Can You Transfer From NRO to NRE Account?

Non-Resident Indians (NRIs) maintain bank accounts in India, primarily Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts. These serve distinct purposes, catering to different income types. Understanding how to transfer funds between them involves specific conditions and documentation, ensuring compliance with Indian regulatory frameworks.

Understanding NRO and NRE Accounts

A Non-Resident Ordinary (NRO) account allows Non-Resident Indians to manage income earned in India, such as rent from property, dividends from investments, pensions, and interest. NRO accounts are denominated in Indian Rupees (INR) and can accept deposits in both Indian and foreign currencies, with foreign currency deposits converted to INR at prevailing exchange rates. Funds in an NRO account are generally not freely repatriable, but are suitable for local expenses and investments within India.

Conversely, a Non-Resident External (NRE) account is primarily for Non-Resident Indians to deposit their foreign earnings. These accounts are also Rupee-denominated but are fully and freely repatriable, meaning the principal and interest can be transferred back to a foreign country without restriction. The interest earned on NRE accounts is exempt from Indian taxes, making them attractive for holding overseas income. NRE accounts provide flexibility for NRIs who wish to convert their foreign income into Indian Rupees and have the option to repatriate these funds whenever needed.

Conditions for Transferring Funds

Transferring funds from an NRO account to an NRE account is permissible, subject to specific conditions and regulatory limits set by the Reserve Bank of India (RBI). Only certain types of funds within an NRO account are eligible for such transfers, primarily current income. This includes income sources like rent, pension, dividends, and interest earned in India. The distinction between repatriable and non-repatriable funds in an NRO account is important, as only repatriable balances can be transferred to an NRE account.

The RBI permits the transfer of up to USD 1 million per financial year from an NRO account to an NRE account, which falls under the overall Liberalized Remittance Scheme (LRS) limit for outward remittances. This limit applies to the aggregate amount repatriated from NRO accounts during the financial year, covering various types of capital income such as proceeds from the sale of property or financial assets. The funds being transferred must be legitimate and not from borrowed sources or transfers from other NRO accounts. Any applicable Indian taxes on the funds in the NRO account must be paid before initiating the transfer.

The Transfer Process and Required Documentation

Initiating a transfer from an NRO to an NRE account typically involves approaching the bank where the NRO account is held. This can often be done through online banking platforms or by visiting a branch. The bank will require specific forms and declarations to process the request. Providing documentary evidence of the source of funds in the NRO account is important, which might include rent agreements, dividend statements, or tax payment proofs for income earned.

For transfers exceeding certain thresholds, particularly for amounts that are taxable in India, a Chartered Accountant’s certificate in Form 15CB and an online declaration in Form 15CA are mandatory. Form 15CA is an online declaration by the remitter confirming that taxes have been paid on the amount being transferred. Form 15CB is a certificate issued by a Chartered Accountant verifying the payment of taxes and ensuring compliance with Indian tax laws for the remittance. These forms certify that any applicable taxes on the funds have been cleared, which is a prerequisite for repatriation. After submitting the necessary documents and forms, the bank undertakes a verification process before executing the transfer, which typically takes a few business days.

Tax and Foreign Exchange Considerations

Funds held in an NRO account are generally subject to Indian income tax laws, meaning any income generated within this account, such as interest, is taxable in India. The transfer itself from an NRO to an NRE account is not considered a separate taxable event. In contrast, interest earned on NRE accounts is entirely tax-exempt in India.

All transfers between NRO and NRE accounts are governed by the Foreign Exchange Management Act (FEMA) regulations, which are administered by the Reserve Bank of India (RBI). These regulations ensure that all cross-border financial transactions comply with Indian foreign exchange laws. While there are no specific reporting requirements to foreign tax authorities at the time of transfer mentioned in Indian regulations, individuals may have reporting obligations in their country of residence based on their local tax laws. Adherence to these regulations is important for a smooth and compliant transfer process.