NRO Accounts for NRIs: How India-Sourced Income Is Taxed and the USD 1 Million Repatriation Cap

The Non-Resident Ordinary (NRO) rupee account is the workhorse of Indian personal finance for the roughly 32 million-strong Indian diaspora: it is where rent, dividends, pension and interest earned inside India legitimately land after a person's residential status shifts to non-resident. Unlike its tax-free cousin, the NRO account is fully taxable in India and its balances cannot be sent abroad freely; remittances are capped at USD 1 million per financial year. This guide sets out the exact statutory basis, the Indian tax mechanics under the Income-tax Act 1961, how foreign tax credit interacts abroad, and the step-by-step repatriation route under the Foreign Exchange Management Act 1999.

FEMA / DTAA Position

NRO accounts are governed by the Reserve Bank of India's Master Direction No. 14/2015-16 (Deposits and Accounts), read with the Foreign Exchange Management (Deposit) Regulations 2016, notified as FEMA 5(R) with effect from 1 April 2016. Under this framework, any person resident outside India may open an NRO account to receive income that arises within India, and a resident Indian may be added as a joint holder on either "former or survivor" or "either or survivor" basis, a facility not available on the pre-2016 regime.

The core exchange-control principle sits in Section 6 of FEMA 1999: capital account transactions require RBI permission unless they are specifically permitted, and the resident Liberalised Remittance Scheme allows only USD 250,000 per year for residents, a limit that does not apply to an NRI's own India-sourced funds. Balances in an NRO account are treated as the account holder's domestic Indian assets, so moving them out of the country is a "remittance of assets" that is separately regulated rather than automatically allowed.

That is the sharpest contrast with the NRE and FCNR routes. An NRE account holds repatriable foreign earnings and its interest is exempt from Indian tax, while an FCNR deposit holds foreign currency and is fully repatriable. The NRO account occupies the opposite corner: taxable and repatriation-limited. Contravening the exchange-control rules is not trivial: Section 13 of FEMA 1999 provides for a penalty of up to three times the sum involved, or Rs 2 lakh where the amount is not quantifiable, plus Rs 5,000 for each day a contravention continues.

The Double Taxation Avoidance Agreement (DTAA) India has signed with the account holder's country of residence sits on top of this. A treaty cannot make India-sourced interest tax-free, but it can cap the rate India charges. The India-USA treaty, in force since 12 September 1991, caps interest at 15 per cent under Article 11 and portfolio dividends at 25 per cent under Article 10; the India-UAE treaty, effective 22 September 1993, caps interest at 12.5 per cent; the India-UK treaty, effective 26 October 1993, caps interest at 15 per cent. None of these treaties exempts capital gains on shares of an Indian company, which India retains the right to tax at 12.5 per cent.

Tax Treatment in India

Interest credited to an NRO account is taxable in India as "income from other sources" and attracts tax deduction at source under Section 195 of the Income-tax Act 1961. For an NRI, the statutory withholding rate on NRO interest is 30 per cent, and on top of the base rate come surcharge, where applicable, and health and education cess of 4 per cent, taking the effective floor to 31.2 per cent for interest income below Rs 50 lakh. This is materially heavier than the 10 per cent TDS a resident faces on bank interest under Section 194A.

Section 195 itself provides the escape valve: the payer must withhold at the DTAA rate or the Income-tax Act rate, whichever is lower. So a US-resident account holder who furnishes a valid Tax Residency Certificate and Form 10F can have NRO interest taxed at the treaty rate of 15 per cent rather than 31.2 per cent, an immediate saving of more than 16 percentage points on every rupee of interest. Without the TRC and Form 10F on file with the bank before the interest is credited, the bank is obliged to apply the full 30 per cent plus surcharge and cess.

Surcharge stacks on the base tax once income crosses defined thresholds: 10 per cent between Rs 50 lakh and Rs 1 crore, 15 per cent between Rs 1 crore and Rs 2 crore, and 25 per cent above Rs 2 crore. Crucially, the new tax regime caps surcharge at 25 per cent, so the old-regime peak of 37 per cent does not apply to income taxed under the default regime for FY 2025-26. Rental income routed through an NRO account is taxed the same way after the standard 30 per cent deduction on annual value; you can model the net figure with the NRI rental income tax calculator.

Because NRO interest suffers TDS at a rate that often exceeds the account holder's actual slab liability, many NRIs are due a refund. Filing an Indian income-tax return is the only way to reclaim excess TDS, and it also lets an NRI apply the DTAA rate retrospectively where the bank withheld at the domestic rate. The NRI income-tax calculator helps estimate the final liability across slabs, blending the excess TDS refund with any DTAA relief on interest.

The capital-gains numbers reflect Budget 2024, which reset long-term capital gains on listed equity to 12.5 per cent above an annual exemption of Rs 1.25 lakh and short-term gains to 20 per cent, both with effect from 23 July 2024. Where the treaty rate for dividends is higher than the domestic 20 per cent rate, the lower domestic rate prevails, again by operation of the "whichever is lower" rule in Section 195.

