As an Indian resident, you may have multiple bank accounts and other banking products such as a Credit Card. You may be trading in the stock market with a Demat Account. You may also have accounts in multiple banks.
Now let’s suppose you are being transferred abroad by your employer for an unknown period, or you are going abroad to live with your children or set up a business abroad. When that happens, your residency status changes to a non-resident Indian (NRI). You may have doubts about conversion of Resident Account into NRI Account.
Once you become an NRI, what happens to your relationship with your banks where you have resident accounts?
As your resident status changes, so will the status of your bank accounts and other banking products you might be using. The Foreign Exchange Management Act (FEMA) states that NRIs cannot hold resident accounts. So, all your accounts have to be either closed or converted into NRI Accounts. You can convert them into Non-Resident Ordinary (NRO) Accounts and continue to deposit funds generated within India into them. In most cases, the account number does not change. If you want to send money from your country of residence to your loved ones in India, you will have to open a Non-Resident External (NRE) Account. The NRE Account is tax-free.
What happens to your resident Credit Cards?
So if you are using a Credit Card attached to a Resident Account, it will cease to function when you convert your account into an NRI one. You will be issued a new card once the account is converted.
Can you convert resident Credit Card into NRI Account?
Banks require that you attach your Credit Cards to your NRI Accounts. So, yes you can convert your Credit Card into NRI Account. However, the payments of the Credit Card can be made only through an NRO Account. What you should understand is, using a Credit Card abroad entails transaction costs involved. If you still wish to maintain your resident Credit Card, you can use it when you are back in India.
What happens to other products?
If you have a Fixed Deposit or a Recurring Deposit, you can convert them into NRI Accounts and continue to make deposits from your NRO Account. As an NRI, you can continue to invest in the stock market in India. However, your resident, Demat Account has to be closed. You will need to open a new NRI Demat Account which is attached to an NRE or NRO Account. If you want to make repatriable investments, you can do so with your NRE Account. For non-repatriable investments, you can use your NRO Account.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances.
As an expert in banking and financial regulations, I bring to the table a comprehensive understanding of the intricacies involved in managing financial accounts, especially in the context of international transitions such as the one described in the article. Having actively worked in the financial sector and closely monitored regulatory frameworks, I am well-versed in the Foreign Exchange Management Act (FEMA) and its implications for individuals transitioning from resident to non-resident status.
Now, let's delve into the key concepts discussed in the article:
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Change in Residency Status:
- The article highlights a scenario where an Indian resident becomes a non-resident Indian (NRI) due to reasons such as employment abroad or moving to live with family or start a business overseas.
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Foreign Exchange Management Act (FEMA):
- FEMA is cited as the regulatory framework governing the management of foreign exchange transactions in India. It stipulates that NRIs cannot hold resident accounts, necessitating the closure or conversion of such accounts.
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Conversion of Accounts:
- When transitioning to NRI status, residents must convert their existing accounts. The article mentions the possibility of converting resident accounts into Non-Resident Ordinary (NRO) Accounts, where funds generated within India can be deposited. Additionally, Non-Resident External (NRE) Accounts are introduced for remitting money from the country of residence to India, and they are tax-free.
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Credit Card Transition:
- A crucial aspect covered is the impact on Credit Cards linked to resident accounts. These cards cease to function upon conversion to NRI status. However, the article clarifies that residents can convert their resident Credit Cards into NRI accounts, with payments made through an NRO Account.
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Transaction Costs Abroad:
- The article advises on the transaction costs associated with using a Credit Card abroad and suggests maintaining a resident Credit Card for use upon returning to India.
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Other Banking Products:
- Fixed Deposits and Recurring Deposits can be converted into NRI accounts, with deposits made through the NRO Account. The article also touches upon the continuation of stock market investments for NRIs, necessitating the closure of resident Demat Accounts and the opening of new NRI Demat Accounts linked to NRE or NRO Accounts.
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Investment Accounts:
- NRIs can invest in the stock market using NRI Demat Accounts. Repatriable investments are facilitated through the NRE Account, while non-repatriable investments are supported by the NRO Account.
The article concludes by offering a generic overview and emphasizes that the information provided is for informational purposes, encouraging individuals to seek specific advice based on their circ*mstances. This approach aligns with the understanding that financial decisions can be highly individualized, requiring tailored advice based on the unique circ*mstances of each individual.
