Overview

Transferring funds from your NRO (Non-Resident Ordinary) account in India to an overseas account is a common necessity for Non-Resident Indians (NRIs) managing finances across countries. This process involves understanding the taxation, documentation, and regulatory requirements of Indian authorities. By ensuring proper compliance with tax obligations and following the necessary steps, you can smoothly transfer funds while adhering to Indian banking laws. The process is straightforward when the correct procedures are followed and the required forms are submitted.

What is an NRO Account?

An NRO account is a bank account designed for NRIs to manage money earned in India. This includes income from:

• Rental properties

• Dividends from Indian investments

• Pension payments

• Sale proceeds from Indian assets

Unlike NRE (Non-Resident External) accounts, which hold funds brought into India from abroad, NRO accounts contain money earned primarily within India. These accounts can be savings, current, or fixed deposit accounts. NRO accounts can also receive funds from outside India, such as remittances or overseas income. However, transferring funds abroad is subject to certain limits and must comply with Reserve Bank of India (RBI) regulations, including a limit of USD 1 million per financial year.

Taxation on NRO Account Income

All income in your NRO account is taxable in India. This includes:

Interest Income: A TDS of 30% is applied, plus applicable surcharges and a 4% education cess, bringing the total TDS rate to approximately 31.2%.

Rental Income: Tenants are required to deduct TDS at a rate of 30%, along with applicable surcharges and cess, totalling around 31.2%.

Dividend Income: Taxed at a flat 20% or a lower rate under applicable tax treaties.

Capital Gains:

• Short-Term Capital Gains (STCG): For equity and mutual funds held under 12 months, STCG is taxed at 20% without indexation.

• Long-Term Capital Gains (LTCG): On equities and mutual funds held over 12 months, LTCG is taxed at 12.5% without indexation, with an exemption on gains up to ₹1.25 lakh.

• Real Estate: Property held for more than 24 months is taxed at 12.5% without indexation (for sales post-July 2024).

Unlike resident Indians, NRIs do not benefit from the basic exemption limit on interest income, meaning all interest earned is subject to Tax Deducted at Source (TDS). However, NRIs may be eligible for a reduced TDS rate under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence, depending on the specific provisions of the agreement.

 To claim tax refunds or verify your TDS payments, filing an Income Tax Return (ITR) in India is necessary. NRIs typically file ITR-2 by July 31st each year for the previous financial year.

If your tax liability is less than the TDS deducted, you can claim a refund by filing your ITR. Unfortunately, many NRIs miss this opportunity, leaving their money with the Indian tax authorities unnecessarily.

Limits on Remittance from NRO to Overseas Accounts

The Reserve Bank of India (RBI) allows NRIs to transfer up to USD 1 million (approximately Rs. 7.5 crore) per financial year from their NRO accounts to overseas accounts.

To qualify for this remittance:

• The money must come from legitimate sources such as income earned in India, investment returns, gifts or inheritances, loan repayments, or the sale of property

• All applicable taxes must be paid in India

• The transfer must comply with FEMA (Foreign Exchange Management Act) guidelines

Documentation Required for Transferring Funds from NRO to Overseas Account

Two important forms are needed for most overseas transfers:

• Form 15CA: A declaration you fill out online on the Income Tax Department website confirming tax compliance on the money being transferred.

• Form 15CB: A certificate from an Indian Chartered Accountant (CA) confirming that appropriate taxes have been paid on the funds being transferred.

However, Form 15CB may not be required for:

• Small transfers below ₹5 lakh in a financial year (in such cases, only Part A of Form 15CA is required).

• Certain exempt categories are specified by the Income Tax Department under Rule 37BB. These include remittances like salary payments, government-approved payments, travel, education, medical treatments, imports, and loans, among others, that do not require prior approval from the Reserve Bank of India (RBI).

Step-by-Step Process to Transfer Funds

1. Ensure Taxes Are Paid

Confirm that Tax Deducted at Source (TDS) has been correctly deducted from your NRO income or that advance tax payments have been made, as applicable.

2. Obtain Form 15CB 

While it is not mandatory to hire a Chartered Accountant (CA), you can engage one to review your financial documents and issue Form 15CB if applicable. This form certifies that the appropriate taxes have been paid on the funds being transferred. If you're confident in your tax compliance, you can manage the process yourself, but the CA's certification is often preferred to ensure tax compliance is accurately documented and that everything aligns with the Income Tax Department's requirements.

3. File Form 15CA Online 

• Log in to the Income Tax e-Filing portal using your PAN.

• Navigate to the "e-File" section, select "Income Tax Forms," and choose "Form 15CA."

• Fill in the required details based on your remittance type (Part A, B, C, or D).

• Enter the remittance information, including amount, destination, and purpose.

• Upload Form 15CB if applicable (for remittances above ₹5 lakh).

• Verify the details and submit the form.

4. Submit Documents to the Bank

Provide both Form 15CA and Form 15CB to your bank along with your remittance request. Ensure you also submit any other required documents, such as proof of the source of funds.

5. Bank Processes the Transfer

The bank will verify your documents and process the remittance to your overseas account.

Tips and Considerations

Review your bank statements regularly: Ensure that TDS deductions are accurate and match the interest and rental income reported in your statements.

Keep copies of all documents for a minimum of 10 years: Retaining copies of Form 15CA, Form 15CB, and other relevant documents helps protect you in case of future audits.

Stay updated on RBI circulars: RBI remittance rules can change, so stay informed to ensure that your transfers remain compliant with the latest guidelines.

Consider tax treaties between India and your country of residence: Explore tax treaties that may offer relief from double taxation, making your remittance process more tax-efficient.

Conclusion

Transferring funds from your NRO account to an overseas account is a straightforward process when you understand the tax requirements and documentation. By ensuring proper tax compliance and following the steps outlined above, you can move your Indian income abroad legally and efficiently. Remember that tax regulations can change, so it's advisable to consult with a financial advisor or CA familiar with NRI taxation before making significant transfers.