Can I Transfer Money From NRO Account to USA?

Non-Resident Indians (NRIs) often maintain financial ties to India. The Non-Resident Ordinary (NRO) Rupee account is a common tool for managing Indian earnings. Many NRIs in the United States inquire about transferring funds from their NRO accounts in India to their US bank accounts. This article guides readers through the regulations, procedures, and tax considerations for repatriating funds from an NRO account to the United States.

Understanding NRO Accounts and Repatriation Rules

A Non-Resident Ordinary (NRO) account is a bank account in India for Non-Resident Indians (NRIs) to manage income earned within India. This income includes rent, dividends, pension, or interest from fixed deposits. Both Indian and foreign currency can be deposited, though foreign currency is converted to Indian Rupees. The account is maintained in Indian Rupees, and withdrawals are in Indian currency.

NRO accounts are subject to Indian tax laws, and interest earned is subject to Tax Deducted at Source (TDS). An NRO account can be opened as a savings, current, recurring, or fixed deposit account. It can be held individually or jointly with another NRI or a resident Indian. Existing resident accounts are converted to NRO accounts once an individual becomes an NRI.

Repatriation from an NRO account is governed by specific rules under the Foreign Exchange Management Act (FEMA), overseen by the Reserve Bank of India (RBI). These regulations distinguish between current income and principal amounts. Current income earned in India and credited to an NRO account, such as interest, dividends, rent, or pension, is fully repatriable after taxes are paid. There is no specific cap on the amount of current income that can be transferred abroad.

The repatriation of principal amounts, including funds originally deposited from abroad, sale proceeds of property, or maturity proceeds of investments, is subject to specific limits. The Liberalised Remittance Scheme (LRS) framework applies to these capital repatriations by NRIs from their NRO accounts. Under this scheme, an NRI can repatriate up to USD 1 million per financial year (April 1st to March 31st) cumulatively from all NRO accounts held in India. This USD 1 million limit covers various capital receipts, including sale proceeds of assets like property, shares, or mutual funds.

The USD 1 million limit applies per financial year and does not carry over if unused. Funds must originate from legitimate sources and adhere to FEMA guidelines. While the LRS primarily applies to resident Indians for outward remittances, its limits are also relevant for NRIs when repatriating capital from an NRO account.

Initiating the Transfer Process

Transferring funds from an NRO account to a US bank account begins with the Indian bank where the NRO account is maintained. The process requires specific information about the recipient’s US bank, including its full name, SWIFT/BIC code, account number, and routing number. The full name and address of the recipient, along with a clear purpose of remittance, such as family maintenance or savings, are also necessary.

The Indian bank will require an application form to initiate the remittance. This form serves as a declaration under FEMA and requires the remitter to fill in all collected details accurately. Beyond the bank’s internal application, specific tax compliance forms are mandatory for most outward remittances from an NRO account.

Forms 15CA and 15CB are required for tax compliance on the remitted amount. Form 15CA is a self-declaration by the remitter, filed online on the Indian income tax portal, detailing the payment. Form 15CB is a certificate obtained from a Chartered Accountant (CA) in India, affirming that applicable taxes have been paid on the funds being remitted. Form 15CB is required for transfers exceeding INR 5 lakh in a financial year, and Form 15CA is required for transfers exceeding the same threshold.

To ensure compliance with FEMA and LRS regulations, the bank may request documentation proving the source of funds. This could include bank statements, rent agreements, dividend statements, or sale deeds, depending on how funds were accumulated in the NRO account. Once all forms are completed and supporting documents are gathered, they must be submitted to the Indian bank, which may offer in-person submission or an online portal.

Processing times for NRO transfers vary, ranging from a few business days to over a week, depending on the bank and destination country. Banks levy charges for international wire transfers, which may include a flat fee, a percentage of the transferred amount, and foreign exchange conversion charges. Inquire about processing times and all applicable charges, including the exchange rate used, before initiating the transfer to avoid unexpected deductions.

Tax Implications of NRO Transfers

Transferring funds from an NRO account involves tax implications in both India and the United States. In India, income earned on the NRO account, such as interest, is subject to Tax Deducted at Source (TDS). For Non-Resident Indians, this TDS is applied at a rate of 30%. Individuals may claim benefits under a Double Taxation Avoidance Agreement (DTAA) between India and the USA, which can reduce the tax rate on certain income types.

To claim DTAA benefits, a Tax Residency Certificate (TRC) from the USA is required. The transfer of the principal amount from an NRO account is not subject to additional Indian income tax, as it represents a movement of capital or income already taxed. The Indian tax focus is on income generated within the NRO account, rather than the act of transferring the funds.

For US citizens and green card holders, the United States operates on a worldwide income taxation principle. All income, regardless of where it is earned globally, is subject to US taxation. Consequently, interest or other income earned in an NRO account is taxable in the USA, even if Indian TDS has already been applied. To mitigate potential double taxation on the same income, the US tax system offers a foreign tax credit.

The US Foreign Tax Credit, claimed using Form 1116, allows taxpayers to offset their US tax liability by the amount of income taxes paid to a foreign country on foreign-sourced income. This mechanism helps prevent individuals from being taxed twice on the same income by both Indian and US tax authorities. While the transfer of funds itself is not considered a taxable event in the US, there are important reporting requirements related to foreign financial accounts.

US persons must report foreign financial accounts, including NRO accounts, to the Financial Crimes Enforcement Network (FinCEN) if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year. This reporting is done via FinCEN Form 114 (FBAR). Certain US taxpayers holding specified foreign financial assets above specific thresholds must also report them to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. These reporting requirements ensure transparency regarding foreign holdings, distinct from direct taxation on the transfer itself.