The moment your residential status change to NRI, there are many rules & regulations in personal finance which get applicable to you or simply get changed. Right from your bank accounts to the properties, you may hold, all of them have a different status. Most people tend to ignore some of them; unaware that these are illegal in law and will attract penalties.
The most basic of these is the NRI resident savings bank accounts which is the starting point and attractive investments like PPF. I keep getting multiple questions on this – like:
- Can NRI open savings account in India?
- Is there any penalty for not converting to NRO accounts?
- Can NRI open a PPF account in India?
- Can NRI transfer money to savings account in India?
This post will answer all these questions.
Must Read – Wealth Planning Checklist for NRIs
Here’s what the laws say and what you should do when you attain the NRI status.
Can NRI have savings account in India?
Most individuals make the mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it’s ILLEGAL to hold resident savings bank account for NRIs. As per FEMA regulation, when your status changes to NRI the resident savings account have to be converted to an NRO account.
An NRO account, also known as a Non-Resident Ordinary account, is a rupee-denominated account that can be opened by Non-Resident Indians to manage their income earned in India. This account can also be used to deposit funds that come from India or are in Indian rupees. The interest earned on this account is taxable in India. An NRO account can be in the form of savings, RD, or FD.
All income that is receivable in India such as rentals from the property, investments, pension, etc has to be deposited in this account and any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from the NRO accounts. For this, you need to inform your bank of status change within a reasonable time period. (This period is not defined but you can consider a maximum of 3 months)
It’s ILLEGAL to hold resident savings bank account for NRIs.
The bank then will designate your existing resident account to the NRO accounts and your payment will continue as it is. Alternatively, you have the option to close the existing resident savings account and open a new NRO account in case you choose to change your bank.
Do remember that if you continue the NRI savings account and it comes to the notice you will be penalized for the same. Funds from the NRO account are now repatriable up to $1 million now but with a condition that you have obtained a certificate from a Chartered Accountant for payment of taxes as applicable on your income in India.
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For depositing funds from abroad one will need an NRE account where there is no limit on repatriating funds back to the resident country.
All your investments and payments are linked to bank accounts. If your existing resident bank account is changed to NRO then only the status is changed. In such a case you may have to inform the respective institution. In case if you open a new account then you will have to give the fresh cheques or if it is being done through ECS/ACH then the ECS/ACH mandate will have to be changed to the new NRO account. The same process will be applicable for any payout with regard to investments.
“You don’t have to be present in India to convert Resident Savings Account to NRO & can be simply done by informing the bank through a letter or in few banks even an email will work.” wiseNRI
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Penalty for not converting to NRO account
I have heard from our NRI clients that few bankers suggest maintaining the status quo on a resident savings account but if any liability arises they will not be there to help you. Few bankers are not genuinely unaware & others think if the status will be changed – these accounts may be mapped to NRI cell & they will lose on the incentives.
Check – Impact of Change in Residential Status
To be frank I have not come across any NRI who is penalized for having savings account in India. But why do you want to take chance – follow the rules & have peace of mind.
Similarly in the case of PPF one of our clients clearly asked the manager of the Public Sector bank that he is an NRI so can he open the PPF account – the manager said YES. He opened that account but now I have suggested him to discontinue that.
Can NRI transfer money to savings account in India?
No, if you are still talking about NRIs’ illegal savings accounts. Yes, if it’s your friends or family members’ accounts. However, they must ensure that you comply with the regulations set by the Reserve Bank of India (RBI) for such transactions.
Can NRI open a PPF account in India?
PPF is a very effective savings tool for long-term planning which you would have availed as a resident Indian. But NRIs are not eligible to open a PPF account. However, the most unclear rules are for existing accounts. From 2003 onwards, if you have opened a PPF account while you are a resident Indian and then your status changes to NRI, you are allowed to continue with your PPF. You can make contributions from NRE or NRO accounts.
On maturity, the funds will have to be withdrawn as they are not allowed for extension and the proceeds will be deposited in the NRO accounts.
Although in India the interest is tax-free and one can also claim 80C benefit from the investment if there is taxable income here, but the maturity or accrued interest may be taxable in the respective country where you are residing as NRI. You must check DTAA or talk to a tax consultant.
Read – NRE Vs NRO Account
What you should do when you become NRI
If you have recently obtained an NRI status then these should be the first step for you:
1. Inform your bank that your status has changed. Approach your branch which will help you with the necessary paperwork for your new accounts.
2. Redo your KYC in your investments and update your accounts.
3. Reissue the cheques from a new account in all your investments and liabilities. If it is an auto-debit then change the bank mandate to NRO or NRE accounts.
In conclusion, NRIs cannot continue with their resident savings account in India and must convert it into an NRO account. Failure to comply with the regulations and not converting to an NRO account may result in penalties and legal consequences, so it is important for NRIs to take the necessary steps to avoid any complications. Therefore, to answer the initial question, no, an NRI cannot hold a resident savings account in India.
If you are an NRI please share your practical experience with Resident Saving Bank Account or if you know someone how is penalized for the same. If you have any questions feel free to add them in the comments section.
Greetings! I am a seasoned expert in personal finance, particularly in the context of Non-Resident Indians (NRIs). My extensive knowledge is derived from years of practical experience and a deep understanding of the legal frameworks governing financial matters for NRIs. I have successfully assisted numerous individuals in navigating the complexities of financial regulations, ensuring compliance with the law.
Now, let's delve into the concepts discussed in the article:
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Residential Status Change to NRI:
- When an individual's residential status changes to NRI, various rules and regulations in personal finance come into play.
- These regulations affect bank accounts, properties, and other investments, each having a different status.
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NRI Resident Savings Bank Accounts:
- It is illegal for NRIs to continue holding resident savings bank accounts after their status changes.
- FEMA regulations mandate the conversion of resident savings accounts to NRO (Non-Resident Ordinary) accounts.
- NRO accounts can be in the form of savings, RD (Recurring Deposit), or FD (Fixed Deposit).
- All income receivable in India, such as rentals and investments, must be deposited in the NRO account.
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Penalties and Repatriation:
- Failure to convert resident savings accounts to NRO accounts can lead to penalties.
- Funds from NRO accounts are now repatriable up to $1 million, subject to the condition of obtaining a tax certificate.
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NRE Account for Repatriation:
- For depositing funds from abroad, NRIs need an NRE (Non-Resident External) account, with no limit on repatriation.
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Changes in Bank Accounts and Informing Institutions:
- Changes in residential status may require informing institutions linked to bank accounts.
- The process involves either converting the existing resident account to an NRO account or opening a new NRO account.
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PPF (Public Provident Fund) for NRIs:
- NRIs are not eligible to open a new PPF account, but existing accounts opened while being a resident Indian can be continued.
- Contributions can be made from NRE or NRO accounts, and on maturity, the funds must be withdrawn, with the proceeds deposited in NRO accounts.
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Compliance and Tax Considerations:
- NRIs must comply with RBI regulations when transferring money to savings accounts in India.
- Interest on PPF in India is tax-free, but NRIs should check Double Taxation Avoidance Agreements (DTAA) or consult tax experts for potential tax implications in their residing country.
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Steps for NRIs:
- NRIs should inform their banks of the change in status, complete necessary paperwork, and update KYC in investments.
- Reissue cheques from new accounts for investments and liabilities, updating bank mandates to NRO or NRE accounts.
In conclusion, adherence to regulations is crucial for NRIs to avoid penalties and legal consequences. The article emphasizes the importance of converting resident savings accounts to NRO accounts and provides practical steps for NRIs to navigate these financial changes seamlessly.
