NRIs can transfer money from NRO to NRE account, but what is the annual limit? Check details here

If you are a non-resident Indian (NRI), transferring money between bank accounts in India can be an important part of managing finances across countries. The type of account you use matters, particularly if you plan to remit funds overseas or transfer money to another NRI account.

A NRO (non-resident ordinary) account serves as a convenient way for individuals living abroad to manage income earned in India from sources such as rent, dividends or pension.

Meanwhile, an NRE (non-resident external) account is meant for parking your foreign earnings in India, with an intention of supporting your family staying in the country, making investments, among others.

How much can you transfer from an NRO account?

You cannot transfer money to an NRE account from a savings account in India, but you are allowed to move money from an NRO to an NRE account. A person can also transfer money from one NRE account to another.

Balances held in NRE accounts can be fully repatriated, whereas funds in an NRO account are partially repatriable up to $1 million per financial year, subject to payment of taxes in some cases.

Overseas earnings can be deposited in an NRE account, whereas an NRO receive income from both Indian and overseas sources.

Benefits of transferring money to NRE account

Many NRIs may wonder why they should even think about moving eligible funds from an NRO to an NRE account. Some key benefits include:

• Tax-free interest in India: Interest earned on NRE account is fully exempt from tax in India as long as the account holder qualifies as an NRI.
• Attractive interest rates: You can earn attractive interest rates on your NRE account, with up to 4% per annum, for end-of-day balances of ₹50 lakh or more. For balances below ₹50 lakh, the interest rate is 3.5% per annum, according to a blog post by HDFC Bank.
• No TDS applicable: What makes NRE accounts even more attractive is that banks do not deduct TDS (tax deducted at source) from these accounts. However, income earned via such accounts can be taxable at the NRI’s country of residence depending on the rules and regulations set by the particular government.
• Full repatriability: Unlike NRO balances, which are subject to the $1 million per financial year repatriation facility, NRE balances are fully repatriable, meaning there is no annual limit or requirement of a special government permission for transferring funds from an Indian bank to a foreign bank.
• Hold funds in Indian rupees: Money remitted to an NRE account is converted into Indian rupees, allowing NRIs to hold and use their overseas earnings in India. The funds can be used for permitted investments and expenses in India, subject to applicable rules.

Requirements to move funds from NRO account

NRIs transferring funds from an NRO account may need to keep certain documents and declarations ready to establish the source of funds and demonstrate that applicable taxes have been paid.

These may include Form 145, an online declaration submitted to the Income Tax Department confirming that applicable taxes have been deducted or paid.

Form 146 is a certificate issued by a Chartered Accountant. It validates the nature of the remittance and certifies that the applicable tax has been correctly calculated and paid.

Other documents may include proof establishing the source of funds and a declaration confirming compliance with the relevant provisions of the Foreign Exchange Management Act (FEMA).