One of the questions that comes up when someone is planning to move abroad is what to do with his existing bank accounts. Usually, individuals open a savings bank account to pool in earnings from various sources. But while moving abroad, a question arises about what can be done with these accounts.
The answer to this question lies in an NRO account. NRO stands for Non Resident Ordinary account. These accounts can be of two types:
1. Non Resident Savings account
2. Non Resident Current account
What is a Non Resident Ordinary Account?
An NRO account is the equivalent of a standard savings or current account. It is a good way for the NRI to collect incomes earned in India. Some of the incomes that can be collected in this account are:
1. Rental income
2. Interest on investments
Interest earned on funds in an NRO savings account are subject to TDS at 30% plus 3% surcharge. It is possible for an NRI to take advantage of the tax rate specified in the DTAA or Double Taxation Avoidance Agreement. But to take advantage of this rate, the NRI will have to furnish a Tax Residency Certificate (TRC), which can be obtained from the tax authorities of the country where the NRI is residing.
The income earned in an NRO account is not repatriable until a certificate is furnished from a chartered accountant specifying that tax has been paid on the income earned. Free repatriation from the account is restricted to USD 1 Million.
It is possible to open an NRO savings account jointly with a resident, or non-resident. By submitting a Letter of Authority, the NRI can allow a resident to operate the NRO account.
Benefits of an NRO account:
1. Easy and convenient access:
An NRO account can easily be operated from abroad. It can be managed by a resident if the NRI gives a letter of authority. Facilities like net banking are also available for an NRO account. It is easy to make payments from the account and to receive funds from different banks both in India and overseas.
2. Low cost money transfers:
Repatriating money from an NRO account is not a costly affair. It is possible to get competitive exchange rates for transfers.
3. Minimum balance:
The minimum balance to maintain an NRO savings account is Rs. 10,000.
4. Reduced TDS through DTAA:
By submitting a Tax Residency Certificate, an NRI can avail lower tax rates as per the relevant Direct Tax Avoidance Agreement.
5. Joint account holding:
An NRI can open an NRO account jointly with either an Indian resident or with an NRI. It provides flexibility in that respect.