It is not legal for an NRI to hold Resident Saving Account or open PPF account

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 different status. Most of people tend to ignore some of them; unaware that these are illegal in laws and will attract penalties. The most basic of these is saving bank account which is the starting point and attractive investments like PPF.

It is not legal for an NRI to hold Resident accounts

Here’s what the laws says and what you should do when you attain the NRI status-

Resident Savings Account

Most individuals make a mistake of continuing a resident savings account even after becoming a NRI but the law does not allow it. Or in simple words it’s ILLEGAL to hold savings bank account for NRIs. As per FEMA regulation, when a status changes to NRI the resident savings account have to be converted to a 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 NRO account. For this you need to inform your bank on 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 NRO account and your payment will continue as it is. Alternatively, you have an option to close existing 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 come to the notice you will be penalized for the same. Funds from NRO account are now repatriable upto $1millionnow but with a condition that you have obtained a certificate from Chartered Accountant for payment of taxes as applicable on your income in India. 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 case you may not 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 then ECS mandate will have to be changed to the new NRO account. The same process will be applicable for any payout with regard to investments

PPF Confusion

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 NRO account. Not only this, Post 2004 RBI has allowed repatriation upto Rs 1 million USD from NRO account which makes even the PPF maturity repatriable now provided the necessary rules have been followed. However, if you do not take any action for maturity, the PPF account will be designated as “extension without contribution” and will be continued in block of five years for an indefinite period. You will keep earning the interest on it. The major difference can come in the taxability. Although in India the interest is tax free and one can also claim 80C benefit from investment if there is taxable income here, but the maturity or accrued interest may be taxable in respective country where you are residing as NRI.

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 you status has changed. Approach your branch which will help you in necessary paper work for your new accounts.

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

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

Caution

I have heard from our NRI clients that few bankers suggest maintaining status quo on SB account but if any liability arises they will not be there to help you. (You don’t have to be present in India to do this & can be simply done by informing bank through letter) Similarly in case of PPF one of our clients clearly asked manager of Public Sector bank that he is an NRI so can he open PPF account – manager said YES. He opened that account but now I have suggested him to discontinue that.

NRI Guide – read on SlideShare or Download it

If you are an NRI please share your practical experience with Saving Bank Account & PPF in comment section.

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{ 46 comments… add one }
  • Rajesh Babu May 3, 2013, 1:12 PM

    Dear Hemant,

    NRI can open/hold/operate a domestic SB A/c now. As per RBI directive published in April 2012, an NRI can be a part of domestic SB A/c with “Either or Survivor” mandate, jointly with his blood relative or life partner IF THE LATER IS A RESIDENT.

    The above mentioned A/c can be used for any domestic transactions including PPF payments or educational loan uploads.

    I am in Muscat and in my knowledge SBI and UBI branches are providing the required A/c opening forms here itself through their channel partners.

    I have pasted the above mentioned RBI circular on my facebook wall last year.

    Regards,

    RAJESH BABU
    Muscat

    • Hemant Beniwal May 3, 2013, 1:20 PM

      Hi Rajesh,
      They can’t be first holder but you will be shocked to know almost 50% of NRIs (from my interaction with NRIs) are having resident savings account which can land them in trouble some day.

      • Ritesh June 28, 2016, 3:24 PM

        Hi Hemant,
        Can you please help me with “what is trouble you are referring”.. Probably some example of handling such issue.

        With Regards
        Ritesh

  • Rajesh Babu May 3, 2013, 1:48 PM

    All NRIs should be aware of this, Hemant. When legally we can hold a domestic A/c, we should open it jointly with wife/son/daughter/father/mother/brother or sister. For PPF A/c opened earlier (before become an NRI) there is no mandate that the remittance should be through NRE or NRO A/c. PPF Amendment 44 (Section-1.c) very clearly states that an NRI can authorise a person for future remittances to avoid the closure of his PPF A/c subject to all the remittances thereafter should be from his own bank A/c (by cheque or DD). I have received a written communication from PPF authority to continue the PPF remittances from my wife’s domestic A/c AFTER INCLUDING MY NAME AS SECOND A/C HOLDER. NRI can be the second A/c holder even in a domestic recurring deposit A/c as per new directive of RBI. You can get the details of this amendment directly from RBI website. SBI main branches are displaying this circular in their notice boards. Being a financial advisor, you must have seen the downfall in SIPs when most of the NRIs turned into RDs. Banks like TMB, CSB and UBI were offering 9.5 % interest for their 10 year RDs.

