Can NRI Hold a Savings Account in India?

When a person stays out of India for longer durations, his residential status changes to NRI. Many rules and regulations regarding banking also change when the status changes from resident to NRI. One such question is whether NRIs can hold a savings account in India. This article discusses whether an NRI can use savings bank (SB) accounts in India. If not, what are the legal consequences, and how can we be on the safer side?

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Why Must NRIs Either Close Or Convert Their Savings Account?

As per the Foreign Exchange Management Act (FEMA), 1999, saving accounts for NRIs are not allowed in India. They must close or convert their existing resident savings accounts to Non-Resident Ordinary (NRO) accounts. NRIs also need to convert their fixed and recurring deposits to NRO deposits.

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Penalty For Not Converting Savings Account

The FEMA guidelines state that NRIs who do not convert their savings bank accounts to NRO accounts can face legal and financial complications. After becoming an NRI, if a person is found to be holding a resident savings account, 

• they have to pay a fine up to three times the amount in their savings account or 
• ₹2 lakhs (if the amount is not quantifiable).

Additionally, they may have to pay a penalty of ₹5,000 per day from the time they become NRI until the account is closed or converted.

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When Do You Qualify To Be An NRI?

To qualify as an NRI, a person must be an Indian citizen with an Indian passport and residing outside India. The definition of an NRI is different under the prevailing Foreign Exchange Management Act (FEMA) 1999 and the Income Tax Act 1961(IT Act).

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NRI Classification under the Foreign Exchange Management Act (FEMA) 1999

As per the prevailing FEMA regulations, a person is considered as an NRI if: 

• The person is residing overseas (except Nepal or Bhutan) for more than 182 days in one Financial Year (April-March) or
• The person has demonstrated an intent with supported documents to go abroad or reside outside India for an uncertain period.

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NRI Classification as per the Income Tax Act, 1961

To determine whether an Individual is a Non-Resident or not, his residential status is required to be determined u/s 6 of the Income Tax Act, 1961, as given below: 

An individual will be treated as a Resident in India in any previous year if they satisfy any of the following conditions:

1. If they are in India for a period of 182 days or more during the previous year or

2. If they are in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.

An individual who does not satisfy both conditions mentioned above will be treated as a Non-Resident in that previous year.

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Convert Savings Bank Account to NRO Account

NRI saving account conversion can be done by following methods:

(A) Online Mode: NRIs can do it online through their internet banking service or mobile app if their bank offers such a facility.

(B) Offline Mode: 

• By visiting the nearest branch and submitting an application with relevant documentation
• If a family member is given power of attorney, they can act on behalf of NRI by submitting relevant documents.
• NRI can also send the application form along with attested copies of the documents via courier to the bank branch

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Documents Required to Convert a Savings Account to an NRO Account

There are the essential documents required to convert a savings account into an NRO account:

• Resident savings account to NRO Account request form
• Self-attested PAN Card or Form 60 (in the absence of PAN) 
• Self-attested passport and Visa copy
• Passport size photograph
• Proof of NRI status- residential certificate or overseas employment certificate
• Overseas address proof
• Person of Indian Origin (PIO) or Overseas Citizen of India (OCI) card (if applicable)

At iNRI, we assist NRIs in opening new NRO/NRE accounts or converting resident savings accounts to NRO accounts with leading Indian banks. Our process is hassle-free and can be done entirely from the comfort of your home.

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Conclusion

It is essential to convert the existing savings bank accounts to NRO accounts after the residential status has changed to NRI. Many NRIs are unaware of the tax implications and still use their old savings account. The IT Act and FEMA Act clearly state that an old savings bank account should be converted to an NRO account after a change in the residential status from resident to NRI. 

By making this conversion, NRIs should ensure they manage their Indian income correctly according to tax and regulatory requirements. This simple step helps avoid penalties and ensures smoother financial management of funds in India while living abroad.

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Frequently Asked Questions (FAQs): Can NRI Hold A Savings Account in India?

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Can NRIs use a regular savings account in India?

No, an NRI cannot use a regular savings account in India as per FEMA guidelines.

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What types of accounts can NRIs open in India? 

Depending on their financial requirements, an NRI can open three accounts in India: an NRO Account, an NRE Account, or an FCNR Account.

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What happens if an NRI has a resident savings account in India?

Keeping a resident savings account in India by an NRI attracts fines and penalties.

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Are there any benefits to converting to an NRO account?

Yes, converting a resident savings account to a Non-Resident Ordinary (NRO) account offers several benefits for Non-Resident Indians (NRIs).

(a) Manage income earned in India, e.g. rent, pension, interest, and dividends.

(b) Repatriate up to $1 million per financial year from their NRO account to a foreign account after paying applicable taxes.

(c) Interest is earned on the NRO account, though it is taxable.

(d) Funds in the NRO account can be used to purchase shares, mutual funds, property, etc.

(d) Joint account facility, chequebook facility, nomination facility etc.

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Can NRIs transfer money from their savings account to an NRO account?

After the residential status changes to an NRI, the person should close or change the account to an NRO account to avoid tax implications.

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