Tax Treatment Abroad

Paying tax in India does not extinguish the account holder's liability at home; it is credited against it. Under Article 25 of the India-USA treaty and Article 24 of the India-UAE and India-UK treaties, the country of residence must give a foreign tax credit for the Indian tax already paid on the same income. A US-resident NRI, for example, reports NRO interest on their US return and claims the 15 per cent Indian tax withheld as a foreign tax credit on IRS Form 1116, so the same interest is not taxed twice.

The credit is a ceiling, not a rebate: it is limited to the home-country tax attributable to that Indian-source income. If the US marginal rate on that interest is 24 per cent, the NRI pays 15 per cent to India and roughly 9 per cent to the United States; if the US rate were below 15 per cent, the excess Indian tax is generally not refundable by the US, which is precisely why furnishing the TRC to bring Indian withholding down to the 15 per cent treaty rate matters. The India-UAE position differs because the UAE levies no personal income tax, so the 12.5 per cent Indian interest tax is the account holder's final cost, with no home-country credit to claim.

Documentation is the linchpin of any cross-border credit claim. The NRI needs the bank's TDS certificate (Form 16A) and the Indian Form 26AS or Annual Information Statement showing the tax deposited against their PAN; the home-country tax authority then matches these against the credit claimed. British-resident NRIs claim relief under the UK's foreign tax credit relief rules for the 15 per cent Indian tax, subject to HMRC's own limitation to the UK tax on that slice of income. In each case the credit is claimed in the country of residence, not in India.

Repatriation Mechanics

Repatriation from an NRO account is capped at USD 1 million per financial year in aggregate under the Foreign Exchange Management (Remittance of Assets) Regulations 2016. The USD 1 million ceiling covers all remittances out of NRO balances in a single 1 April to 31 March window, including any transfer from the NRO account to an NRE account; the two routes share the same annual limit. Any amount up to USD 1 million can be remitted once the applicable Indian taxes have been paid.

The process runs on two forms. Form 15CA and Form 15CB are the gateway: Form 15CB is a certificate from a chartered accountant confirming that the remittance is chargeable to tax and that the correct tax has been deducted, and Form 15CA is the remitter's own declaration filed on the income-tax portal, quoting the 15CB certificate. Banks will not process an NRO outward remittance above the specified threshold without both forms on record, and the requirement flows from Rule 37BB of the Income-tax Rules.

Transferring funds from NRO to NRE is permitted but is treated as a repatriation and therefore counts against the USD 1 million cap and requires the same 15CA/15CB documentation, with taxes settled first. This is a common planning move: once India-sourced money has been taxed and moved into the NRE account, its future interest becomes tax-free and freely repatriable. You can estimate the remittance headroom and cost with the NRI repatriation calculator.

A final practical point on timing: because the cap resets on 1 April each year, an NRI planning to move a large India-sourced corpus abroad can stagger remittances across financial years to stay within the USD 1 million annual ceiling without seeking special RBI approval, which would otherwise be required for larger one-time transfers.

FAQ

Is interest on an NRO account taxable in India?

Yes. NRO interest is fully taxable in India as income from other sources and attracts TDS at 30 per cent plus surcharge and 4 per cent cess under Section 195 of the Income-tax Act 1961, giving an effective floor of 31.2 per cent below Rs 50 lakh. A valid Tax Residency Certificate with Form 10F can reduce this to the DTAA rate, such as 15 per cent for US and UK residents.

How much can I repatriate from my NRO account each year?

Up to USD 1 million per financial year in aggregate, under the FEMA (Remittance of Assets) Regulations 2016, provided the applicable Indian taxes have been paid and Forms 15CA and 15CB are filed. The limit runs from 1 April to 31 March.

Can I transfer money from my NRO account to my NRE account?

Yes, but the transfer is treated as a repatriation. It counts against the same USD 1 million annual cap and requires Form 15CA and Form 15CB, with taxes settled first, as set out in RBI Master Direction No. 14/2015-16.

Will I be taxed twice on NRO income?

Not on a net basis. India taxes the income first, and your country of residence gives a foreign tax credit for the Indian tax paid under the relevant DTAA article, for example Article 25 of the India-USA treaty. The credit is capped at the home-country tax on that income.

What forms do I need to repatriate NRO funds?

Form 15CB, a chartered accountant's certificate on the taxability of the remittance, and Form 15CA, the remitter's online declaration, both required under Rule 37BB of the Income-tax Rules before the bank processes an outward remittance above the specified threshold.

Can a resident Indian be a joint holder on my NRO account?

Yes. Since the FEMA (Deposit) Regulations 2016 took effect on 1 April 2016, a resident relative may be added as a joint holder on either or survivor basis, a facility that did not exist under the earlier regime.

Does the USD 1 million limit apply to NRE accounts too?

No. NRE and FCNR balances are fully and freely repatriable with no annual cap, because they hold foreign earnings; the USD 1 million ceiling is specific to NRO accounts, which hold taxable India-sourced income.