Non-Resident Ordinary Rupee (NRO) Account
Statutory provisions are contained in schedule 3 of Foreign Exchange Management (Deposit) Regulations, 2000.
RBI has issued Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’ [earlier Master Circular No. 2/2013-14 dated 1-7-2013], consolidating all instructions relating to NRO account.
RBI has issued master circular DBOD No. Dir. BC. 10 /13.03.00 /2014-15 dated 1-7-2014 on ‘Interest rates on rupee deposits held in domestic, NRO and NRE accounts’ [earlier DBOD No. Dir. BC. 10 /13.03.00 /2013-14 dated 1-7-2013] giving consolidated guidelines.
These contain general provisions regarding interest, maturity etc.
Who can open NRO account – Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of the FEMA. However, opening of accounts by individuals/entities of Bangladesh ownership/Pakistan nationality/ownership requires approval of Reserve Bank.
Individuals of Bangladesh nationality can open account if they have valid visa and valid residential permit issued by Foreigner Registration Office – RBI Notification dated 2-1-2013 – and RBI circular No. 82 dated 11-2-2013. – RBI Notification dated 2-1-2013 – Schedule 3 Para 1 of FEM (Deposit) Regulations. – Quarterly reporting to RBI by Bank is required.
Joint account– The accounts may be held jointly with residents and/or with non-residents. Nomination facility is available, if account is in name of individual [para 4 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013]
Barter transactions not permitted– The operations on the accounts should not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner. At the time of opening of the account, the account holder should furnish an undertaking to the authorised dealer/authorised bank with whom the account is maintained that in cases of debits to the account for the purpose of investment in India and credits representing sale proceeds of investments, he will ensure that such investments/dis-investments will be in accordance with the regulations made by Reserve Bank in this regard.
Account in Post office not permitted– NRI cannot open a post office savings bank account. However, if he had an account when he was resident, he can continue it till maturity on non-repatriation basis [Amendment to Post Office Saving Bank General Rules, 1981 vide GSR 586(E) dated 25-7-2003].
4.3-1 Type of NRO accounts
NRO accounts may be opened/maintained in the form of current, savings, recurring or fixed deposit accounts. The requirements laid down in the directives issued by Reserve Bank in regard to resident accounts shall apply to NRO accounts.
Nomination– Nomination is permitted. Nominee can be resident or non-resident. In case of death of account holder, the amount due/payable to non-resident nominee from the account of a deceased account holder, shall be credited to NRO account of the nominee.
4.3-2 Permissible Credits/Debits to NRO account
Permissible credits to the NRO account are – (i) Proceeds of remittances received in any permitted currency from outside India through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks. (ii) Any foreign currency which is freely convertible tendered by account holder. If foreign currency exceeds USD 5,000, it should be supported by currency declaration form (CDF). Rupee funds should be supported by encashment certificate, if they were brought from outside India (iii) Transfer from rupee accounts of non-resident banks (iv) Legitimate dues in India of the account holder (v) sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/inheritance (vi) Gifts from resident individual to NRI/PIO within the limit permitted under LRS (Liberalised Remittance Scheme) (vii) Lending from resident individual who is close relative within specified limits [para 5A of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
Permissible debits from NRO account are – (i) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank. (ii) Remittance outside India of current income in India of the account holder like rent, dividend, pension, interest etc. (iii) Remittances upto USD one million per financial year, for all bona fide purposes, to the satisfaction of Authorised Dealer Bank (iv) Transfer to NRE account of NRI within overall ceiling of USD one million subject to payment of applicable tax [para 5B of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
NRI/PIO can make payments from NRO account, to settle charges on their International Credit Cards issued by Banks in India. The debits shall be subject to conditions of use of ICCs by residents. – RBI circular No. 59 dated 9-12-2002.
4.3-3 Permissible repatriations from NRO account
Current income (i.e. interest) is freely repatriable from NRO account but the principal amount is repatriable only upto USD 1 million per financial year, subject to applicable taxes – RBI press release No. 387 dated 18-9-2003.
NRIs can repatriate their current incomes like rent, dividend, interest, pensions etc. by debit to their NRO Account. They should produce a certificate of Chartered Accountant in form prescribed by CBDT – [para 15 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
Remittance upto USD 1 million– NRI/PIO/Foreign Nationals can remit amount upto USD 1 million per financial year from their NRO account or from sale proceeds of assets, including sale of immovable property – RBI AP (DIR) Circular No. 1 dated 2-7-2002, as amended by No. 67 dated 13-1-2003 as amended vide RBI AP (DIR) Circular No. 12 dated 16-11-2006. [paras 6.2 and 6.3 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013]
This facility is not available to citizens of Pakistan, Bangla Desh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan [para 6.4 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
In view of this liberalisation, gap between NRE and NRO account is narrowing as many amounts which are credited to NRO account are now repatriable.
Balances in NRO accounts are not eligible for remittance outside India without the approval of Reserve Bank. Funds received by way of remittances from outside India in foreign exchange which have not lost their identity as remittable funds will only be considered by Reserve Bank for remittance outside India.
Transfer from NRO to NRE account – Transfer from NRO account to NRE account within overall ceiling of USD one million per financial year is permissible subject to payable of tax as applicable if funds were remitted abroad are permissible – RBI circular No. 117 dated 7-5-2012.
