Why Financial Planning?

Planning is bringing the future into the present so that you can do something about it NOW.

Moment your residential status change to NRI, there are many rules & regulation in personal finance which get applicable to you or simply get changed. Right from your bank account to the properties you may hold, all of them have a different status. Most people tend to ignore some of them; unaware that these are illegal in law and will attract penalties.

The most basic of these is the resident savings bank account which is the starting point and attractive investments like PPF. I keep getting multiple questions on this – like:

  • Can an NRI open a resident account?
  • Can NRI hold savings account in India?
  • Is there any penalty for not converting to NRO account?
  • What about NRI PPF?

This post will answer all these questions.

nri resident savings account

Here’s what the laws say and what you should do when you attain the NRI status.

NRI – Resident Savings Account

Most individuals make a mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it’s ILLEGAL to hold resident savings bank account for NRIs. As per FEMA regulation, when your status changes to NRI the resident savings account have to be converted to an NRO account.

All income which is receivable in India such as rentals from property, investments, pension etc has to be deposited in this account and any payment towards insurance premiums or EMIs on loans which you availed while in India also has to be mandated from the NRO account. For this, you need to inform your bank of status change within a reasonable time period. (This period is not defined but you can consider maximum 3 months)

The bank then will designate your existing resident account to the NRO account and your payment will continue as it is. Alternatively, you have an option to close the existing resident savings account and open a new account in case you choose to change your bank.

Do remember that if you continue the resident savings account and it comes to the notice you will be penalized for the same. Funds from the NRO account are now repatriable up to $1 million now but with a condition that you have obtained a certificate from a Chartered Accountant for payment of taxes as applicable on your income in India. Check – NRE to NRO transfer form 15CA

For depositing funds from abroad one will need an NRE account where there is no limit on repatriating funds back to the resident country.

All your investments and payments are linked to bank accounts. If your existing resident bank account is changed to NRO then only the status is changed. In such a case you may have to inform the respective institution. In case if you open a new account then you will have to give the fresh cheques or if it is being done through ECS/ACH then the ECS/ACH mandate will have to be changed to the new NRO account. The same process will be applicable for any payout with regard to investments. Check – Best Investment Plan For NRI

“You don’t have to be present in India to convert Resident Savings Account to NRO & can be simply done by informing the bank through a letter or in few banks even an email will work.” wiseNRI

Read – NRE Vs NRO Account

Can NRI open PPF account in India?

PPF is a very effective savings tool for long term planning which you would have availed as resident Indian. But NRIs are not eligible to open a PPF account. However, the most unclear rules are for existing accounts. From 2003 onwards, if you have open a PPF account while you are resident Indian and then your status changes to NRI, you are allowed to continue with your PPF account. You can make contributions from NRE or NRO account.

On maturity, the funds will have to be withdrawn as they are not allowed for extension and the proceeds will be deposited in the NRO account.

Although in India the interest is tax-free and one can also claim 80C benefit from the investment if there is taxable income here, but the maturity or accrued interest may be taxable in the respective country where you are residing as NRI. You must check DTAA or talk to a tax consultant.

Is there any penalty for not converting to an NRO account?

I have heard from our NRI clients that few bankers suggest maintaining the status quo on a resident savings account but if any liability arises they will not be there to help you. Few bankers are not genuinely unaware & others think if the status will be changed – these accounts may be mapped to NRI cell & they will lose on the incentives.

penalty for not converting to nro account

Be frank I have not come across any NRI who is penalized for having savings account in India. But why you want to take chance – follow the rules & have peace of mind.

Similarly in the case of PPF one of our clients clearly asked the manager of the Public Sector bank that he is an NRI so can he open the PPF account – the manager said YES. He opened that account but now I have suggested him to discontinue that.

CheckImpact of Change in Residential Staus

What you should do when you become NRI

If you have recently obtained an NRI status then these should be the first step for you:

1. Inform your bank that your status has changed. Approach your branch which will help you in the necessary paperwork for your new accounts.

2. Redo your KYC in your investments and update your accounts.

3. Reissue the cheques from a new account in all your investments and liabilities. If it an auto-debit then change the bank mandate to NRO or NRE account.

If you are an NRI please share your practical experience with Resident Saving Bank Account or if you know someone how is penalized for the same. If you have any questions feel free to add in the comments section.

nri resident savings account
Published on 

Hemant Beniwal

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". 

  • Dear Hemant,

    Very good info. But let me share that i am a person who is frequently changing residency. Like few project I am doing in Gulf. Some in India. It is very difficult every time to follow this type of change specialy it links many things like demat, MF, PPF, NPS, FD, Corporet FD.

  • Can father of NRI can open fixed deposit in his sons name from his retirement fund to distribute his share with other family members to avoid dispute latter on.

  • I have account in some banks in India who are asking to personally come and do the conversion formalities. it is not possible for me to go as I am above 70yrs old and have medical conditions. Only one private bank is having procedure for online conversion but not by just sending letter or email. Many documents have to be uploaded, which can be done with some effort. But what about who don’t do conversion ONLINE or through email or letter as you have said.

  • most of these rules cant be applied.. people are from IT projects finish and we keep moving countries and back to India.. no one can keep redesignating accounts .. its totally impossible .. ! and same from NRE one cant keep moving NRE FD to RFC etc which means in middle of ur FD u break loose money and then buy foreign currency pay commssion to the bank ?