    • Hemant Beniwal May 3, 2013, 2:06 PM

      Hi Rajesh,
      Thanks for sharing your valuable inputs – hope this will will be helpful for NRI readers.
      Can you also share some common financial misconceptions that NRIs have.

    • Jagdish June 20, 2016, 6:16 PM

      Hi Rajesh, I just happened to see your msg on PPF. My wife and myself both NRIs living in Muscat. We opened a PPF Account (while being NRIs) as SBI Manager said its not an issue, but later I came to know it not legal. Now, can you inform me what shall I do? If I close the PPF Account, how and when I will get back my invested amount…any idea ?

      Waiting for your comments. Thanks.

  • Rajesh Babu May 3, 2013, 6:35 PM

    I didn’t touch the core subject in above mentioned comment… Regarding PPF, actually 95 % of NRIs are not continuing with their PPF A/c now. Reason is simple: – while PPF offers less than 9% annual compounding interest, 10 years NRE RD accounts are offering 9% quarterly compounding interest.!!. The extra advantage is, maturity proceeds from an NRE RD A/c will come back to NRE SB A/c so that NO TAX LIABILITY will be there in future also. Some of the banks like Federal Bank and South Indian Bank offers RDs with monthly/quarterly/half yearly and annual instalments BUT WITH QUARTERLY COMPOUNDING interest. SBI started an innovative product called e-flexi deposit which offers the facility to deposit any amount at any time and the yield will be at the contracted rate of interest. (Earlier, only the core instalment was eligible for contracted rate of interest and the extra deposits were carrying the floating rate of interest). When we have lot of secure and liquid options available, why we should go for an old product like PPF.? After all, an NRI can not open a new PPF A/c in his name legally.

  • ARC May 4, 2013, 7:04 PM

    Hi Rajesh,
    Thank you for the useful information. Can you please post a link for the SBI e-flexi RD? I could not find it anywhere.

    ~ARC

    • Rajesh Babu May 6, 2013, 10:07 PM

      Hai ARC, It’s e-Flexi FD scheme. You can see the ad on opening page of online sbi itself. For flexi RD scheme details visit UBI website or BOI (Bank of India) site. Some more amazing RD schemes are available with TMB website

      Regards,

      RAJESH BABU
      Muscat

  • vinay kumar singh May 4, 2013, 7:41 PM

    great information Sir,please paste an article on PPF in details,
    regards vinay

  • Ashish Gupta May 5, 2013, 5:11 PM

    My note here is for paying thanks to Rajesh Babu for his valuable advice on this topic. I believe, Hemant Beniwal is also agreed with the words said by Rajesh Babu..

    Thanks for keep posting the valuable thoughts and actual policies. This really helps readers to gain the knowledge on the subject.

    Thank You.

  • Rajesh Babu May 5, 2013, 8:43 PM

    If anyone need a long term investment product like PPF, please check with IDBI bank before opening the PPF A/c. IDBI offers a 20 year RD scheme with 8.5% interest (quarterly compounding) as per their new circular. May be, their branch officials may not have the complete details of this product as it’s a very new introduction; And you can mail to their customer service asking for more details. The A/c is TDS free but I am not sure whether it’s been offered to NRIs. I am too waiting for two upcoming new banks (from Reliance & Muthoot group) who offers many new surprises in Indian banking industry.

  • Siva Poola May 6, 2013, 9:14 PM

    Hemanth Sir,
    Thanks a lot once again!!

    Rajesh Ji,
    Thanks for all the information.

  • Viswa May 9, 2013, 1:28 PM

    I wish to say thanks to Mr. Rajesh Babu for giving us the clear picture on the NRI Investments and also to Mr. Hemanth.

    Now a days, Life Insurance cos. are asking for providing a local bank account for transferring the proceeds or maturity benefits of the policies. When I provided my NRO SB A/c Number, the Branch Manager insisted for opening a Normal SB A/c to the maturity benefits/interim payments.

