How Change in Residential Status Affects Different Accounts & investments

Someone rightly said “Change is the only constant in life” but few changes are really tough like the change in residential status for NRIs.

Are you an NRI who is planning to return to India? Or are you a resident Indian who will become an NRI?

Either way, there are certain steps to be taken regarding financial matters. You need to take care of your demat account, Bank account, MFs etc. to ensure that the type of account that you operate matches your residency status.

NRI Change in Residential Status

Change in Residential Status

Let us look at different accounts and the action to be taken when residency status changes –

Bank Accounts

Resident Indian to NRI

NRIs cannot hold normal savings accounts in India. NRIs can open an NRE or NRO account to deposit his earnings.

An NRE account can be opened as a savings account or a term deposit account. A resident Indian can be made a joint account holder. Funds from NRE account can be transferred to NRO account. Only foreign income can be deposited in NRE accounts. Interest earned in this account is tax-free.

An NRO account can be opened as a savings account or a term deposit account. A resident Indian can be a joint account holder. Only income from India can be deposited in this account. Interest earned in this account is taxable.

NRIs have to convert their resident fixed deposits to NRO deposits.

NRIs can open FCNR accounts to have term deposits. Deposits can be made only in foreign currency. Interest and principal amounts are tax-free. Resident Indians cannot be joint holders to this account.

Process – Visit the bank branch and fill the relevant forms and submit along with identity proof related documentation, passport and visa.

NRI to Resident Indian

NRIs have to convert the NRE and NRO savings accounts to resident savings accounts. NRIs have the option to convert savings accounts to RFC accounts till the time the residency status is RNOR (Resident but not Ordinarily Resident) status.

Fixed deposits in FCNR and NRE accounts can be as-is until maturity date. They can be changed to Resident Foreign Currency (RFC) accounts after maturity.

Process – The NRI has to give a declaration to redesignate NRE/NRO account to Resident Savings account or RFC account Details like customer id, account number etc.  should be filled up, signed and submitted at the local branch of the bank.

NRIs can operate resident bank a/c on ‘either or survivor’ basis.

WiseNRI

Demat Account

Resident Indian to NRI

NRIs have to close the demat account that they held when they were resident Indians. They have to open a new demat account or  Portfolio Investment Scheme (PINS) account with a bank. They can buy and sell shares using this account. Sales proceeds can be repatriated to the NRE savings account.

An NRI can have only one PINS account.

Process – The authorised dealer and the depository participants must be informed of the status change.

ReadMyths and Facts about NRI Status

NRI to Resident Indian

NRIs cannot continue with NRI demat account when they become resident Indians. They have to open a resident demat account and transfer all existing investments to it.

While you were a resident Indian, will have to be closed and you would need to transfer the shares to an NRO demat account. You can continue to hold these shares in the NRO demat account or sell them. If you sell them, the proceeds are credited to the NRO savings account.

If you want to buy shares from the secondary market as an NRI, you would need to open a Portfolio Investment Scheme (PINS) Account with a bank. In this scheme, you can buy shares with funds in your NRE account and sale proceeds can be credited to NRE account for repatriation.

Process – The authorised dealer and the depository participants must be informed of the status change.

Mutual Funds

Resident Indian to NRI

The mutual funds can be held when resident status changes.

Process – The NRI should write a letter to individual AMCs along with proof of NRI bank accounts, KYC documents, passport, overseas address proof.

NRI to Resident Indian

The mutual fund units can be held when resident status changes.

Process – Write a letter to individual AMCs with folio no stating your change of Status from NRI to Resident individual and attach the cancelled cheques of your old NRE/NRO accounts and the new resident account.

Read – NRI Capital Gains Tax On Mutual Funds 

PPF Account

Resident Indian to NRI

An NRI cannot open a PPF account. But if he had opened a PPF account when he was a resident Indian, he can hold that account till its maturity.

Process – He can invest amount in it as an NRI using funds in NRE or NRO account.

If he wants to close it, he can use the withdrawal form to do so along with attestation from the bank where the NRE/NRO account is present.

NRI to Resident Indian

Process – The NRI will have to invest money from a Resident savings account.

If he wants to close the account, he will have to fill the withdrawal form along with relevant forms.

Change in Residential Status

NPS Account

Note: NPS detail is purely based on information received from an NRI – if you have some different views please share in the comment section.

Resident Indian to NRI

A Resident Indian will have to close the NPS account when his residency status changes. As an NRI, he can open another NPS account. He can have only one NPS account.

Process – There are two ways –

He can open the account through eNPS if he as an Aadhaar or PAN card. It can be done from the eNPS website.

He can download the NRI NPS form, complete it and submit it to the bank branch.

The amount will have to be remitted through the NRE/NRO account.

NRI to Resident Indian

NRIs have to close the NPS account that they opened as NRIs. They can open a new NPS account when they become resident Indians. The NPS account cannot be transferred when citizenship changes.

Process – There are two ways –

He can open the account through eNPS if he as an Aadhaar or PAN card. It can be done from the eNPS website.

He can download the NRI NPS form, complete it and submit it to the bank branch.

The amount will have to be remitted through the resident savings bank account.

ReadNRI Moving Back to India

Insurance

Resident Indian to NRI

A policy taken as a Resident Indian will be valid when you become an NRI. You will have to understand the claim rules and procedure for the status change. You have to inform the company about the change in residency status.

NRI to Resident Indian

NRIs can continue with their life insurance policies that have been purchased abroad. They can also continue with the policies they purchased in India as NRIs. They have to inform the company about the change in residency status.

Hope this gives you some idea about the actions that you have to take when your residential status change. If you find any discrepancy or change happened after we published – please add a comment.

If you have any question related to residential status feel free to ask.

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • Surya says:

    Is interest/accrued interest on FCNR/NRE deposits taxable when one becomes Resident.

    • Hi Surya,

      Yes, it will be taxable but if you can maintain RNOR Status – you can avoid tax. I will soon write a post on this.
      Surprisingly few banks even don’t allow you to continue NRE FDs after the status change – a technical issue on their side.

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