What changed
RBI issued Master Circular No. /03/2006-07 on July 1, 2006 consolidating all existing instructions on Non-Resident Ordinary Rupee (NRO) accounts into one document. The circular includes a sunset clause, will stand withdrawn on July 1, 2007 and be replaced by an updated version. It reiterates eligibility, account types, permissible credits/debits, and remittance limits for NRIs/PIOs.
What it means for you
Banks must ensure NRO accounts are opened only for bonafide rupee transactions by persons resident outside India, with prior RBI approval for Bangladesh/Pakistan nationals/entities. The USD 1 million per calendar year remittance cap from NRO balances applies to all bonafide purposes, including sale proceeds of immovable property held for at least 10 years (with exceptions). Banks need to verify Currency Declaration Forms for cash over USD 5000 and Encashment Certificates for rupee funds brought from outside India.
What you must do
- Update internal NRO account opening procedures to reference this Master Circular and ensure compliance with FEMA Notification No.5/2000-RB.
- Verify eligibility: require prior RBI approval for accounts of Bangladesh/Pakistan nationals/entities.
- Monitor remittances from NRO accounts: cap at USD 1 million per calendar year per NRI/PIO for bonafide purposes.
- Ensure sale proceeds of immovable property are remitted only if held for at least 10 years (if acquired as resident or with rupee funds), with exceptions for inheritance/legacy.
- Maintain documentation for foreign currency cash over USD 5000 (Currency Declaration Form) and rupee funds brought from outside India (Encashment Certificate).
Who it affects
All banks authorised to deal in foreign exchange, NRIs and PIOs maintaining NRO accounts, Authorised dealers handling remittances from NRO accounts
What is the remittance limit from NRO accounts for NRIs/PIOs?
NRIs/PIOs can remit up to USD 1 million per calendar year from NRO account balances for all bonafide purposes, subject to the satisfaction of the authorised dealer bank.
Can Bangladesh or Pakistan nationals open NRO accounts without RBI approval?
No, opening NRO accounts by individuals/entities of Bangladesh/Pakistan nationality/ownership requires prior approval from the Reserve Bank of India.
What documentation is needed for foreign currency cash deposits into NRO accounts?
Foreign currency cash exceeding USD 5000 or its equivalent must be supported by a Currency Declaration Form. Rupee funds brought from outside India should be supported by an Encashment Certificate.