The Disadvantages and Safety of Holding an NRO Account for Non-Resident Indians
Non-Resident Ordinary (NRO) accounts are primarily designed to help Non-Resident Indians (NRIs) manage their income earned in India. While NRO accounts offer several advantages, they also come with their own set of disadvantages and considerations regarding safety. This article delves into the potential drawbacks and safety measures associated with NRO accounts.
Disadvantages of Holding an NRO Account
NRO accounts, though beneficial, come with a few disadvantages that NRIs should be aware of.
Taxation
Interest earned on NRO accounts is subject to taxation in India, which can be a disadvantage for NRIs looking to minimize their tax liabilities.
Repatriation Limitations
Repatriation of funds from NRO accounts is restricted to a limited amount each financial year. NRIs can only access up to 1 million INR annually, which might prove insufficient for some needs.
Currency Risk
NRO accounts are maintained in Indian Rupees (INR). Therefore, NRIs are exposed to currency fluctuations. A depreciation of the INR against their home currency can reduce the value of their funds.
Limited Investment Options
The investment options available through NRO accounts may be limited compared to other types of accounts, potentially restricting financial growth possibilities.
Account Maintenance Costs
Some banks may charge higher fees for maintaining an NRO account, which can reduce the overall returns.
Complex Regulatory Compliance
Managing an NRO account requires adherence to complex regulatory requirements. This can be cumbersome and time-consuming for NRIs.
Safety of NRO Accounts
Despite the potential drawbacks, NRO accounts are generally considered safe. Here are some key safety measures and assurances:
Banking Safety
NRO accounts are offered by banks regulated by the Reserve Bank of India (RBI). These banks are subject to the same safety regulations as domestic accounts, ensuring a level of protection for the deposits of NRIs.
Deposit Insurance
The deposits in NRO accounts are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme. This scheme insures deposits up to 5 lakh INR per depositor per bank, providing some level of financial protection.
Fraud Risks
Like any banking account, NRO accounts are subject to the risk of fraud or cyber attacks. NRIs should follow best practices for online banking security and regularly monitor their accounts for any unusual activity.
Summary
While NRO accounts provide a convenient way for NRIs to manage their income in India, they come with certain disadvantages, particularly regarding taxation and repatriation limitations. However, NRO accounts are generally safe, as they are regulated by the RBI and insured by the DICGC. NRIs considering an NRO account should carefully weigh the benefits against the potential drawbacks and ensure they understand the safety measures in place.