Basics of funds, loans, taxation of an NRO account in Goa

For Indians working abroad, the question of remitting funds to their accounts in India, and what happens to these finances, is uppermost on their minds.

If you are a non-resident Goan, you need to know how an NRO account works, the implications of taxation, repatriation, loan options and change in residence status on the account.

TAXABILITY

For non-residents, the amount remitted to their NRO accounts from income earned abroad is not taxable.

However, the income earned in India (which is deposited in their NRO account) and the interest accruing on the NRO account balance is taxable, subject to the Double Taxation Avoidance Agreement with the country in which they are resident.

REMITTANCE BY FOREIGN NATIONAL OF NON-INDIAN ORIGIN

The balance in this account is not freely repatriable.

A foreign national, (not being a citizen of Nepal or Bhutan or a Person of Indian Origin (PIO)), who has retired from employment in India, or inherited assets from a person resident in India; or is a widow resident outside India and has inherited assets of her deceased husband who was an Indian citizen resident in India, may remit upto USD one million per financial year out of the balances in the NRO account along with:

1. documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter

2. remitter’s undertaking and

3. certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes (CBDT) circular No.10/2002 dated October 9, 2002

REMITTANCE BY AN NRI/PIO

Similarly, an NRI/PIO can remit USD one million per financial year, from the NRO account balance along with similar documents as listed above.

An NRI/PIO may also, within the overall limit of USD one million, remit sale proceeds of assets acquired under a Settlement deed, made by either of his parents or close relative (as defined in the Companies Act) and the settlement taking effect on the settler’s death, on production of the original Settlement deed, remitter’s undertaking and a Chartered Accountant’s certificate in the CBDT prescribed formats.

LOANS AGAINST DEPOSITS

Loans against deposits can be granted in India to the account holder, subject to the usual norms and requirements.

The loan amount cannot be used for relending, carrying on agricultural/ plantation activities or investment in real estate. Loans outside India from the NRO account are not permitted.

CHANGE IN RESIDENTIAL STATUS

NRO accounts may be designated as resident rupee accounts on the account holder’s return to India and change in ‘resident’ status. If the account holder is on a temporary visit to India, the account will continue to be treated as an NRO account during such a visit.

When a resident Indian becomes a person resident outside India (except in case of his residing in Nepal or Bhutan), his existing resident account is to be designated as NRO account.

PAYMENT OF FUNDS TO NOMINEE

In the case of the account holder’s demise, for a non-resident nominee, the amount due shall be credited to NRO account of the nominee with an authorised dealer bank in India.

The amount payable to the resident nominee from the NRO account of a deceased account holder shall be credited to the resident account of the nominee with a bank in India.

This article seeks to present, in simple words, legal issues and doubts that we face in our day-to-day lives. It should not be taken as a substitute for a lawyer.

(The writer is a lawyer and company secretary with a focus on education, legal issues and governance, and enjoys working with individuals and organisations towards enhancing their effectiveness).