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When a resident Indian gains non-resident Indian status, it is mandatory by the law to change the residential status in the bank accounts. FEMA rules for NRIs do not allow holding a savings bank account in India. NRIs need to set up an NRO or NRE Account as stipulated by the Reserve Bank of India (RBI).

If you continue holding the residential bank account even after your residential status is changed for a long duration, you may have to pay penalties for it. But before even discussing on the accounts that needs to be opened we need to first determine the residential status.

Determining the residential status is the starting point to understand the:

  • The extent to which a person is regulated for cross border transactions;
  • The extent of the Income-tax liability.

Two laws were residential status is most relevant are Income-tax Act, 1961 (ITA) and Foreign Exchange and Management Act, 1999 (FEMA). We often mix the definition under these two laws which creates a confusion. Determining the residential status under both the laws will help to understand the issues better. But most important is to understand the purpose of determining the residential status under these laws because FEMA and ITA have different purposes.

Under Income-tax law, the purpose is to determine taxability of Income in India. If a person is resident by the definition under the Income-tax law, his global Income will be taxable in India. If a person is Non-resident by the definition under the Income-tax law, his Income accrued, arise or received in India will only be taxable in India.

FEMA is a regulatory law. There are regulations under the FEMA law for undertaking transactions with Non-residents or any cross border transaction i.e inbound or outbound investments, capital account or current account transaction etc. There are certain restrictions and approval procedure covered in the regulation which a Non-resident has to comply with at the time of undertaking any such transaction. Hence it is necessary to know the residential status as per FEMA on any particular day.

Please note: Citizenship is not a relevant criteria for determining the residential status under FEMA law.

FEMA law is regulated by RBI and Central government, enforced by the Directorate of Enforcement (ED) and executed by Authorised person/dealers. So, In order to decide which bank accounts can be opened in India if you are a Non-resident, you need to determine the residential status as per FEMA law.

Determining residential status as per FEMA

Residence under FEMA is defined as

  • 'Person resident in India' under section 2(v)
  • 'Person resident outside India' under section 2(w)

A person is resident in India if his numbers of days stay in India in the preceding financial year for more than 182 days.

However, there are two exceptions in clause: (A) and (B). Exception means, even if a person is resident due to the fact that he was in India for more than 182 days in the preceding year, he will be a non-resident if he satisfies conditions in any of the exceptions in clause (A) or clause (B).

Person leaving India clause (A)

If a person leaves India for any of the following purposes, he will not be a resident. He will be a non-resident. The purposes are:

  • for or on taking up employment outside India; or
  • for carrying on any business outside India or vocation outside India; or
  • for any purpose which indicates his intention to stay outside India for an uncertain period.

Clause (B) provides that if a person comes to India for employment, or carrying on business, or for an uncertain period, he will be an Indian resident.

Section 2(v)(i) with reference to clause (B) is reproduced below

' (v) 'person resident in India' means-

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-

(A) …

(B) a person who has come to or stays in India, in either case, otherwise than-

(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;'

The first part states that person resident in India does not include (1st exception). Hence even if a person has been in India for 182 days or more in the preceding year, he will not be considered as a resident if the person is covered by clause (B). i.e He will be a non-resident.

Which person is covered by Clause (B)? 'That person who comes and stays in India otherwise than …' (2nd exception).

  • for taking up employment in India; or
  • for carrying on any business in India; or
  • for any purpose which indicates his intention to stay in India for an uncertain period.

Which means if a person comes for any of the above purposes, he will be considered as an Indian resident And if a person comes to India and gets stuck here due to any reason except mentioned above he will be Non-resident.

NRIs can open following types of accounts

  • Non-resident External Rupee Account (NRE). This is repatriable account.
  • Non-resident Ordinary Rupee Account (NRO). This is Non-repatriable account. NRIs can convert the savings bank account to NRO account.
  • Foreign Currency Non-Resident Account (Banks) Scheme (FCNR)

Please note that Post Offices in India may maintain savings bank accounts in the names of persons resident outside India and allow operations on these accounts subject to the same terms and conditions as are applicable to NRO accounts maintained with an authorised dealer/ authorised bank.

Other important aspects of the above accounts are as below:





Joint Account

May be held jointly in the names of two or more NRIs/ PIOs.

NRIs/ PIOs can hold jointly with a resident relative on ‘former or survivor' basis (relative as defined in Companies Act, 2013). The resident relative can operate the account as a Power of Attorney holder during the life time of the NRI/ PIO account holder.

May be held jointly in the names of two or more NRIs/ PIOs.

May be held jointly with residents on ‘former or survivor' basis.


Indian Rupees

Any permitted currency i.e. a foreign currency which is freely convertible.

Indian Rupees

Type of Account

Savings, current, Recurring, Fixed Deposit

Term Deposit only

Savings, current, Recurring, Fixed Deposit

Period of fixed deposit

From one to three years, However, banks are allowed to accept NRE deposits above three years from their Asset-Liability point of view

For terms not less than 1 year and not more than 5 years

As applicable to resident accounts.



Not repatriable except for all current income.

Balances in an NRO account of NRIs/ PIOs are remittable up to USD 1 (one) million per financial year (April-March) along with their other eligible assets.


Income earned in the accounts is exempt from income tax.



How to convert the resident account to NRO account?

To convert the resident account into an NRE account, one has to close the account. And, open a new NRE account. If there is money in the resident account, transfer them to another resident account on the name of a family member.

The step-by-step process of converting a resident account to the NRO account is as followed:

  • Contact the bank where you have your resident bank account and request for 'conversion from a resident to the NRO account'.
  • Fill the application form and get it signed by all the account holders.
  • Collect photocopies of the required supporting documents.
  • Notarize the photocopies from Indian banks with overseas branch/ notary public/Indian consulate.
  • Self-attest the photocopies of the required documents.
  • If any FD is associated with the account, attach the receipts.
  • Send the form along with documents to the bank address.

After receiving the form along with the documents and completing verification by the bank, your resident account will be converted to the NRO account.

Documents required for converting Resident Account to NRI Account

NRIs have to submit the following documents with the application form for converting resident saving bank account to an NRI account:

  • FATCA Declaration Form
  • FEMA declaration form
  • Declaration of P.O. Box (for NRI residing in UAE)
  • Copy of PAN card
  • Resident Bank account closure form
  • NRI Bank application form
  • 2 passport size photographs
  • Foreign residence address
  • Copy of work permit or valid visa
  • Copy of passport

When to convert resident account to NRO Account?

As per FEMA guidelines, after gaining NRI status, it is illegal to hold savings accounts in India with NRI's name. Although, the reasonable time duration to change bank account status is not defined in the FEMA regulations.

Continuing with the same resident savings account may attract hefty fines and penalties in India. NRIs can only maintain NRO/NRE/FCNR accounts in any designated bank in India.

Please note that

  1. Above mentioned documents are not exhaustive list. Banking personnel are the right person to get in touch for it, however the list will give you the overall idea;
  2. Each case is analysed keeping in mind the transactions taking place. It is always advised to read FEMA Act, Notifications, RBI master directions, FAQs and even better to approach the advisor.


Published by

Shivangi Agrawal
Category LAW   Report

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