    In Mr. Hemanth’s posting you have mentioned that NRO A/c can be used for payments of Premium etc., I wish to know whether NRE A/c also can be used.

    Since SB A/c Interest is Tax Free upto Rs.10000 under 80c, is it okay to maintain status quo if the Interest on such a/cs are less than Rs.10000.

    • Vikas March 4, 2014, 10:24 PM

      Viswa,

      If insurance policy is denominated in forex, the premium payments will happen through NRE a/c. For ruppee denominated policies, the premiums are paid from NRO a/c.

  • Gaurav May 12, 2013, 8:04 AM

    Thanks for sharing valuable information.

    I have more queries as below , appreciate if I get more information & clear direction on them.

    1. Demat Account (which is resident account)
    2. Online Trading account linked to resident account
    3. SIP in Mutual funds via ECS from the resident account.

    Regards
    Gaurav

  • Annapurna May 15, 2013, 12:03 PM

    Great post. During the course of my profession, I have come across many NRIs who hold both local savings and NRE a/cs in the same bank and branch, inspite of knowing the rules!. This could either be because the process of closing the SB and opening an NRO is inconvenient, as they may have certain receipt like rental income or MF dividends being credited in to their local a/c as ECS; or they just want to avoid the higher rate of taxation applicable to NRO a/cs.
    What I find is that even the banks do not have proper checks in place and most of them do not stop the clients from maintaining a/cs under a dual status.

  • Pankaj August 29, 2013, 5:05 AM

    What are the penalties of not converting resident account/FDs to NRO? How to rectify the tax liability.

    • Ritesh August 30, 2013, 3:28 AM

      First of all, thanks a lot for the article and Rajesh thanks for valuable input.

      I learned about this after 4 years of my stay outside India and neither closed or converted my saving account.

      I had rental income and EMIs going through same account. This was pure ignorance and lack of knowledge.

      Very first step I can think is to convert status of my account to NRO.I would like to know what are penalties and process to fix this.

      I have never transferred money back, yes yes.. it’s just me.

      I didn’t have significant income and / or interest worth reporting for tax but still to clear up this mess what should be next legitimate step.

      Rajesh, can you please share the link of RBI article?

      Thanks,
      Ritesh

  • RAJESH CHRISTIAN February 15, 2014, 5:08 PM

    My tenent last five year not paid rent left India they do not change saving A/c
    court order paid mean profit & pussion to lanlord. as per order they paid amount
    by cheuqe state bank of india local saving A/c. Not NRE/ NRO A/c do not change
    resident please halp me in my case apple in Gujarat High Court

    RGD.

  • RAJESH CHRISTIAN April 15, 2014, 11:10 AM

    My tenent last five year not paid rent left India they do not change saving A/c
    court order paid mean profit & pussion to lanlord. as per order they paid amount
    by cheuqe state bank of india local saving A/c. Not NRE/ NRO A/c do not change
    resident please halp me in my case apple in Gujarat High Court

    RGD.

  • AVHIK KAR May 26, 2014, 12:31 PM

    Hi , i have a confusion , i am a marine engineer , so due to my profession, i spent more than 183 days outside india and have nri status. I hold RI account and my fds are routed through this RI , what should i do now …. all my remaining investments are through My NRE account.I used to give form 15G but since I am NRI i am not entitled to (i came to know about this later). i have around 15 L in fds.

  • Mohamed July 9, 2014, 11:59 PM

    Iam an NRI holding NRE account in an new bank, but before i became i was having local savings account but i dont use that often i have that only when i visit india to use some deposits can i continue this plesae adivse… Incase i change to NRO what is the disadvantages.. I hold just a minimum balance approx 10,000 just to book tickets etc..

  • ShankarG December 13, 2014, 4:02 PM

    Hi all,
    Can anyone advice me what is the procedure to convert my SB account to NRE account in IDBI bank? I want to know it is possible to convert or to open a new NRE acc by cancelling the existing SB acc.
    Thanks&Regards,
    Shankar G.

  • swarup June 7, 2015, 8:14 AM

    The Reserve Bank of India (RBI) has allowed non-resident Indians (NRIs) to operate resident bank accounts on “either or survivor” basis. According to RBI, banks may include an NRI close relative in existing / new resident bank accounts as joint holder with the resident account holder on “either or survivor” basis, subject to fulfillment of a few conditions.

