NRO Account (Non-Resident Ordinary Account)

An NRO account is a rupee-denominated bank account that a non-resident Indian uses to receive and hold income that arises in India. Rent from an Indian property, dividends from Indian companies, a pension, interest from Indian investments, and the proceeds of selling an Indian asset all typically flow through an NRO account. It is the counterpart to the NRE account, which is intended for money earned abroad and remitted to India.

The tax treatment is the single most important difference between the two, and it runs opposite to what many NRIs assume. Interest earned on an NRO balance is fully taxable in India. Interest on an NRE or FCNR deposit, by contrast, is exempt in India for as long as the account holder maintains non-resident status. Two accounts at the same bank, paying similar rates, can therefore have completely different tax outcomes.

TDS on NRO interest is deducted at a high flat rate rather than at the rate you would actually pay once slab rates apply to your total Indian income. This routinely results in more tax being withheld than is owed. The remedy is not to avoid the deduction but to file an Indian return and claim a refund of the excess, which is why many NRIs whose only Indian income is NRO interest still benefit from filing. Where a tax treaty offers a lower rate, arranging the paperwork in advance, typically a tax residency certificate and Form 10F, can reduce the withholding at source rather than waiting to reclaim it later.

Repatriation is the other structural difference. Funds in an NRE account are freely repatriable. Funds in an NRO account can be remitted abroad only up to a prescribed annual limit and after the required certification confirming that applicable taxes have been paid. Sale proceeds of inherited property and similar receipts have their own conditions layered on top.

A point of housekeeping that catches people out: when residential status changes, accounts are meant to change with it. A resident becoming an NRI is expected to convert existing resident savings accounts to NRO status rather than continue operating them as before, and an NRI returning to India permanently is expected to redesignate NRE and NRO accounts accordingly. Continuing to operate the wrong account type is a compliance issue independent of how the income is taxed.