NRO Account (Non-Resident Ordinary)
An Indian rupee bank account designated by the RBI for Non-Resident Indians to manage income earned within India, such as property rent, dividends, and pensions.
Detailed Explanation & Background
Under Section 6(3) of FEMA regulations, once an Indian citizen or person of Indian origin achieves Non-Resident Indian (NRI) status, they can no longer legally operate a standard resident savings account. Their resident accounts must be re-designated as Non-Resident Ordinary (NRO) accounts or Non-Resident External (NRE) accounts.
An NRO account is specifically designed to handle funds that originate in India. Any rental income paid by tenants or Airbnb operators in India must be credited directly into the landlord's NRO account. NRO accounts are maintained in Indian Rupees (INR) and earn interest subject to 30% (+ cess) Indian TDS unless lower rates apply via DTAA.
Funds inside an NRO account can be used freely for local Indian payments (property taxes, society maintenance, home insurance, EMI payments) or repatriated abroad up to $1 Million USD per financial year using Form 15CA and Form 15CB.
Key Rules & Practical Takeaways
- ✓FEMA Mandate: Illegal for NRIs to hold resident savings accounts; conversion to NRO is mandatory
- ✓Currency: Maintained strictly in Indian Rupees (INR)
- ✓Tax on Interest: Interest earned on NRO balances is taxable in India (30% + cess deducted at source)
- ✓Joint Account Eligibility: Can be held jointly with a resident Indian relative on 'Former or Survivor' basis
- ✓Repatriation: Up to USD 1,000,000 per financial year permitted under RBI guidelines with CA certification
NRE vs NRO Quick Rule
Managing Mumbai Rental Cash Flows via NRO Account
Scenario: An NRI in Canada receives ₹75,000/month rent from an Andheri flat and has an outstanding ICICI home loan of ₹42,000/month.
The tenant deposits rent (net of Sec 195 TDS) into the NRO account. The bank auto-debits ₹42,000 for the home loan EMI and ₹8,000 for society maintenance. The surplus ₹25,000 accumulates for annual overseas repatriation to Canada.
Frequently Asked Questions
What is the main difference between NRE and NRO accounts?
NRE accounts hold foreign savings transferred from abroad; interest is 100% tax-free in India and funds are freely repatriable. NRO accounts hold Indian-sourced earnings (like rent); interest is taxable in India and repatriation is capped at $1M USD/year.
Can my tenant deposit rent directly into my NRE account?
No. Under FEMA regulations, Indian-sourced income cannot be directly deposited into an NRE account. It must first enter an NRO account.
Can I transfer money from my NRO account to my NRE account?
Yes. RBI allows NRO to NRE transfers within the $1 Million USD annual limit, subject to Form 15CA/15CB tax compliance.