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When an Indian resident moves abroad and becomes NRI, he must update his NRI status and convert an Indian resident account into NRI account. For this, the NRI has to submit the required forms and documents to complete all the formalities. If a NRI does not change his or her residency status and continues to maintain or operate a domestic bank account for that length of time, penalties will apply.
This article explains the main requirements for converting a domestic savings account into an NRI account.
Yes, as per RBI guidelines, all NRIs are required to open an NRI Bank Account (NRE or NRO) to conduct financial transactions. Once a resident of India attains NRI status, he/she must inform the bank and convert his / her account into an NRI account. NRIs are not allowed to continue to hold a domestic savings account or they will be subject to a penalty.
NRIs can open two types of bank accounts – Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts. However, when a resident becomes an NRI, he has two options to choose from;
A domestic account cannot be converted into an NRE account. This is because NRIs cannot transfer funds from a domestic account to an NRE account. An NRE account has certain advantages, such as it is fully repatriable and interest earned on an NRE account is tax-free. However, an NRO account is a non-repatriable savings account, the funds cannot be freely repatriated to a foreign currency.
If an existing account holder’s status changes from resident to non-resident, he/she may convert a savings account to an NRO account. The following is a step-by-step explanation of the process:
Here is a list of documents a client needs to submit to convert an existing resident account to a NRO account:
Note: All the documents must be self-attested and also attested by the Indian Embassy, notary public, consulate, or overseas branch of a nationalized Indian Bank.
If a resident who becomes NRI is a second holder or joint holder, an additional declaration needs to be submitted along with the above KYC documents.
According to FEMA, once an Indian citizen obtains NRI status, he or she cannot use a domestic citizen's savings account. If an NRI still does so and continues to maintain a domestic account, it is considered illegal under FEMA and heavy penalties can be imposed.
Any resident who fails to convert a domestic account into an NRO account will be liable to pay a penalty of three times the amount of the domestic savings account or Rs 2 lakh (if the amount is not quantifiable). In addition, a daily penalty of Rs 5000 will be levied from the first day of intervention until the penalty is paid.
Any Indian shifted abroad must make sure to convert the residential savings account to an NRO account as soon as possible by submitting all the documents and paperwork requirements. If anyone violates the act rules, he/she will be liable to pay high penalty charges.
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As per FEMA, it is mandatory for all Indians to convert their resident savings account to NRO account, if their status changed to NRI.
Here are some of the benefits with NRO savings account;
As a resident, if you have invested in FDs linked to your bank savings account then while converting savings account to an NRO account, you have to attach FD receipts with the documents. You can re-designate FD investment as a resident to NRO FDs. Interest earned on NRO FDs will be subject to 30% TDS.
If you do not inform or declare your status as NRI with bank, you will be liable to pay penalty of:
Moreover, penalty of Rs 5000 per day will be charged from the day of intervention until the payment of penalty.
No, if an Indian residential status is changed to an NRI, it is mandated by law to convert the bank savings account to an NRO account. And, holding a resident account even after becoming an NRI is not allowed by law.
Although, there is no specified time limit mentioned in the FEMA, but once your residential status changed to an NRI, you should convert your Resident account to an NRO account at the earliest to meet your transactional requirements and avoid paying penalty charges.
Any resident whose residential status has changed to NRI, PIO, or OCI, is eligible to convert the resident account to NRO account. However, NRIs based in Nepal, Bhutan, Pakistan, and Bangladesh are not allowed to convert to NRO savings account.
Further, if an individual’s savings account is under freeze or in debit balance, then all dues must be cleared first to become eligible to convert resident to NRO account.
No, according to the FEMA, an Indian who becomes NRI cannot convert his bank savings account to an NRE account. The reason is an NRI cannot deposit income earned in India to an NRE account. Resident account can be converted to an NRO bank account only.
However, if you wish to have an NRE account to maintain income earned overseas, it is advised to close your current resident account and open a new NRE account.
Yes, you are allowed to transfer money earned in India to an NRO account.
It is a regular savings account for NRI clients to deposit money from other Indian bank accounts. However, it has certain restrictions like maximum repatriable amount is USD 1 million with subject to RBI approval.