  • Does this also apply to students who have left India on a F1 Visa and may return back to India after completing their studies?What happens if the Resident Savings Account in India is in the Joint name of the NRI and a parent who is a resident in India?

    PPF Account can be maintained by the NRI if it was opened by the NRI before he became a NRI, till maturity.So you mean that a NRI cannot seek the optional 5 year Extensions of his PPF account?

    My logical next question will be Can A NRI gift his father all the sums in his ordinary savings account and PPF on Maturity, and then close the Savings account as he has no income in India?

    • Hi Sanjay

      1) Yes it applies to students as well and the status of the first holder will depend if it is needed to change the savings account or not.
      2) Yes, NRI’s do not have such options.
      3) Yes, NRI can gift to their relatives (as mentioned in Income Tax Act).

  • Dear Mr. Beniwal,

    Thank you for the helpful compilation.
    I just need clarification on one point. You have mentioned that a PPF account opened after 2003 can be continued till maturity even if the holder becomes an NRI. However, on maturity it cannot be extended for further blocks.

    1. Is this rule still current?
    2. If yes, can the NRI continue to deposit money in the PPF account till maturity?

    Would appreciate some clarity on this.

    Thank you


    • Dear Ram,
      Yes, this rule is still applicable & you can contribute to PPF till maturity. 2-3 years back the government came with a change which meant compulsory withdrawal from PPF for NRIs but that was dropped later.

    • Hi Raj

      Yes, you can but a certain limit of 1 million USD is there per Financial Year and after paying proper taxes on that.

    • Hi Raj,

      I think You can transfer funds from NRO to NRE accounts provided you submit the necessary forms, 15CA, and 15CB.

  • Me and My frined both H1 Visa holder, are working at IT in USA . My frined he wants to purchase house at USA. He is asking me to transfer 25k USD to his us bank account and equivalent amount INR 18lakhs he want to transfer in my NRO account in India. But my frined doesn’t have NRE/NRO account. He is still maintaing as normal India saving account. We both are paying proper tax at USA and India. My questions are following
    1. What is the Tax implication?
    2. Who need to pay the tax?
    3. Is ther any other way we can show the transaction and get rid of any future issue ?

    • Hi Tina,

      As per my knowledge, if you transfer the amount without any consideration then it will be taxed in the hands of the recipient and added to his income and taxed according to the slab.

    • Hi Shriya,

      Its illegal to have a resident saving account after being an NRI. It attracts penalty if you don’t change your residential status.

      • I have a NRE a/c and saving a/c of SBI can i maintain both..? NRE for money transfer and saving a/c for local transfer and local receive money

  • I have emi which is cutting from the SB account. I want to convert it into an NRI account. Which account I should open NRI or NRO?

  • Hi, if lets say i have NRE account in ICIC bank and saving account in SBI bank. do i still need to close my saving account in SBI

  • I am a seafarer any my NRI status changes every year, sometimes I am resident sometime I am NRI, So what should I do whether to close my saving account or not.

  • I want to know if three months deadline to open or convert savings to nre/nro after completing the 6 months outside of India? For Ex, let’s say I came out of India on 25 September 2020 and my 6 months would complete in the last of march 2021. In this case, I will be NRI officially in March 2021 then what should be the timeline for changing the account status.

  • As an OCI cardholder and staying in India for more than 6 months do I need to convert my NRI account to a resident account in banks?

  • Hemant – Thanks for this blog. May I ask your opinion on a couple of items,
    (1) What is the implication on a joint savings account if the second holder becomes NRI but first holder remains Resident?
    (2) What is the taxation (on savings interest) on a joint savings account if the second holder becomes NRI but first holder remains Resident?

    Rgds – Suman

  • Hi Hemant,

    can you please share official link where it is mentioned if NRO account is not opened, it will be penalized 3 times the money involved. I have read several other forums, I could not find, it mentions about property outside India will be penalized where property can be defined in several ways.

  • I had went to Canada in march 2018 for job and came back in oct 2019 but i didnt change my saving account to nro/nre account. Upon my return in oct 2019, i closed my canada bank accounts and transferred all money to indian bank accounts. will this attract any penality since i didnt convert my bank account to nre/nro account. and what can be done now?

    • Hi Devesh,

      As per my knowledge there will be no penalty.And if you have become resident now so you can continue with this account.

  • What problem would I face, if I transfer money directly from abroad to normal savings account in India instead of opening an NRE or NRO.

  • I will be traveling to Poland and will stay for 2 years. My questions are1. when I am supposed to change my status? after staying more than 180 days abroad in FY? or immediately while leaving India? 2. similarly, when I am supposed to open NRE/NRO account? immediately while leaving India or after staying more than 180 days abroad in FY? 3. so far am not an NRI and even after leaving India, I am not. then when is the best time to open NRE or convert Resident bank accounts to NRO?

  • A resident who became an NRI 20 years back advised the bank to change the sb acct to NRO but the bank did not take any action. The Sb acct details were furnished to US tax authorities regularly. what is to be done now?pls, clarify.

    • Hi Raman,

      You can open online NRO Account. you can contact with HDFC, ICICI & Kotak bank for this. Also you should consult with your CA for tax purpose.

  • I made the swift transfer to my saving account in India but now Indian bank want me to get a nro bank account and I am not there so can call my bank here to get that money back if it’s possible.

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