4.3-4 Loans on security of NRO deposits
Loans to non-resident account holders may be granted in rupees against the security of fixed deposits subject to usual norms as are applicable to resident accounts, for personal purposes or for carrying on business activities except for the purpose of re-lending or carrying on agricultural/plantation activity or for investment in real estate business. Authorised dealer/bank may permit overdraft in the account of the account holder subject to his commercial judgment and compliance with the interest rate etc. directives – [para 8 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
Loans/overdrafts to third parties who are resident individuals/firms/companies in India may be granted against the security of deposits held in NRO accounts, subject to the following terms and conditions. (i) The loans shall be utilised only for meeting borrower’s personal requirements and/or business purpose and not for carrying on agricultural/plantation activities or real estate business, or for re-lending. (ii) Regulations relating to margin and rate of interest as stipulated by Reserve Bank from time to time shall be complied with. (iii) The usual norms and considerations as applicable in the case of advances to trade/industry shall be applicable for such loans/facilities.
In case of person who had availed of loan or overdraft facilities while resident in India and who subsequently becomes a person resident outside India, the authorised dealer may at their discretion and commercial judgment allow continuance of the loan/overdraft facilities. In such cases, payment of interest and repayment of loan may be made by inward remittance or out of legitimate resources in India of the person concerned.
This facility is available to students going abroad for studies [para 13 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
4.3-5 Operation of account by power of attorney holder
NRO account can be operated by resident Power of Attorney Holders. The POA should be restricted to local payments in rupees including payment for permissible investment and remittance out of India of current income of non-resident individual account holder, after deduction of taxes. Funds cannot be remitted to any other person outside India. The POA holder cannot make gift to a resident from NRO account or transfer funds to another NRO account – RBI AP (DIR) Circular No. 64 dated 25-5-2007 – Schedule 3 para 7(A) of Foreign Exchange Management (Deposit) Regulations, 2000 – para 12 of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’ [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
4.3-6 Conversion of ordinary account to NRO and vice versa
When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non-Resident (Ordinary) account. It is not necessary to re-designate the account if account holder is going to Nepal or Bhutan for employment, business or any other purpose [para 9(a) of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
NRO accounts may be re-designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit [para 9(b) of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier Master Circular No. 2/2013-14 dated 1-7-2013].
4.3-7 Conversion of resident account to NRO account after foreign national leaves India
A foreign national who has opened such account in India may leave the country and go out of India for business, employment of vocation for uncertain period. However, he may have to collect his pending dues. In such case, his resident account can be converted to NRO account after the foreign national leaves India to other country (except Nepal and Bhutan). The account can continue till hisbona fide dues are received. He can remit funds from this account outside India. Remittance upto USD one million per financial year are allowed. The account should be closed after dues are received. Bank should monitor such accounts properly – RBI AP (DIR) Circular No. 70 dated 9-6-2011 [para 9(a)(ii) of RBI Master Circular No. 2/2014-15 dated 1-7-2014 on ‘Non-Resident Ordinary Rupee (NRO) Account’] [earlier RBI Master Circular No. 2/2013-14 dated 1-7-2013].
4.3-8 Interest payable and premature withdrawal
RBI has issued master circular DBOD No. Dir. BC. 10 /13.03.00 /2014-15 dated 1-7-2014 on ‘Interest rates on rupee deposits held in domestic, NRO and NRE accounts’ [earlier DBOD No. Dir. BC. 10 /13.03.00 /2013-14 dated 1-7-2013] giving consolidated guidelines.
Interest rates on NRE and NRO savings and term deposits have been deregulated. Banks can fix their own interest rates NRE and NRO savings deposits and term deposits. Individual branch should offer uniform rates – RBI circular No. DBOD.DIR.BC. 64/13.03.00/201-12 dated 16-12-2011.
Interest can be paid on overdue deposits. Additional interest upto 1% can be paid to employees, retired employees, employee associations, executive directors etc. Banks can provide advance against term deposit. Penalty can be levied for pre-mature withdrawal of term deposit.
Interest is freely repatriable, but the principal amount is repatriable only to the extent of USD one million per year, subject to applicable taxes.
Overdue deposits and account of deceased depositor – Policy in respect of interest on overdue deposits and interest on deposit account of deceased depositor will be decided by Board of Directors of each Bank on non-discretionary and non-discriminatory transparent basis – RBI circular DBOD No. DIR.BC. 68/13.3.0/2003-04 dated 13-2-2004.
4.3-9 Income tax and NRO deposits
TDS on interest – Interest income is investment income u/s 115C of Income-tax Act and will attract TDS at rates specified in section 115E (which is 20% at present), as it is income from foreign exchange asset – V Ravi Narayanan, In re [2008] 168 Taxman 65 (AAR – New Delhi).
Concessional interest on NRO continues even if person returns to India – In Dr. Virindra Kumar Raina, In re [2009] 176 Taxman 222 (AAR – New Delhi), it has been held that NRO accounts opened by NRI would be entitled to concessional rate of income tax on interest @ 20% u/s 115E of Income-tax Act even after the person returns to India.