Tax Implications on NRO Account in India

Managing finances while living abroad can be challenging, especially when it involves income earned in India. For Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs), an NRO (Non-Resident Ordinary) account is an essential financial tool. However, understanding the tax implications of an NRO account is crucial to ensure compliance with Indian regulations and optimise savings. In this guide, we will explore the taxation rules for NRO accounts in 2025, along with actionable insights to help NRIs make informed financial decisions.

An NRO account is a Rupee-denominated bank account designed for NRIs, PIOs, and OCIs to manage income earned in India. Income sources such as rent, dividends, pensions, and property sale proceeds can be deposited into this account. Mandated by the Foreign Exchange Management Act (FEMA), NRO accounts also facilitate local payments and fund remittances abroad.

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Convenient management

An NRO account simplifies the process of managing domestic earnings while living abroad. For example, NRIs can deposit rental income from properties in India and use the account for local expenses like utility bills or property maintenance.

Joint account

NRO accounts can be opened jointly with another NRI, PIO, or OCI. Additionally, they can be operated with a resident Indian as a joint holder on a "former or survivor" basis, allowing operational flexibility through a Power of Attorney (PoA).

Flexibility

NRO accounts offer versatility in managing income sources, making local payments, and investing in financial instruments such as fixed deposits and recurring deposits. For instance, NRIs can link their NRO accounts to UPI-enabled apps for seamless domestic transactions. 

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While NRO accounts provide several advantages, they come with certain limitations:

• Deposits can only be made in Indian Rupees, and foreign currency is converted to INR.
• Income earned abroad cannot be deposited into an NRO account.
• Interest income earned in an NRO account is subject to a 30% tax deduction at source (TDS), plus applicable cess and surcharge.
• The repatriation of capital income, such as property sale proceeds, is restricted to USD 1 million per financial year.

Understanding the taxation rules for NRO accounts is essential for NRIs to avoid surprises and maximise savings. Below is a breakdown of the tax implications for 2025:

Interest income taxation:
Interest earned on NRO accounts is subject to a 30% TDS, along with cess and surcharge.

Exemptions:
Interest income up to Rs. 10,000 is exempt under Section 80TTA of the Income Tax Act.

DTAA benefits:
NRIs can avail reduced TDS rates under Double Taxation Avoidance Agreements (DTAA) by providing a Tax Residency Certificate (TRC), Form 10F, and a declaration of no Permanent Establishment in India.

Principal amount:
The principal balance in an NRO account is not taxed.

Repatriation limits:
Current income, such as rent and dividends, can be repatriated freely. However, repatriation of capital income is capped at USD 1 million per financial year, subject to tax compliance and documentation.

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To open and operate an NRO account, NRIs need to submit the following documents:

• Fully filled application form.
• Copy of passport or OCI/PIO proof.
• Visa or residence permit.
• PAN card or Form 60 (mandatory for current accounts).
• Proof of address (e.g., Aadhaar, voter ID, driving licence).
• Tax Residency Certificate (TRC) for availing DTAA benefits.
• Details of money remittance.

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Navigating the tax landscape of NRO accounts is key to managing your India-based income effectively while living abroad. Understanding the latest tax rules, exemptions, and repatriation limits helps NRIs stay compliant and make informed financial decisions. 

Whether it's parking your earnings securely or planning long-term wealth creation, an NRO account paired with high-yield options like Bajaj Finance Fixed Deposits—offering up to 7.30% p.a.—can offer both stability and growth. Take control of your financial future today by making the most of your NRO account and strategic reinvestments. Open FD.