Can an NRI Have a Savings Account in India?

Navigating financial matters in a new country can be complex, especially when maintaining ties to your home country. For individuals of Indian origin living abroad, understanding how to manage savings in India is a common consideration. A Non-Resident Indian (NRI) refers to an Indian citizen who resides outside India for employment, business, or any other purpose indicating an intention to stay outside India for an uncertain period. Indian banking regulations provide specific avenues for these individuals to hold and manage their funds within India.

Understanding Non-Resident Indian Accounts

The Foreign Exchange Management Act (FEMA) governs the financial transactions of Non-Resident Indians (NRIs) in India, determining eligibility for specific banking products designed for those with an Indian connection but living overseas.

To facilitate banking for NRIs, Indian banks offer two primary types of savings accounts: Non-Resident External (NRE) accounts and Non-Resident Ordinary (NRO) accounts. An NRE account is used for depositing foreign earnings remitted to India. Funds in an NRE account, including both the principal and interest earned, are fully repatriable. Furthermore, the interest earned on NRE accounts is exempt from tax in India.

In contrast, an NRO account is designed for managing income generated within India, such as rent, dividends, or pension. Funds from abroad can also be deposited into an NRO account, where they are converted to Indian Rupees upon deposit. The interest earned on an NRO account is taxable in India. Repatriation of funds from an NRO account is limited, though current income is repatriable subject to specific conditions.

Steps to Open and Manage Accounts

Opening an NRI account involves fulfilling Know Your Customer (KYC) requirements by submitting several essential documents. This includes a valid passport, a copy of your visa or work permit, and proof of your NRI status. You will also need to provide address proof for both your overseas residence and any Indian address, along with your Permanent Account Number (PAN) card and recent passport-sized photographs. All photocopies of these documents require attestation by authorized officials from overseas branches of Indian banks, a Notary Public abroad, or the Indian Embassy/Consulate in your country of residence.

You can apply in person at a bank branch in India or through the bank’s international branches or representatives. Many banks also offer an online application process, allowing you to complete forms and upload documents digitally. Alternatively, an account can be opened through a Power of Attorney granted to a resident Indian.

Once the account is established, most banks provide online banking and mobile banking services. It is advisable to set up nomination facilities to ensure smooth transfer of funds to beneficiaries in unforeseen circumstances. For joint accounts, NRE accounts can be opened jointly with another NRI or a Person of Indian Origin (PIO), while NRO accounts can be held jointly with another NRI/PIO or a resident Indian on a “former or survivor” basis.

Taxation and Fund Repatriation

Taxation on Non-Resident Indian accounts differs significantly based on the account type. Interest earned on NRE accounts is entirely exempt from income tax in India.

Conversely, interest earned on NRO accounts is subject to taxation in India. Banks deduct Tax Deducted at Source (TDS) on this interest at a rate of 30%, in addition to any applicable surcharge and cess. However, Non-Resident Indians may be able to claim benefits under Double Taxation Avoidance Agreements (DTAAs) that India has with various countries. To avail of a reduced TDS rate under DTAA, account holders need to provide a Tax Residency Certificate from their country of residence and submit Form 10F to their bank.

Regarding repatriation, funds held in NRE accounts, including both the principal and interest, are fully and freely repatriable without any limits. For NRO accounts, while the interest earned is repatriable, the principal amount has specific limits. NRIs are permitted to repatriate up to USD 1 million per financial year from their NRO accounts. This limit applies cumulatively to current income such as rent, dividends, and pension, as well as proceeds from the sale of assets like immovable property, after tax deductions.

Managing Accounts After Becoming a Non-Resident

When an individual’s residential status changes from resident Indian to Non-Resident Indian, they must inform the bank promptly. Resident savings accounts cannot be maintained once a person acquires NRI status, as per Foreign Exchange Management Act (FEMA) regulations.

Upon becoming an NRI, existing resident savings accounts must be converted into NRO accounts. The account number remains the same, and funds are automatically transferred. Failure to convert the account can lead to penalties under FEMA.

Other financial products held by the individual are also affected by the change in residential status. Existing fixed deposits and recurring deposits need to be converted into NRO fixed deposits. While NRIs are not permitted to open new Public Provident Fund (PPF) or Small Savings Schemes, existing PPF accounts held before becoming an NRI can be continued until maturity, with contributions made from the NRO account. Demat and trading accounts may also require conversion or specific handling to align with NRI regulations.