Is NRO Account Mandatory for NRI ?
20 May 2022

Is NRO Account Mandatory for NRI ?

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Key Takeaways

When you become an NRI, you must either close your savings account or convert it to an NRO to manage your income in India.


Becoming a non-resident Indian (NRI) has a huge impact on your financial planning and management. New rules and guidelines come into play even for your old normal savings account in India.

A common question among NRIs is: “Can an NRI continue with resident savings account in India?” The answer is no.

As per the Reserve Bank of India (RBI) guidelines, an NRI cannot open or operate a regular resident savings account in India. Any such account should be converted into an NRI account as soon as your residential status changes.

NRE and NRO accounts

After you become an NRI, you must open either a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) account to do any banking transactions in India.

NRIs must open an NRE account to park their foreign earnings; and an NRO account for their earnings in India such as rental income, dividend, pension etc.

Since the amount you deposit in an NRE account is earned outside India, both the principal and interest amount are tax-free and freely repatriable to your country of residence.

However, the interest earned on an NRO account is taxable. The interest will attract TDS (tax deducted at source) at the rate of 30%. Also, the amount of money that can be repatriated is restricted to up to $1 million per financial year (April- March).

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Can existing savings accounts be converted into NRE accounts?

No, you cannot convert your savings account to an NRE bank account as the latter is meant for parking foreign earnings only. Hence, transferring funds from the resident account to an NRE account is not permitted.

You will have to close the resident savings account and transfer money to another resident account in the name of an immediate family member. Or you can open an NRO account.

Can existing savings accounts be converted into NRO accounts?

Yes, and that’s the best option. As soon as you become an NRI, convert the existing resident saving bank account into an NRO account and transfer your deposits there. Though it is not mandatory to open an NRO account, if you want to keep your local savings in your name, that’s the only option.

How to convert the resident account into NRO account?

Inform your banks and financial institutions as soon as your residential status changes. You can visit the bank branch in India and fill the requisite forms and submit supporting documents for this conversion if you are in India.

Or if you are abroad, you can send the form electronically along with attested copies of all the required documents.

What’s the penalty for not converting to NRO account?

As per the Foreign Exchange Management Act (FEMA), when your resident status changes to that of an NRI, you would have to close the existing resident saving bank account or convert it into an NRO account.

Under Section 13 of the Foreign Exchange Management Act, 1999, you may be liable to pay penalty up to three times the amount involved or up to Rs 2 lakh if the amount is not quantifiable. A further penalty of Rs 5000 per day may be applicable till the issue is resolved.

Final Note

If you are an NRI with income in India, it is mandatory to open an NRO account or convert your existing savings account into an NRO account. An NRO account allows you to efficiently manage your India income.

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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.