    Such accounts will be treated as resident bank accounts and will be subject to all the regulations applicable to a resident bank account. Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI relative shall not be eligible for credit to this account.

    Besides, the NRI relative shall operate such account only for and on behalf of the resident for domestic payment and not for creating any beneficial interest for himself. An NRI can be a joint holder in more than one account, if s/he is a close relative of all the resident bank account holders.
    ADVERTISING

    If due to any eventuality, the non-resident account holder becomes the survivor of such an account, it shall be categorised as Non-Resident Ordinary Rupee (NRO) account according to the extant regulations, RBI said. The onus will be on the non-resident account holder to keep the bank informed to get the account categorised as NRO account and all such regulations as applicable to NRO account shall be applicable.

    According to RBI, the joint account holder facility may be extended to all types of resident accounts including savings bank accounts. While extending this facility, the banks should satisfy itself about the actual need for such a facility and also obtain a declaration, duly signed by the non-resident account holder, said RBI.

  • pradeepa August 26, 2015, 10:30 PM

    Hi ,,
    I have a one quire regarding PPF A/C , i have opened a PPF A/C after become a NRI, i’m aware of this (mean NRI should not eligible to open the PPF A/C).

    What should i do now, shall i close the A/C? if i’m closing a A/C, can i get the invested amount in PPF A/C?

    Please help me out ?

    Thanks
    Pradeep

  • Sumanth September 3, 2015, 12:11 PM

    Dear Rajesh,

    Can you please re-share/attach the RBI circular (of April 2012) regarding “NRI can open/hold/operate a domestic SB A/c now”

    Thanks in Advance
    -Sumanth

  • Kumar September 27, 2015, 10:40 PM

    I have invested in various mutual funds about 10-12 years ago before I move to United Kingdom. I could redeem some of them about 6 years ago But, I could not get the redemption for quite a few Mutual Funds eventhough I have submitted after verification of signature by Indian Bank and the local branch offices of the corresponding Mutual Fund Houses, the redemption applications have not been honoured or rejected by MF houses twice. In the meanwhile my family also have moved to UK over 5 years ago. I am not sure how to redeem the mutual funds now as the redemption application requires the proof of residence like voter card, Aadhar, water bill,etc which I don’t have now. I have already changed all my SB accounts into NRO after obtaining my OCI card. I have no idea how to redeem these mutual funds. Anybody can kindly guide me? Thanks.

  • Prakash November 18, 2015, 12:57 PM

    I had been NRE for one year .I opened an NRE account and my wages transferred to same.Every month the entire salary was transferred to fixed deposits for 10 years as deposit rates are going down,thinking i can live with the interest every month. I am alone and 55 years old. i wish to know after 10 years of FD maturity can i continue with reinvestment for another 10 years and maintain NRE account .Will bank ask every year for non-residential status or KYC to prove my status?.Since i cannot work anymore and like to live of interest received from bank.

  • BABU November 22, 2015, 8:46 AM

    Dear sir,

    1.As i have FD in saving bank in India as iam an NRE is it illegal to have this.
    2.I have submit form 15G for tax reduction also
    3.The FD amount transaction from my NRE account
    4. All confusing me i want to know any problem with FD

  • Vedika joshi January 15, 2016, 6:55 PM

    Dear sir
    Last 2 year I am NRE and my all foriegn salary deposit in SBI saving account. Now I want to convert it into NRE account ,it is possible , if yes what about my money deposit in saving account. It will convert or I have to pay tax.. What I will do plzz suggest me.

  • Sandip Gore February 27, 2016, 4:37 PM

    Recently I applied for NRE account in SBI . Also resident saving account to NRO. I have been maintaining PPF account for last 5 years .
    Please let me know would it be any impact on PPF deposit in future.

    Please provide your Valuable guide.

    In future if my status

  • Dilip Anant Ogale May 12, 2016, 11:41 AM

    Sir ,
    Who is to be called NRI.? My son has gone to USA while working in Indian
    company. For the the last two years he is in USA and may another two years in
    USA. While going to USA he has taken some Housing Loan and repaying that
    through NRE account. Earlier he had Savings Bank account with the same Bank
    which is kept at minimum amount of deposit to keep that working.
    Before going abroad he had a PPF account . Now that account is maturing in
    Mar. 17. after one 5 year extension. We wish to continue for another 5 years
    extension. is that allowed? Please guide me.

