As soon as one’s resident status changes to NRI, numerous finance rules and regulations change that might lead to confusion and curiosity. Among many questions that arise, one such question is “Can NRIs continue with resident savings account?” In this blog, we will delve into this topic and guide NRIs towards making informed decisions that align with their financial goals and regulatory compliance.
Can NRIs Continue with Resident Savings Account?
When the status of an individual changes from resident to Non-Resident Indian (NRI), he/she cannot continue with a resident savings account. The RBI strictly mandates that NRIs must convert their resident savings account to an NRO (Non-Resident Ordinary) account or open a specific NRI bank account to conduct financial transactions in India. Failure to comply with this regulation may result in penalties.
Is it Mandatory to Convert to NRO Account?
NRIs can convert their resident savings account to an NRO (Non-Resident Ordinary) account or open a specific NRI bank account. NRIs can open two types of NRI accounts:
- NRE (Non-Resident External)
- NRO (Non-Resident Ordinary)
However, NRIs can only convert a resident bank account to an NRO account. This is because the funds available in a resident account cannot be transferred to an NRE account.
Penalty for Not Converting to NRO Account
It is illegal to maintain your resident savings account after acquiring NRI status according to the guidelines outlined in the Foreign Exchange Management Act (FEMA). As per the FEMA, individuals who fail to comply with these guidelines will be liable to pay penalties amounting to three times the value associated with their current resident savings account, or Rs 2 lakh in cases where the amount cannot be quantified. Furthermore, an additional penalty of Rs 5,000 levies daily from the day of intervention until the penalty is settled.
Time Limit for Converting to NRO Account
Converting a savings bank account to an NRO account does not have a specified time limit. However, NRIs must convert residents account to NRO account after changing to NRI status. This will help in avoiding any penalties and inconvenience.
Can I Transfer Money from Normal Savings Account to NRO Account?
Yes, one can transfer money from a normal savings account to an NRO account. Existing funds are automatically transferred to an NRO account.
How to Convert Resident Account to NRO Account?
Given below are the steps that need to be followed in order to convert a resident account into an NRO account:
- The first step is to contact your bank to inquire about the conversion process and obtain a request/application form.
- You can request the form in person by visiting the nearest branch of the bank.
- You can also download it from the bank’s website.
- Provide all the necessary details and ensure that it is signed by all account holders if it is a joint account.
- Additionally, you need to gather all the required documents for the conversion process.
- In the case of any associated fixed deposits (FD), remember to include the relevant receipts.
- If you are currently in India, submit the completed form and accompanying documents at the bank branch.
- However, if you have already departed the country, you must send the form, to the bank branch.
- Note that you need to attest the form by the Indian embassy in your new country of residence.
- After receiving and verifying the form and documents, the bank will complete the conversion process.
Documents Required to Convert to NRO Account
Here is the list of documents:
- FEMA declaration form
- Photocopy of PAN card or Form 60 in absence of PAN
- Resident to NRO account conversion form
- Application form for NRI bank account
- Passport-size photographs
- Address of foreign residence
- Photocopy of valid work permit/ visa/ PIO or OCI card
- Photocopy of passport
Why does RBI Want this Conversion?
It is crucial to understand why the Reserve Bank of India (RBI) encourages the closure or conversion of Indian resident accounts into non-resident bank accounts. Here are some of the reasons:
- From the RBI’s standpoint, individuals residing abroad serve as a source of incoming and outgoing foreign exchange and wealth.
- The RBI seeks to maintain oversight in order to gather data pertaining to foreign assets and currency transactions within India.
- By staying informed about capital outflows and inflows, both current and anticipated, the RBI can effectively monitor and manage the depreciation and appreciation of the Indian rupee (INR).
- NRO and NRE accounts have permissible debits and credits. So the RBI differentiates money in terms of country and usage and keeps a tab on Indian currency and the money that is brought in or taken from India.
Benefits of Converting Resident Account to NRI Account
Converting a resident account to an NRI account can offer several benefits. Here are some advantages:
Remitting Foreign Income to India
When it comes to transferring foreign income to India, both types of non-resident accounts in India, NRE and NRO, are capable of receiving foreign currency. If the purpose of opening a bank account is to facilitate the smooth transfer of foreign income to India, NRIs can choose either an NRE or NRO account.
Receiving Indian Income in an NRI Account
NRIs may earn income in the form of dividends, rental income, business income, etc., in Indian currency. For such credits, an NRI must open an NRO account exclusively. An NRE account does not allow any credits in Indian currency and may reject such transactions.
Elimination of Currency Risk
If the intention behind remitting funds to India is to utilize them within the country, both NRE and NRO accounts enable NRIs to eliminate currency conversion risk. This is because the received amount is converted into Indian currency at the time of deposit, and the balance is subsequently maintained in Indian currency.
Repatriation of Funds
Both NRE and NRO accounts permit NRIs to freely repatriate interest income without restrictions. However, in terms of the principal or main amount, only the NRE account allows unlimited repatriation of funds. The balance held in NRO accounts, excluding interest income, is subject to prescribed limits.
Taxability
Tax implications are an important consideration for NRIs when considering opening an NRI account. Under the relevant provisions of the Indian Income Tax Act, interest earned on balances in NRE accounts is tax-exempt. However, an NRO account holder has to pay taxes applicable to the interest income.
Joint Operations
NRIs may wish to provide easy access to funds in their NRI accounts for their parents and family. NRIs can open a joint accut for this purpose. An NRE/NRO account can be opened jointly with another NRI. But they can only be operated jointly with a resident Indian relative on a “former or survivor” basis.
Contact SBNRI
Due to lots of information and documentation required to apply for NRI accounts, NRI account opening process is lengthy and cumbersome elsewhere. Whether you want to open a new NRE/ NRO account or convert your resident account to an NRO account, you can apply for NRI accounts online through SBNRI. Download SBNRI App to apply for an online NRI account in India with nominal documentation in just 10 minutes.You can also click on the button below to apply for an NRI account. Visit our blog and YouTube Channel for more details.
