Can I Transfer Money to an NRO Account From Abroad?

Transferring money to a Non-Resident Ordinary (NRO) account in India from abroad is a common financial activity for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). An NRO account serves as a tool for managing funds earned in India, such as rent or dividends, and can also receive money from abroad. This account facilitates Indian rupee-denominated transactions for individuals residing overseas.

Understanding NRO Accounts for Inward Remittances

A Non-Resident Ordinary (NRO) account is a bank account in India for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) to manage income earned within India. This includes sources like rental income, dividends from investments, and pension payments. These accounts can be opened as savings, current, recurring, or fixed deposit accounts, offering flexibility in how funds are held.

Funds deposited into an NRO account from abroad can originate from various sources. This includes inward remittances sent through normal banking channels in any foreign currency. Additionally, foreign currency carried by the account holder during a temporary visit to India can be deposited, though amounts exceeding USD 5,000 in cash require a currency declaration form. Proceeds from the sale of assets in India, such as immovable property acquired with rupee or foreign funds, or through inheritance, are also permissible credits. Any foreign currency received will be converted into Indian Rupees at the prevailing exchange rate upon deposit.

Key Regulatory Guidelines for Transfers

The transfer of funds from abroad to an NRO account is governed primarily by the Foreign Exchange Management Act (FEMA) and directives issued by the Reserve Bank of India (RBI). These regulations ensure that all transactions are legitimate and comply with anti-money laundering (AML) standards. Individuals residing outside India are permitted to open and maintain NRO accounts for bona fide rupee-denominated transactions.

When initiating a transfer, banks, both the remitting bank abroad and the receiving bank in India, impose Know Your Customer (KYC) requirements. These include providing identification documents like passports and proof of address. The purpose of the transfer must also be clearly stated to ensure regulatory compliance. While inward remittances are allowed, certain restrictions apply to individuals from specific countries, such as Bangladesh and Pakistan, who may require prior RBI approval to open accounts.

While funds can be freely deposited into an NRO account from abroad, their repatriation out of India is subject to specific limits and conditions. Current income, such as interest or dividends, is freely repatriable after taxes. However, for other balances, NRIs and PIOs can repatriate up to USD 1 million per financial year, which runs from April to March. This annual limit applies cumulatively across all NRO accounts held by an individual.

Taxation of Funds in NRO Accounts

Interest earned on funds held in an NRO account is subject to taxation in India. This income is subject to Tax Deducted at Source (TDS) by the bank. The standard TDS rate on NRO account interest for non-residents is 30%, which is then subject to additional surcharge and cess, potentially leading to higher effective rates depending on the interest amount. For instance, total interest earned up to ₹50 lakhs may face a withholding tax rate of 31.2%, while higher amounts can incur rates up to 39% or even 42.74% if the old tax regime is opted for and income exceeds ₹5 crores.

Non-Resident Indians (NRIs) can benefit from Double Taxation Avoidance Agreements (DTAAs) signed between India and their country of residence. These agreements aim to prevent income from being taxed in both India and the country of residence, either by providing exemptions or a reduced tax rate. To avail these benefits, an NRI must provide their Permanent Account Number (PAN), a Tax Residency Certificate (TRC) issued by the tax authorities of their country of residence, and a self-declaration form, Form 10F, to their bank in India. These documents need to be submitted annually to continue receiving the reduced TDS rates.

NRIs are required to file an income tax return (ITR) in India if their total income earned in India exceeds the basic exemption limit, which is currently ₹2.5 lakhs. Even if the income falls below this threshold, filing an ITR can be beneficial, especially if TDS has been deducted, as it allows for claiming a refund of the excess tax paid. This ensures compliance with Indian tax laws and can help manage overall tax liabilities effectively.

Executing the Money Transfer

Transferring money from abroad to an NRO account involves several steps to ensure funds reach the intended recipient smoothly. The most common methods for sending money include wire transfers, facilitated through the SWIFT network, and using online money transfer services. Some banks also offer their own online platforms, such as Money2India by ICICI Bank, which can be used for international remittances. When choosing a service, consider factors like exchange rates, transfer fees, and processing times.

To execute the transfer, the sender will need specific details about the NRO account and the receiving bank in India. This includes the full name of the NRO account holder, the complete NRO account number, the bank’s name, and the Indian Financial System Code (IFSC) or SWIFT code of the specific bank branch. The SWIFT code identifies the bank internationally, while the IFSC code is crucial for domestic transfers within India.

The process of initiating the transfer can be done through the sender’s foreign bank’s online banking portal or by visiting a physical bank branch. Online money transfer services also provide user-friendly interfaces for setting up transfers. After the transfer is initiated, the sender will receive a transaction confirmation. Processing times can vary, ranging from a few hours for express services to several business days, depending on the chosen method and the banks involved. While simple transfers may not require extensive documentation, larger amounts might necessitate providing the reason for the transfer and identity verification documents.