A client in Dubai called us last week with a simple question: " My father's pension gets deposited in my NRO account. After 30% TDS, I barely see any returns. Is this the best I can do?"
He's not alone. Thousands of NRIs use NRO accounts to receive retirement income from India-pensions, rental income, FD interest, dividends. But few understand the tax implications or know there are better options.
Here's what every NRI needs to know about using NRO accounts for retirement planning.
What is an NRO Account?
An NRO (Non-Resident Ordinary) account is a rupee-denominated bank account designed for NRIs to manage income earned in India. This includes rent, dividends, pensions, and other domestic earnings.
Unlike NRE accounts which hold foreign earnings, NRO accounts are meant for money originating in India. If you're receiving a pension from your previous Indian employer, rental income from property, or dividends from stocks-it all goes into an NRO account.
Also Read -NRE vs NRO vs FCNR
Pros of NRO Account for Retirement
1. Consolidates All Indian Income
An NRO account acts as your single collection point for all Indian earnings. Pension, rent, mutual fund redemptions, FD interest-everything flows into one account. This simplifies tracking and management, especially when you're living abroad.
2. Rupee Convenience for Indian Expenses
Planning to visit India regularly during retirement? An NRO account lets you handle local expenses without currency conversion hassles. Pay for medical treatments, family support, or property maintenance directly in rupees.
3. Investment Flexibility
From an NRO account, you can invest in Indian mutual funds, fixed deposits, stocks, and other securities. Your retirement corpus can continue growing while you're abroad.
4. Joint Holding with Resident Indians
Unlike NRE accounts which can only be held jointly between NRIs, NRO accounts can be held jointly with resident Indian relatives. This makes it easier for your spouse or children in India to help manage your finances.
Also Read -Can NRIs Open Joint Accounts with Residents in India
👉 Tip: Appoint a trusted family member as joint holder with "Either or Survivor" mandate. This ensures uninterrupted access to funds if something happens to you.
5. Repatriation Up to USD 1 Million Annually
NRIs can repatriate up to USD 1 million per financial year from their NRO accounts after paying the applicable taxes. For most retirees, this limit is more than adequate to transfer funds abroad when needed.
Also Read -How to Repatriate Funds from NRO/NRE Accounts
Cons of NRO Account for Retirement
1. Heavy TDS at 30%
This is the biggest drawback. Interest earned on the NRO account is taxed at a flat rate of 30%, plus applicable surcharges and cess. Banks deduct TDS on interest earnings before crediting the amount to your account.
On a ₹10 lakh FD earning 7% (₹70,000 annually), you'd lose ₹21,000+ to TDS immediately.
Also Read -DTAA for NRI Bank Interest: Can You Avoid 30% TDS Legally
2. Principal Repatriation Requires Documentation
While interest can be sent abroad after tax deduction, moving the principal requires paperwork. For NRO → NRE transfers, typical requirements include Form 15CB (CA certificate) and online Form 15CA submission.
This adds cost and complexity if you need to move large sums abroad.
3. Double Taxation Risk
If your resident country also taxes global income (like USA, UK, or Canada), you could end up paying tax twice on the same pension or interest income-once in India and once abroad.
4. Lower Effective Returns
After 30%+ TDS, an NRO FD offering 7% effectively yields only 4.9%. Compare this to NRE FDs which are completely tax-free in India.
5. Currency Risk on Repatriation
When you eventually repatriate funds, the INR-to-USD conversion rate affects your actual returns. The rupee has depreciated 3-4% annually against the dollar historically. Track the rupee vs dollar movement before making large transfers.
Tax Rules You Must Know
TDS Rates on NRO Income
Income Type | TDS Rate |
|---|---|
FD/Savings Interest | 30% + cess (31.2% effective) |
Rental Income | 30% + cess |
Dividends | 20% + cess |
Capital Gains (LTCG on property) | 12.5% + cess |
For income above ₹50 lakh, surcharge applies-taking effective TDS to 34.32% (₹50L-₹1Cr) or 35.88% (above ₹1Cr).
DTAA Can Reduce Your Tax Burden
India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries. The DTAA NRO tax rates are different for various countries and usually fall in the range of 10% to 15% for most countries.
For example, under India-UAE DTAA, interest income may be taxed at just 12.5% instead of 30%.
To claim DTAA benefits, submit:
- Tax Residency Certificate (TRC) from your resident country
- Form 10F
- Self-declaration of no Permanent Establishment in India
👉 Tip: If TDS was deducted at 30% but your DTAA rate is lower, file an ITR to claim refund. Many NRIs miss refunds worth ₹35,000-₹2 lakh annually.
Filing ITR is Essential
Even if the income is less than the exempted limit, NRIs must file a tax return to claim a TDS refund on their NRO account.
For FY 2025-26, the maximum income exempt from tax is Rs. 2.5 lakh under the old regime and Rs. 4 lakh under the new regime.
If your total Indian income (pension + interest + rent) falls below this, you're entitled to a full TDS refund. But you only get it if you file.
Also Read -File ITR Online for NRIs (Step-by-Step Guide)
Smarter Alternatives for Retirement Income
1. Maximize NRE Account Usage
Interest on NRE accounts is completely exempt from Indian income tax. If you're transferring retirement savings from abroad, park them in NRE FDs instead of NRO.
However, NRE accounts can only hold foreign-origin funds. Indian income like pension or rent must go to NRO.
2. Consider GIFT City USD Fixed Deposits
For UAE-based NRIs, GIFT City FDs offer a compelling alternative. Your returns are tax-free in GIFT City, the deposits are USD-denominated protecting against rupee depreciation, and repatriation is simpler.
With Belong's USD FDs offering 4-5% in dollars, effective returns often beat taxed NRO FDs.
3. Optimize with RNOR Status
If you're planning to return to India, you may qualify for RNOR (Resident but Not Ordinarily Resident) status for 2-3 years. During this period, foreign income remains tax-free while you settle back.
Use our Residential Status Calculator to check your classification.
Practical Tips for NRO Account Management
1. Don't over-fund your NRO account. Keep only what you need for Indian expenses. Excess funds sitting idle lose value to TDS.
2. Claim DTAA benefits proactively. Submit TRC and Form 10F to your bank before the financial year starts.
3. File ITR every year. Even for small amounts. The refund process takes 6-24 weeks, but it's worth it.
4. Consider laddering FDs. Instead of one large FD, split into multiple tenures. This provides liquidity while optimizing returns.
5. Review your setup annually. Tax rules, DTAA provisions, and your retirement needs change. What worked last year may not be optimal today.
Your Next Steps
NRO accounts are necessary for managing Indian income, but they shouldn't be your only retirement tool. The 30% TDS significantly erodes returns, especially on interest income.
For personalized advice on structuring your retirement finances, join our WhatsApp community where 2000+ NRIs discuss these exact questions daily. Or download the Belong app to explore tax-efficient alternatives like GIFT City FDs.
Also Read - NRE vs NRO Account for Mutual Fund Investments
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