All you Need to Know about Taxation on an NRO Account

Even though an NRI may live in another country, it is no barrier to setting up an operational account in India, as they have the legal right to manage an income originating here in the form of rent, pension, interest income, dividends, and others. Most NRIs have to manage expenses and dependent family members in India. It makes sense to have a separate, operational bank account dedicated to doing just that – in Indian rupees. Having an NRO account allows an NRI to do just that. They can pay for their dependent family members’ basic expenses, such as medical insurance premiums, rent, and school fees, or receive pension or rent from a property or capital gain from an investment.

What are NRO accounts?

A non-resident ordinary or NRO account allows NRIs to manage funds received in India. This account is maintained in Indian rupees, and NRIs can repatriate up to $1 million per year after the deduction of applicable taxes. Interest earned on this account is subject to a 30% tax. Simply put,NRIs open and maintain NRO Savings Account to manage income or earnings in India. Furthermore, NRIs can open this account individually or jointly with another NRI or resident in India to manage the account.

Let’s move forward to understand the tax implications of an NRO account.

Taxation and repairability of an NRO account

Because of the earnings, an NRO account must follow the country's taxation laws. Just like a resident Indian must pay taxes on earnings in India, an NRI is also liable to pay taxes on earnings/profits/capital gain in India. A few examples of earnings by NRIs in India are –

• Rental income on the property

• Consulting fee

• Capital gains through investment in India

• Interest income through fixed deposits accounts in India or through NRO accounts or other deposits

Do note that for all earnings accrued in the NRO account, whether or not you work in India or overseas, there will be tax implications on this account.

The interest income accrued on funds in the NRO account is subject to a TDS (tax deducted at source) of 30%. In addition, applicable cess and surcharge are also applicable to the interest income accrued in the NRO account.

Avail the benefits

Although there are tax implications, you can benefit from the DTAA (double taxation avoidance agreement). It is an agreement India has signed with multiple countries wherein an NRI can claim tax credits while filing for taxes in their country of residence. Simply put, as per the DTAA agreement, an NRI does not have to pay a double tax on their earnings – India and country of residence).

Submit the following essential documents to avail of these benefits –

• Tax residency certificate (issued by the country of residence)

• TDS certificate in India or self-declaration form to a CA about the TDS in India.

Managing expenses and earnings in India with an NRO account is more accessible. Get in touch with a premium bank like IndusInd Bank, which provides best-in-class NRI banking services.

“Prakhar is a, writer, and author of the new novel We Were Already There.” If your work has won any prestigious awards or earned bestseller status, make sure to mention that here, too.