Common NRO Account Mistakes NRIs Should Avoid

When you become an NRI, you must convert your resident savings account to an NRO or Non-Resident External (NRE) account within stipulated time frame. Banks require proper documentation of your NRI status, including passport copies showing your residence visa or work permit. Using your resident savings account even after being an NRI is a violation of Reserve Bank of India (RBI) regulations. This can lead to your accounts being blocked and you may incur fines.

NRO accounts have strict repatriation limits of one million US dollars per financial year. Many NRIs are unaware of this restriction and attempt to transfer larger amounts abroad. This then leads to transaction rejections and compliance issues. You must plan your fund transfers carefully and maintain proper documentation. While repatriating funds, it is advisable to maintain some room to accommodate currency rate fluctuations. Remember, this limit of one million US dollars is for all your NRO accounts combined, across different banks and not per account. If you need to transfer more, you must obtain special permission from the RBI.

Even though you are an NRI and living abroad, you have to pay the stipulated taxes for NRIs. The interest earned on NRO deposits is fully taxable in India. Banks deduct tax at source (TDS) on interest income, but you may still need to file income tax returns in India. Your rental income, your investment redemptions, dividends or any other revenue income is taxable in India. Additionally, you must consider the tax implications in your country of residence. To avoid double taxation, India has signed tax treaties with many countries, known as Double Taxation Avoidance Agreements (DTAA). Many NRIs fail to claim benefits under DTAA, resulting in paying unnecessary taxes. NRIs can always consult tax advisors to understand the exact tax implications.

For NRIs, it was of utmost importance to maintain the required documents, both of Indian and the country they are residing in. Records of transactions, tax certificates and resident and identity proofs must be compliant and up-to-date. The documents are multiple and if some regulatory changes take place, more documents may be required. NRIs often fail to keep proper records of transactions, tax certificates and compliance documents. In case or repatriation of funds from you NRO account, you need Form 15CA and 15CB, which require a chartered accountant's certification. Without proper documentation of the source of funds, banks cannot process your repatriation request. Thus, keep all rental agreements, sale deeds, investment proofs and tax payment receipts organised and handy.

Many NRIs confuse NRO and NRE accounts and use the wrong account for specific transactions. NRO accounts should be used for Indian income sources, while NRE accounts are for foreign currency remittances. Using an NRO account for receiving foreign remittances can complicate repatriation later. Similarly, receiving Indian income in an NRE account may create tax and compliance issues. Understand the purpose of each account type and use them correctly.

If you do not update your overseas address, email and phone number with the bank, it creates communication problems. Chances are, you may miss important notices, transaction alerts or compliance reminders. Banks send important information about regulatory changes, periodic account statements and other security alerts. Without updated contact details, you remain unaware of critical account activities or any fraudulent transactions.

Some NRIs open NRO accounts with multiple banks without clear reasons, leading to management complications and increased costs. Multiple accounts mean tracking multiple minimum balances, statements and tax documents. Unless you have specific needs, consolidating your finances in one or two well-managed NRO accounts is more efficient.