NRO accountsInterest rates in India have been going down for the last two years and are nearing the bottom. And fixed deposit rates have also fallen. However, deposit rates are still much higher when compared to interest rates offered elsewhere in the world. The interest rate for FDs in the United States and the United Kingdom range anywhere between 2% and 4% for periods ranging from one to five years. The rates in India today ranges between 7% and 9%, double that offered in the developed nations. So, it makes sense for a Non-Resident Indian (NRI) to invest in Indian deposits now.

Among the various deposits offered to NRIs, the Non resident Ordinary (NRO) rupee account seems to be the best. The NRO account can be a savings account or a current account or even a recurring deposit or fixed deposit. NRO deposits rates are pegged to the domestic deposit rates and offer NRIs the highest return on their deposits. Here’s the low down on the NRO account.

The NRO advantages

Use both incomes

You can deposit both the income from your country of residence and the income that you get here in your NRO account. You can transfer funds in foreign currency and the bank will deposit the money in your account after converting it to Indian rupees. The conversion rate will be as prescribed by the bank.

Open a joint account

You can open an NRO account along with either a resident Indian or non-resident individuals. You need to give a Letter of Authority (LOA) to allow a resident Indian joint account holder to operate your account.

Get a loan against your deposit

Just like resident fixed deposit holders, you can avail loan against deposit in Indian rupees for up to 90% of the deposit value. You are allowed to use the loan amount for both personal and business activities. However, depending on the bank there might be a few exceptions. Since the interest rate for the deposit is the same as for a domestic deposit, the loan rate is also calculated similarly. The loan rate is usually 2% above the deposit rate. So, for a 7% fixed deposit, the loan rate works out to be 9%, which is pretty low.

Students can open NRO accounts

If you are going abroad for your studies, you are considered an NRI and you are eligible to open an NRO account. You can also avail all the facilities given to NRIs by banks in India.

Get an overdraft

Similar to resident fixed deposit accounts, you can avail temporary overdraft facilities for NRO accounts in India.

Make it a resident account

If you are planning to return to India for an extended period to work here or carry on a business, you can ask your bank to convert your NRO account to a resident account.

Repatriation of money

Repatriation, in simple terms, is sending funds to the country where you reside. If you hold an NRO account, you can only send the amount abroad after you pay the taxes. Up to USD one million per financial year can be repatriated for any authentic purpose.

Low deposit amount or minimum balance

The minimum deposit amount for your NRO fixed deposit is Rs 25,000. Most banks allow you to maintain a minimum balance of Rs 10,000 for your NRO savings accounts.

The disadvantages

Higher tax rate

The income from your NRO deposit will be taxed at an interest rate of 31.2% to 35.88% per cent depending on the amount of deposit. The tax rate will include surcharge of 10%-15% and an education cess of 4%. This amount will be deducted before interest is credited to your savings account. Note that the Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts are tax free.

Here are some important points that you should note.

• A resident individual will not be allowed to open an NRO account on your behalf using LOA or power of attorney.
• When you open the account, the funding has to be from your KYC complied account. You can only use cheque, demand draft or inward remittance. In case of cheque, you have to make sure that signature on the cheque and the application form match. If you use a demand draft, your name should be mentioned as the purchaser on the advice. Using inward remittance? Your name and the country have to be mentioned on the SWIFT message. This should match with the name and country of residence as per the account opening form.
• You cannot transfer funds from your NRO account to your NRE account (an Indian rupee-denominated account).
• For cash deposits of over USD 5,000, you will need to give a currency declaration form. For rupee cash deposits, you might be required to give an encashment certificate.

NRO deposit rates

Bank NRO term deposit interest rates (in %)
  3 months 6 months 1 year 2 years
Standard Chartered Bank 6.25 6.50 6.60 6.80
Deutsche Bank 5.55 5.75 7.00 7.00
HDFC Bank 5.40 5.80 6.30 6.40
ICICI Bank 5.50 6.00 6.45 6.75
SBI 5.50 5.80 6.25 6.25

Want to know how to get benefits from your NRO account? Here are some tips for you.

Go for special tenures

Just like Indian fixed deposits, banks offer attractive interest rates for NRO account when you choose special maturity tenures such as 500 or 700 days. For instance, Deutsche Bank offers 8% for a 1.5-year deposit.

Use DTAA

Your income might get taxed both in India and the country where you live. But you could avoid this. As a bank customer, you can avail country specific double taxation avoidance agreement (DTAA) benefit where the tax can be reduced as per the country specific tax rates published under DTAA.

If you are living in countries such as the UAE or US, you can avoid double taxation by submitting the DTAA form provided by the bank with which you hold your NRO account. By using DTAA, the tax rate for your NRO account is reduced to less than half. Once you submit the DTAA, this is the rate that will be used to calculate your Tax Deducted at Source (TDS). You can avail the DTAA benefit for your NRO account by providing a self-declaration in the prescribed format along with a self-attested PAN card copy, Form 10F and tax residency certificate for the present financial year.

Additional read:

Four tax benefits available to NRIs

Author
Kavya Balaji

Kavya Balaji is a senior writer with RupeeIQ.