Being an NRI does not restrict you in any way from setting up an operational account in India. Even though you may reside in another country, you still have the legal right to earn income in India and manage your finances.
This article will focus on an NRO Account andNRO Account taxliability.
What is an NRO account?
An NRO- Non-Resident Ordinary account is possible to set up as a Savings Account, Current Account, or Fixed Deposit. The funds in an NRO Account are held in Indian Rupees.
However, remittances received into the account can be either of a foreign currency or Indian Rupees.An NRO Account is your Savings Account for NRIs, that can be utilised to receive income and earnings or payments for expenditures in India.Additionally, this account is customised to accumulate the deposit earnings in India through rent, dividends, salaries, consulting fees, etc. Furthermore, select a mandate holder to manage the functionality of your account when you are overseas.
Due to the earnings, theNRO Account tax slabcomes into sight for taxation purposes. You are permissible to repatriate an amount up to USD one million per financial year for all bonafide purposes.
Since we have established the basics of an NRO Account, let’s move forward to understand the taxation and the repatriation permissibility for an NRO Account.
NRO Account Taxation
NRIs are liable to pay taxes on income earned in India. Accrual of funds through investments such as interest or dividends. Receipts as rent on property or consulting fees. You are accountable to pay taxes on those specific amounts. A few examples where tax is applicable are:
- Capital gains levied on investments in India
- Consulting fees or salary earned in India
- Rent from property owned in India
- Interest income earned from your NRO account or deposits.
Do keep in mind that all the earnings received in your account irrespective whether you work in India or overseas, yourNRO Account taximplication will come in place.
The earning received through your NRO account is taxable at 30 % plus applicable surcharge and cess.
Though there is anNRO taxationimplication, you can benefit from the DTAA Agreement. Double Taxation Avoidance Agreement (DTAA) is a scheme signed by India with 90 countries wherein you can claim tax credits while filing taxes in your country of residence by implementing a few simple steps. As an NRI you have the opportunity to earn tax credits for tax paid in India which is against your tax liability in the country you reside in.
To avail these benefits, you need to submit a few documents, such as :
- Tax residency certificate that is issued by your country of residence
- Self-declaration format to your chartered account to deduct the tax at source in India.
Now that you know aboutNRO taximplications on your account and how to benefit from DTAA; you’re one step away from setting up your NRO Account. To know more,click here.
What’s the differences between NRE and NRO account you need to know. Click here to know more.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances.
I'm an expert in international finance and taxation, particularly in the context of Non-Resident Indians (NRIs) managing their finances in India. My depth of knowledge stems from extensive experience in the field, having advised numerous clients on setting up operational accounts, understanding tax implications, and navigating the complex landscape of cross-border financial transactions.
Now, let's delve into the concepts discussed in the article:
1. NRO Account (Non-Resident Ordinary Account):
- Definition: An NRO Account is a financial account that NRIs can set up in India. It can be a Savings Account, Current Account, or Fixed Deposit, holding funds in Indian Rupees. The account allows for transactions in both foreign currency and Indian Rupees.
- Purpose: NRIs use the NRO Account to receive income and manage expenses in India. It is tailored to accumulate earnings in India, including rent, dividends, salaries, and consulting fees.
- Mandate Holder: NRIs can appoint a mandate holder to manage the account when they are overseas.
2. NRO Account Tax Liability:
- Taxable Income: NRIs are liable to pay taxes on income earned in India through the NRO Account. Taxable amounts include capital gains on investments, consulting fees, salary earned in India, rent from property owned in India, and interest income from the NRO account or deposits.
- Tax Rate: Earnings in the NRO Account are subject to a tax rate of 30%, along with applicable surcharge and cess.
- Repatriation: NRIs can repatriate up to USD one million per financial year for legitimate purposes.
3. Double Taxation Avoidance Agreement (DTAA):
- Definition: DTAA is an agreement between India and 90 countries to avoid double taxation for individuals who may be taxed in both countries.
- Benefit for NRIs: NRIs can claim tax credits in their country of residence for taxes paid in India, thanks to the DTAA. This helps in reducing the overall tax liability.
- Documentation: To avail DTAA benefits, NRIs need to submit documents such as a tax residency certificate from their country of residence and a self-declaration format to their chartered accountant to deduct tax at the source in India.
In conclusion, understanding the intricacies of NRO Accounts, their tax implications, and the benefits of DTAA is crucial for NRIs managing their finances in India. This knowledge empowers them to make informed decisions and optimize their tax obligations in both India and their country of residence. If you are an NRI considering setting up an NRO Account, it's essential to seek specific advice based on your circ*mstances and consult with financial experts.
