More and more Indians are travelling abroad to earn a higher income through foreign currency. At the same time, these individuals would want to maintain the income that is earned through their residential country, especially through dividends or rent.
This is where the NRO account will prove to be beneficial. Through this account, both the foreign income as well as the residential income can be deposited in the account. The funds that are deposited in this account will be converted into the rupee value.
While plenty of individuals have this NRO accounts, it is still important for the holders of the account to know influential factors associated with the account. By being aware of the consequences of the factors associated with the account, it will have an impact on the manner in which the investor will deal with its various aspects:
Choice: When it comes to the NRO account, there are plenty of choices available to the investor, based on financial functionality. For incidence, if the investor only wants to deposit or withdraw funds, there is a choice between the saving account as well as the current account. In the case of the savings account, the funds deposited will earn interest, especially when not many transactions are necessitated. In the case of the current account, it will provide the account holder with the flexibility to undertake several transactions. However, no interest will be earned on the deposits. This extra deduction can be used for additional benefits. In terms of investment, a fixed or recurring deposit is available. In the case of fixed deposit, a lump sum amount can be deposited with the interest rate fixed to earn a return which will deposit at a fixed tenure. Similarly, with the recurring deposit, a fixed amount of the income can be deposited account on a monthly basis with the interest rate being fixed throughout the duration.
Taxation: Unlike the other NRI accounts, the NRO accounts are taxed. The entire amount of interest earned on this account is taxable. It indicates that no part of the income will be considered as tax-free. However, there is no cause for worry for non – residents as there is an exemption clause that calculates the total tax liability. This exemption limit is currently at Rs. 2.5 lakhs.
Tax deduction: The NRO account is liable for tax deducted at source for the income that is earned. In other words, any amount earned right from the first rupee will be taxable. The rate of deduction is at a general rate of 30%, which is considerably high. While there may be certain clauses where a lower rate may be applicable, it will differ based on the investing bank. However, the account holder may need to file a tax return and get the appropriate refund for this to be applicable.