Non-Resident Indians (NRIs) often use Non-Resident Ordinary (NRO) accounts to manage income earned in India, including rent, dividends, pension and interest. However, those looking to move eligible funds into an account that offers full return can transfer money from an NRO account to a Non-Resident External (NRE) account, subject to certain conditions.
The Reserve Bank of India (RBI) permits NRIs to transfer funds from an NRO account to their NRE account within an overall limit of USD 1 million per financial year (April-March).
The transfer is fully permitted, but it remains strictly regulated by tax and foreign exchange rules.
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NRE And NRO Accounts: What Is The Difference?
An NRO account is mainly used by NRIs to manage income earned in India, such as rent, pension or other local receipts. Interest earned on NRO deposits is taxable in India and is generally subject to applicable TDS.
An NRE account, in contrast, is meant for holding foreign earnings in Indian rupees. The interest earned on NRE deposits is exempt from Indian income tax, provided the account holder qualifies as an NRI under the applicable FEMA rules.
The two accounts also differ in how easily money can be transferred overseas. NRE balances are generally fully repatriable, while NRO balances are subject to certain limits and conditions. Under RBI rules, NRIs and PIOs can remit up to USD 1 million per financial year from eligible NRO balances, subject to the applicable requirements.
Any transfer from an NRO account to an NRE account also counts towards this USD 1 million annual limit.
How Much Can You Transfer From An NRO Account?
While you cannot transfer money to an NRE account from a savings account in India, you are allowed to move money from an NRO to an NRE account. Account holders can also transfer money from one NRE account to another.
An NRI can transfer eligible funds from an NRO account to an NRE account up to the overall USD 1 million limit per financial year.
Overseas earnings can be deposited in an NRE account, whereas an NRO receive income from both Indian and overseas sources.
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Tax Benefit
There can also be a tax advantage on the interest earned after the funds are transferred. Interest on an NRE account is exempt from Indian income tax for an account holder who qualifies as an NRI under FEMA rules.
However, tax treatment in the NRI's country of residence can differ, so the transfer does not necessarily mean the income will be tax-free in every jurisdiction.
What Documents Are Needed For NRO-To-NRE Transfer?
NRIs may need to provide documents showing where the money came from, whether the applicable taxes have been paid and the reason for the transfer.
These can include Form 145, an online declaration filed with the Income Tax Department confirming that the required taxes have been deducted or paid.
Under the new framework, Form 145 has different sections depending on whether the remittance is taxable and the threshold involved. If a taxable remittance exceeds Rs 5 lakh and the applicable conditions are met, a Chartered Accountant's certificate in Form 146 may also be required.
Banks may also ask for proof of the source of funds and a declaration confirming compliance with the relevant provisions of the Foreign Exchange Management Act (FEMA).
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