Demystifying NRI Savings Accounts in India: Can You Continue Without Penalties?

Curious about NRI savings accounts in India? Read this complete article to uncover the truth about penalties and explore the options available to NRIs.

Several rules and regulations become relevant to the moment your residential status switches to NRI. Status of your bank accounts, properties you own may change. Many people are unaware that ignorance of applicable rules can result in penalties. This article tries to answer the following:

• Can NRIs continue with a resident savings account?

• Can NRIs transfer money to a savings account in India?

• Can NRIs open a PPF account in India?

• Is there a penalty for not converting to an NRI account?

If you are an NRI or are planning to become one, this article is a must-read for you.

Highlights:

1. Mandatory conversion of resident savings to NRO account

2. NRIs cannot transfer money to illegal savings accounts

3. Penalties for Non-NRI account conversion

4. New PPF account cannot be opened

5. NRIs cannot open new PPF accounts    

Also Read: Moving overseas? Discover the power of NRO accounts for personal finance

NRIs should convert their resident savings account to an NRO account within a reasonable time period (preferably within 3 months) after becoming an NRI to avoid penalties. They should ensure that they comply with RBI regulations when transferring money to savings accounts in India. NRIs can continue contributing to their existing PPF account, but they cannot open new ones.

The responses to each query mentioned above are answered below:

Can NRIs continue with a resident savings account?

No, NRIs cannot continue with a resident savings account (as per FEMA regulations). They must convert it to an NRO account within a reasonable time period (preferably within 3 months) after becoming an NRI. An NRO account is a rupee-denominated account that can be used to manage income earned in India. Continuing an NRI savings account can lead to penalties if detected.

Can NRIs transfer money to a savings account in India?

If you are referring to NRIs’ illegal savings accounts, then the answer is no. However, if you are asking about your friends’ or family members’ accounts, then the answer is yes. They must ensure that they comply with RBI regulations.

Can NRIs open a PPF account in India?

NRIs can continue to contribute to an existing PPF account, but cannot open a new one. Contributions can be made from NRE or NRO accounts. In maturity, the funds must be withdrawn and deposited into the NRO account.

Is there a penalty for not converting to an NRI account?

Yes, there is a penalty and NRIs must convert their resident bank accounts to NRO accounts to avoid legal trouble & heavy penalties.

FEMA imposes a penalty of up to 3 times the amount involved in the violation, or Rs. 2 lakhs (if the sum is not quantifiable), and a daily penalty of Rs. 5,000 until the penalty is paid.

Also Read: NRI Tax in India - Citizenship Based Dividend Taxation: A Guide! 

Click here for the latest articles on financial planning

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.