Once an Indian citizen receives the NRI status, he/she is not permitted to operate an ordinary savings bank account in India.
NRIs are required to convert their savings bank account in India to an NRO account (also called non-resident ordinary) to continue with their financial transactions in India after a change in their resident status.
What is the need to convert a savings account to an NRO account?
The Reserve Bank of India (RBI) has categorically mentioned in their Master Circular this rule. With the exception of Bhutan and Nepal, whenever an Indian citizen goes abroad for business or employment for an uncertain period, his/her existing savings account is designated as NRO.
To provide more information, if you have an income in India and it was being deposited to your savings account while you are an NRI, it is in violation. But if you have income only from abroad and have your old savings account, there is no problem with delay in closing it or converting to NRO.
Why RBI requires NRIs to discontinue operating savings accounts and convert them to NRO, the reason is not stated in the circular. It may be because RBI wants to keep track of all the accounts where the money is being repatriated.
Are there any penalties for not converting to an NRO account?
As mentioned on the DBS Bank website, “continuing to hold your resident savings account after gaining NRI status is considered illegal under the Foreign Exchange Management Act (FEMA) guidelines and doing so may attract hefty penalties.” Under the FEMA Act, any NRI who fails to follow the given guidelines is liable to pay a penalty of up to 3 times the amount involved in the existing resident savings account or Rs 2 lakh when the sum is not quantifiable. Moreover, a penalty of Rs 5,000 per day will be charged from the first day of intervention until the penalty is paid.
It is important to note that the RBI may also take other actions, such as freezing the account or taking legal action if it considers the delay to be a violation of regulations. It is always best for the NRI to consult with a financial advisor or the Indian embassy in their country of residence to understand the specific rules and regulations regarding the conversion of resident savings accounts into NRO accounts.
FYI, we have not come across any NRI who is penalised for having a savings account in India. But don’t take a chance – follow the rules & have peace of mind.
Should you close the savings account when you leave India?
Moneycontrol.com says that if the account is not in use, the best strategy would be to close that account since there’s a cost associated with maintaining a bank account. There are also compliance issues such as complications in tax filings, with maintaining multiple accounts which all culminate in streamlining your Bank accounts.
If you don’t close your savings account, there are 2 consequences –
- You would be in breach of FEMA guidelines
- You would be bearing unnecessary fees/charges for maintaining this account
Documents required to convert to NRO account
- FEMA declaration form
- Copy of PAN card
- Resident bank account closure form
- NRI bank application form
- Passport size photographs
- Foreign residence address
- Copy of work permit/valid visa/OCI or PIO card
- Copy of passport
Do You need Help? Contact NRI Money Plus.
Donald G. is the Principal Consultant at NRI Money+. He specialises in creating personalised financial plans for NRIs (Non-Resident Indians) and HNI (High Net-worth Individuals).
