Non-Resident Indians (NRIs) routinely utilise Non-Resident Ordinary (NRO) accounts to deposit income generated within India, such as rental proceeds, pensions, stock dividends, and interest payouts. While these accounts serve as the primary hub for handling domestic finances, many individuals ultimately seek to move these funds into Non-Resident External (to facilitate overseas investments or manage international expenses.
Transferring capital from an NRO account to an NRE account is fully permitted, but it remains strictly regulated by tax and foreign exchange rules. Key operational distinctions include:
- An NRE account is strictly designated for foreign earnings brought into India.
- Funds cannot be moved directly into an NRE account from a standard Indian resident savings account.
NRIs are allowed to shift funds from an into an NRE account, as well as transfer money seamlessly between separate NRE accounts.
What is the difference between NRE and NRO accounts?
Interest earned on NRO deposits is subject to tax deduction at source (TDS) in India. In contrast, interest earned on NRE deposits is exempt from income tax in India, according to information available on the State Bank of India website.
Funds maintained in an NRE account can generally be fully repatriated outside India. NRO balances, however, are subject to a repatriation limit of up to $1 million per financial year, subject to applicable conditions and payment of taxes where required.
Foreign earnings can be deposited into an NRE account. An NRO account, on the other hand, can receive both income earned in India and certain overseas funds.
NRO account: What can be transferred abroad?
An NRO account may receive several types of Indian income, including rent, dividends, interest, pension and salary. Remittance of such income abroad is subject to applicable tax compliance and banking requirements.
Capital income, which can include proceeds from the sale of property, investments or accumulated savings, is subject to the $1 million annual repatriation limit. The limit applies across all NRO accounts held by the NRI during a financial year.
Therefore, NRIs planning to transfer a substantial amount from an NRO account to an NRE account or remit it overseas should check the applicable tax and foreign-exchange requirements beforehand.
Documents NRIs need for income-tax compliance
NRIs transferring funds from an NRO account may need to keep certain documents and declarations ready to establish the source of funds and demonstrate that applicable taxes have been paid.
These may include Form 145, an online declaration submitted to the Income Tax Department confirming that applicable taxes have been deducted or paid.
Form 146 is a certificate issued by a Chartered Accountant. It validates the nature of the remittance and certifies that the applicable tax has been correctly calculated and paid.
Other documents may include proof establishing the source of funds and a declaration confirming compliance with the relevant provisions of the Foreign Exchange Management Act (FEMA).
How to fill Form 145?
According to information available on the HDFC Bank website, NRIs can follow these steps to complete Form 145:
Step 1: Log in to the Income Tax India website.
Step 2: Enter your User ID, which is your PAN, along with your password.
Step 3: After logging in, select the option ‘E-file – Prepare and Submit Online Form (Other than ITR).’
Step 4: Select Form 145 from the list of available forms.
Step 5: Review the instructions provided for completing the form.
Step 6: The form consists of four sections — Part A, Part B, Part C and Part D.
Step 7: Complete the sections applicable to your transaction and circumstances.
Step 8: Verify the information entered and submit the form online.
Step 9: Open the submitted form and take a printout along with the acknowledgement slip.
Step 10: Sign the completed form and submit it to the bank in duplicate, along with the required supporting documents.