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Resident Indians who plan to move abroad need to either close their existing savings account or have it converted to an NRO account. Find out what happens if an NRI fails to do so in a timely manner.
When an individual residing in India leaves for a country (other than Nepal or Bhutan) for business or employment opportunities, to carry on a vocation outside India or for any other purpose which may require him to stay outside the country for an uncertain period, his existing savings account is designated as a Non- Resident (Ordinary) Account.
When such an individual witnesses a change in status from a resident Indian to a non-resident Indian (NRI), he or she is required to either close the existing savings account or have it converted to an NRO account. This is a type of bank account option meant to cater to the needs of those NRIs who continue to have one or the other source of income in India (rent, pension, dividends and interest payouts, etc.). The money in an NRO account has to be maintained in the Indian rupee, and any interest earned on the same is subject to a tax deducted at source (TDS) at a specified rate.
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If your residency status has changed to NRI, then having your savings account converted to an NRO account is mandated by the law. There are penalties levied if you fail to ensure timely conversion of the savings accounts to an NRO account.
While there are three main types of NRI accounts one can choose from- non-resident external (NRE), foreign currency non-resident (FCNR and NRO- you can only convert existing savings account to an NRO account once you become an NRI. You can also close your existing resident savings account and opt for a new NRE account that suits your banking needs. Avail higher, tax-free, and fully repatriable interest on your NRE savings account.
Some forms are required to be filled out for conversion of existing savings account to NRO account. For starters, you need to get in touch with your bank and ask about the conversion process, get a request/application form or download it from the bank website. Then, fill out the form with all necessary details, have it signed by all account holder (in case of a joint account) and keep ready the required documentation for the process. If there is any fixed deposit (FD) associated with the account, make sure to attach receipts of the same. Submit the form along with the documents at the bank branch in case you are in India. If you have already left the country, then the same need to be sent to the bank branch after being attested by the Indian embassy in your new residence country.
Yes, 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 Act, any individual who fails to adhere to the 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. Additionally, a penalty of Rs 5,000 is to be charged every day from the first day of intervention until the penalty is paid.
If you have recently gone from being a resident Indian to an NRI, make sure to get your savings account converted to an NRO account at the earliest. However, if you decide to close it down, you can opt for a new NRI account (NRE, NRO, FCNR) to cater to your banking needs.
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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.