian taxes have been paid. It is required once yearly remittances exceed ₹5 lakh.
The bank will not release funds without these forms. Getting a Chartered Accountant’s certificate takes time, particularly around the March tax season, so plan ahead.
US Reporting if You Live in the United States
The United States taxes its residents on worldwide income, so NRO interest and other Indian earnings belong on your U.S. return. You may also have separate disclosure filings depending on your account balances.
FBAR
If the combined value of all your foreign financial accounts, NRO and NRE included, tops $10,000 at any point during the calendar year, you must file a Report of Foreign Bank and Financial Accounts (FinCEN Form 114) through FinCEN’s BSA E-Filing system.8FinCEN. Report Foreign Bank and Financial Accounts It is due April 15 following the calendar year, with an automatic extension to October 15. The FBAR is filed separately, not with your tax return.
Form 8938
The Foreign Account Tax Compliance Act requires reporting of specified foreign financial assets on IRS Form 8938 once their value crosses set thresholds. For people living in the United States:9Internal Revenue Service. Instructions for Form 8938
- Single or married filing separately: total value exceeds $50,000 on the last day of the tax year, or $75,000 at any point during it.
- Married filing jointly: total value exceeds $100,000 on the last day of the tax year, or $150,000 at any point during it.
Form 8938 is filed with your annual income tax return. FBAR and Form 8938 are separate requirements; meeting one does not excuse the other.
Foreign Tax Credit
To avoid being taxed twice on the same interest, claim a foreign tax credit on your U.S. return for the Indian TDS you already paid. File IRS Form 1116 to calculate it.10Internal Revenue Service. Foreign Tax Credit If you took the reduced DTAA rate, only that reduced amount qualifies for the credit. Keep your Indian bank TDS certificates.
Opening an NRO Account
If you already have a resident savings account and your residency status has changed, you are required to convert that account into an NRO account by notifying the bank.1Reserve Bank of India. Master Circular on Non-Resident Ordinary Rupee (NRO) Account Contact your branch or use the bank’s online portal to start the redesignation.
For a fresh account, most major Indian banks accept applications from abroad. Many run online portals where you fill in the form and upload scanned documents, followed by a video-based KYC session. Some banks route applicants through a correspondent branch or representative office in the United States instead.
Banks typically ask for:
- A copy of your passport showing personal details and photograph
- Your current U.S. visa, work permit, or Green Card
- Your Permanent Account Number (PAN), India’s tax identification number, which is required because the income is taxable
- Proof of your U.S. address, such as a recent utility bill or bank statement
- Two recent passport-size photographs
The application also asks you to declare your source of funds and occupation. A joint account requires the same set of documents for the co-holder.
Penalties and What Happens When You Return
Ignoring the redesignation requirement or otherwise breaching FEMA carries real consequences. Under Section 13 of FEMA, the penalty for a contravention can reach three times the amount involved when that amount is quantifiable, or up to ₹2 lakh when it is not.11India Code. Foreign Exchange Management Act, 1999 – Section 13
On the U.S. side, failing to file an FBAR can bring civil penalties up to $10,000 per account for non-willful violations, with steeper penalties and potential criminal prosecution for willful ones. A missed Form 8938 can trigger a $10,000 penalty per return, with additional charges if the omission continues after IRS notification.
If you move back to India permanently and your residency status changes to resident, notify your bank and convert the NRO account into a regular resident savings account. The same obligation applies to any NRE or FCNR accounts you hold. Until the conversion is complete, the account continues under NRO rules, including the repatriation cap and TDS on interest.