Lakshmi has got a wonderful opportunity to work abroad. However, she has various investments and earns money from renting out her property in India. Now, she is unsure how taxation will work because she will not live in India anymore.
This is when an NRO Account comes into play. It's a special bank account designed just for people like Lakshmi who live abroad but still earn money in India.
An NRO account helps you follow Indian tax rules for the money you earn here. It keeps track of your earnings and helps you understand how much tax you need to pay on them.
What is an NRO Account?
A Non-Resident Ordinary (NRO) Account serves as a financial instrument for Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) to manage their Indian income, including rent, dividends, pension, etc.
The difference between NRIs, PIOs, and OCIs arises when it comes to residency and citizenship status. Understanding taxation on NRO Accounts is essential to ensure compliance with Indian tax laws.
- NRIs are Indian citizens residing outside India for purposes like employment, business, etc., with an indefinite period of staying abroad.
- PIOs are people of Indian origin including those who previously held Indian citizenship but have since acquired citizenship of another country.
- OCIs are foreign nationals of Indian origin who are granted certain privileges similar to those of Indian citizens, except for specific political rights.
NRO Account benefits
- Convenient management: NRO Accounts provide a hassle-free platform for NRIs, PIOs and OCIs to manage income earned in India.
- Joint account: These accounts can be jointly held with residents or non-residents of India, facilitating equal financial management.
- Flexibility: You can send up to USD 1 million overseas each year from your NRO Account. Parents, siblings and relatives can also access the account in your absence.
Limitations of NRO Accounts
- Restricted repatriation: They are subject to certain terms and conditions, like adherence to foreign exchange regulations, though repatriation of funds is allowed from NRO Accounts.
- Tax implications: NRO Account holders are subject to taxation under Indian tax laws, especially concerning income earned in India.
NRO Account taxation
- TDS on NRO Accounts: Interest earned on NRO Accounts is subject to TDS. The actual tax rate may vary based on the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence.
- Other income: Income earned from rent, dividends, capital gains, etc., deposited into NRO Accounts will be liable to taxation in India.
- Foreign exchange regulations: You must comply with foreign exchange regulations while repatriating funds from these accounts, including submitting necessary documentation to authorised banks.
Documents required
- Proof of identity: Aadhaar card, passport or other government-issued identity proof.
- Proof of address: Documents like electricity bill, water bill, rental agreement, or any other document serving as valid address proof.
- PAN (Permanent Account Number) card: A unique identification number issued by the Income Tax Department of India.
- Passport-sized photographs: You may need to submit passport-sized photos to open an NRO Account.
- Other documents: As requested by the bank, depending on internal policies and regulatory requirements.
Also Read:Understand the benefits, differences & meaning of NRE account
Conclusion
NRO Accounts play an important role in managing Indian income for NRIs, PIOs and OCIs. Understanding taxation on NRO Accounts is necessary to ensure compliance with Indian tax laws. By being aware of the differences between NRI, PIO and OCI statuses, you can understand the Indian financial landscape more effectively.
Axis Bank's NRO Accounts serve as efficient and convenient financial instruments for Indians worldwide. Seeking tailored advice from Axis Bank's experts is highly recommended for personalised guidance for managing Indian income. It can help you make wise and informed decisions and optimise your financial strategies for managing NRO Accounts.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