    Dilip Ogale

  • Rohit Patel May 16, 2016, 7:38 AM

    Hi,
    I am Rohit Patel, I have some confusion about my ppf account, please help me to clear it.
    First time in my life, I left India on 19 Feb 14 for employment, and Return to India for 20 days in December 2014, During this visit I had open PPF Account on 17 Dec 14. and went back abroad 22 Dec 14 again.

    Could you please tell me PPF account is legal or not?

    If illegal what should i do?

    Thank you.

  • Rakesh D. Patel June 11, 2016, 3:37 PM

    I am a mutual fund distributor one of my nri prospect want to open demat account in India for mutual fund. he works in Saudi Arabia I took his licence, salary slip, visa copy, resident permit but non of them shows address on it. so how can i do KYC

    • Hemant Beniwal June 11, 2016, 5:29 PM

      Hi Rakesh,

      You can ask for his rent agreement or a letter from employer – if that’s in arabic, you can ask him to get it translated & attested.

  • Ankit Shah June 27, 2016, 8:44 PM

    I am Ankit Shah became NRI in last year.

    I have balance in my Resident Saving Account and I want to transfer the same to my NRE Account. I have paid taxes in previous year on balances which is there in my resident account by filling return of income and declaring correct Income.

    Can you please Suggest way with link of RBI for transferring fund from Resident Saving Account to NRE Account.

    Thanks in advance Hemant.

  • Anjali July 19, 2016, 2:01 PM

    If Someone Living & working abroad but don’t send money to India. Still do he need to change the status of Saving Resident A/c in India to NRI/NRO?

  • S.kumar July 25, 2016, 12:30 PM

    I hold resident sub ac. My close blood relation is an NRIs.can I make him jet holder to the ac ?

  • Nisha Rani August 4, 2016, 6:25 PM

    Hii Hemant
    Can u please help me
    Is an NRI can open fd and sb account with his mother and brother with operating instruction Any one survivor.
    As it is not converted to NRI account. So is there any problem and NRI is the second party of that account……please answer me as soon as possible

  • rakesh parashar August 8, 2016, 8:29 PM

    this forum is very informative and share usful information for lay people like us.
    thanking the effort .

  • rakesh parashar August 8, 2016, 8:35 PM

    dear mr hemant i wish to know that me and my wife has Demate account since 2005 wife as first account holder.presemly wife is indian resident and will be nri after few months.what shoud be the fate of icici Demate account and fund invedted through this account.
    please guied.

  • SubramanianV October 8, 2016, 9:13 PM

    We(my wife & me) have recently gone to USA with immigration Visa. We are yet to get the Green Card issued. We have Savings bank accounts & FDs as Resident Indians (& no PPF account). I would appreciate if you can kindly guide me on the following:
    1. When are we to inform the Banks change our status (is there any time period like 182 days etc as defined in IT Act)?
    2. Will Banks transfer our savings account & FDs to NRO accounts if we communicate by a letter or any form to be filled up? When I enquired with Banks before leaving India they did not issue any form.
    3. Will the present FDs continued as such with the same interests or will they ask to close the present FDs & open new NRO FDs.?
    4. With income from present FDS (no other income) our income will belower than the threshold taxable limits. Hope there would not be any change.

  • asif November 5, 2016, 10:16 AM

    i have a NRE FD jointly on Either or Survivor basis with my wife. I am the first account holder and my wife the second account holder. However,my wife has recently become a resident after she moved back to India. Would I need to do anything since she has now become a RESIDENT??

  • SUSHIN S November 16, 2016, 11:44 PM

    Hi,

    Iam currently an NRI.I am having a NRI account in SBI,and in same bank branch I have S/B account also.If I convert to NRO is it taxable.My salary which is in dollars will be converted to INR and comes to my NRI account,I can withdraw same using ATM,Cheques,e.t.c. But I cant deposit same back to NRI account.simply,If I takes 1 Lakh INR to give as credit to some one and when that person gives the same amount back,Where I can deposit that back ? ,if the same is deposited in NRO account with PAN details is it taxable ???

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