Non-Resident Indians (NRIs) managing financial affairs in India often operate two different bank accounts - the Non-Resident (External) account (NRE) and the Non-Resident (Ordinary) bank account (NRO). While money in an NRE account can be smoothly transferred to an account outside India, the process for NRO accounts is more nuanced, involving specific rules and compliance measures for transfers.
Here are some key points to note:
Source of Funds and Limits
The maximum amount that can be transferred from an NRO account outside of India depends in large part on the source of funding.
Up to $1 million may be remitted by an NRI each fiscal year from the balances kept in their NRO account. This cap applies to money that comes from sources other than current income. The amount of current income that can be sent overseas from an NRO account is unlimited.
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There are no restrictions on the amount of current income that NRIs can repatriate from their NRO account, including rent, dividends, pensions, interest, and so forth. Nevertheless, the amount of assets (other than current revenue) that can be remitted is limited to $1 million per fiscal year.
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The Foreign Exchange Management Act of 2000 does not define "current income" (FEMA). On the other hand, income in the form of rent, pension, salary, dividend, interest income, and so forth is included, per RBI circulars. The earnings from the sale of real estate or mutual funds in India are an example of remittance of assets (not included in current income).
An NRI or PIO may repatriate or remit up to $1 million in balances from an NRO account in accordance with FEMA regulations each fiscal year. The cap applies to the total amount of non-current revenue remittances made during the fiscal year. There is no cap on how much current income an NRI or PIO can send via an NRO account.
Documents Needed
To initiate a transfer from an NRO account, an NRI must provide documents:
- Application for outward remittance from NRO Account
- Form A2 as prescribed by the Bank in line with Reserve Bank of India (RBI) Regulations
- Form 15CB (A Chartered Accountant Certificate)
- Form 15CA (A Declaration by NRI/PIO to Income Tax Department)
- Copy of PAN card
- Evidence of source of funds
- Copy of Passport
In addition to the documents listed above, an NRI may be required to provide declarations particular to a bank and any other document, as long as the banker is satisfied, in order to make a remittance.
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It is necessary to inquire with the bank about the proof NRIs need to verify the funding source. For any rupee to be transmitted outside of India, documentation proving its source of funding is required, regardless of the amount lying in the NRO account.
Fore example, a copy of the rent agreement or receipt is required if the funds in the NRO account are related to rent that has been received. When it comes to dividends, documentation such as a bank statement or proof of dividend is required.
The bank may request the deceased person's death certificate and the registered sale deed of the property if the funds were earned through the sale of inherited property.
Do you need RBI nod?
The RBI must give its clearance before an NRI can transfer money to or from an NRO account outside of India. The RBI has given authorized dealer banks, or banks that provide or open NRO accounts for NRIs, the authority to permit the making of such remittances, subject to certain documentation and other restrictions.
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Only when the amount remitted for non-current income outside of India surpasses $1 million in a fiscal year does RBI permission become necessary. Such consent is not required for current income, such as rent, pension, interest income, etc. RBI clearance is not required for an allowed bank to transfer current income from an NRO account.
Remitting assets that total more than $1 million during a fiscal year requires approval. If an NRI or PIO wishes to transmit more than $1 million in non-current income in a single financial year, RBI approval is needed.
Do you need to pay tax?
The funds in the NRO account are derived from earnings made in India. Money cannot be transferred from an NRO to an NRE account or repatriated outside of India until all applicable taxes have been paid in India.
When making external remittances from NRO Accounts, Forms 15CA and 15CB must be provided, under Section 195 of the Income Tax Act, 1961. The provision further states that TDS is applied at the current rates to any payment made to an NRI that includes a taxable income element.
With the exception of any relief granted by the Double Tax Avoidance Agreement (DTAA) or special rates specified in the Income Tax Act, the TDS rate is the highest rate allowed by the Income Tax Act for this type of income. Just transferring money from an NRO to an NRE account or to your own bank account outside of India does not incur TDS.
