NRI Guide: How can You retain Old Bank Account in India with NRI Status

Along with a pile of doubts, non-resident Indians (NRIs) keep wondering whether the bank will impose a fine on their unconverted savings accounts after settling abroad.    

Yes, you can retain your old bank account, but not for a prolonged duration. If you do so, you will be penalised under India’s Foreign Exchange Management Act (FEMA) by the Reserve Bank of India (RBI) for violating the rules.   

If you breach any provision of FEMA, you are liable to pay up to (INR 200,000) thrice the amount left in your savings account.   

So, in such a scenario, you can make a profitable decision and convert your old-bank account to either a Non-Resident Ordinary (NRO) account or Non-Resident External (NRE) account. Converting to NRO or NRE accounts will not only provide you with tax-exempt benefits but also let you save a lot of money on tax.   

Let’s understand how.   

An NRO account enables you to manage your deposits or income earned in India, such as dividends, pensions, rents, etc. This account also allows you to receive funds in both Indian and foreign currencies.   

An NRE account, on the other hand, is a bank account opened in India in the name of an NRI, so you, as an NRI, can park your foreign income.    

You can open a joint NRO account with one or more NRIs or Indian residents. Wherein the interest earned on the NRO account applies taxes, NRE accounts are exempt from tax. The tax rate depends on the account holder’s income earned in India.    

NRE accounts can be converted to any foreign currency, while NRO accounts face certain restrictions. For example, an NRO account has a remittance allowance of up to $1 million (applicable net taxes in a financial year).   

NRO accounts face tax deductions at the source of income before paying the balance to the payee at the maximum rate of 30%.   

If you convert your old regular bank account to NRE or NRO account, you can avail of the following benefits:   

  1. As you can receive foreign currency through both types of non-resident accounts in India, you can initiate an easy transfer of foreign income to India.   
  1. Your earnings from India can be in the form of rents, business or dividends. Hence, it is necessary to open an NRO account as an NRE account will not allow a transaction in Indian currency.   
  1. If you aim to remit funds to India, so you can use such funds only in India, both NRE and NRO accounts eliminate the currency risk as the amount received in the account is already converted into Indian currency during the time of transfer.    
  1. An NRE account helps you save interest earned on your income in India. According to the Income Tax Act guidelines, the interest earned for the balance in an NRE account is tax-exempt. If you don’t have any other taxable income in India, you don’t have to file Income Tax Return (ITR) in India. However, an NRO account doesn’t provide such a tax exemption.  

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