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.
Is it mandatory to convert to 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.
Resident Bank Account Conversion to NRO Account
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;
Converting a Resident Savings Account to a NRO Bank Account.
Closing the existing Resident Savings Account and opening a new NRE Bank Account.
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.
How to convert Resident Bank Account to NRO Account?
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:
Contact your bank where you have a resident account and request to convert a resident account to a NRI account.
Fill out details in the “Resident Account to NRO Account Conversion form" and provide the required KYC details, e.g. contact person, proof of overseas address, etc.
Affix your signature to the form. In case of joint account, the form must be signed by all the account holders.
Attach the appropriate supporting documents to the properly signed form.
Send the duly completed form with the required documents to the bank's address.
Once all the information and documents have been verified by the bank, your resident account will be converted into an NRO account.
Documents required for Conversion of Resident to NRO account
Here is a list of documents a client needs to submit to convert an existing resident account to a NRO account:
Recent Passport size photograph
Resident to NRO account conversion form
Copy of PAN card or Form 60
Copy of visa or work permit or OCI/PIO card to prove NRI status
FATCA and FEMA Declaration Form
Resident Account Closure Form (If you choose to open a new NRE 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.
Penalty on Non-conversion of resident to an NRO account
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.
Important points about Resident to NRO Account Conversion
Even after conversion to an NRO account, the bank account number will remain the same.
Charges will be applicable on converting the resident to an NRO savings account. It may vary from bank to bank.
NRIs can deposit income earned in India in the NRO Account.
An NRI can repatriate interest earned on NRO savings account.
NRI can repatriate a principal of a maximum of USD 1 million after RBI approval.
NRO account is not tax-free as interest is taxed at 30% plus applicable health and education cess and surcharge.
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.
Frequently Asked Questions
Why to convert my Resident account to NRO Account?−
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;
All earnings in India like rent, pension, etc. can be parked to NRO account.
Repatriate money (upto USD 1 million) to your country of residence.
NRO account can have an Indian or NRI as a joint account holder.
You can have a resident Indian family member as a joint holder to provide them access to funds available in NRO account.
I have also invested in FDs with my Savings account, what would happen if I becomes NRI?+
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.
Is there any penalty for not converting to NRO account?+
If you do not inform or declare your status as NRI with bank, you will be liable to pay penalty of:
3 times of the amount in your existing savings account, or
Rs 2 lakh when the amount is not quantifiable.
Moreover, penalty of Rs 5000 per day will be charged from the day of intervention until the payment of penalty.
Can an NRI continue operate resident savings account?+
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.
When to convert resident account to NRO account?+
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.
Who is eligible to convert resident account to NRO account?+
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.
Can I convert my resident bank account to NRE 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.
Can I transfer money from India to an NRO 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.
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