Banking for Returning NRIs in India

IndiaThinking about returning back to India ? There would be hundreds of questions which would be currently going in your mind like sorting out logistics, getting a place to live in, finding a suitable employment, wrapping up your affairs outside India, taxation issues in India and so on. Amongst these myriads of questions, one question which reaches late in the list is Banking in India. It is taken for granted that once you are in India, your banking needs will get sorted out – by hook or by crook. With increasing regulatory scrutiny, it is becoming more and more difficult to get an account opened. This article aims to look into a few of such technical issues faced by Indians or Person of Indian Origin while getting their banking infrastructure setup in India.


Person of Indian Origin (PIO)

While a NRI on Indian passport returning back to India may not find himself different in any matter compared to rest of Indians, a NRI on foreign passport may find situations a bit confusing owing to lack of structured information available on this topic. To make it simple, a PIO is any person who either was an Indian citizen or has ancestral connection with India by virtue of his ancestors being Indian citizens. For the purpose of this article, PIO includes such people irrespective of they holding an Indian work permit, PIO or OCI card.


Governing Laws

Amongst the two key laws which come in my mind associated with NRIs and their banking needs are Foreign Exchange Management Act (FEMA) and Income Tax Act. Reserve Bank of India (RBI) has got powers under FEMA to make regulations governing the banking /deposits associated with NRIs. While it may sound an easy task -but the combination of these Acts along with thousands of notification, rules and regulations issued under these Acts makes it a daunting task to get clarity on NRI matters.


Status of NRE Accounts

If you are a NRI, it is highly likely that you have a NRE bank account and possibly even a NRE Fixed Deposit. The most frequently asked questions on my blog related to returning NRIs are  :

1. What is the tax treatment of interest on NRE bank account – both NRE saving account and NRE FD

2. Can you continue to maintain NRE account

3. Can you hold the NRE FDs to maturity

The notification issued by RBI states that on an immediate basis, the NRI should :

A. Convert the NRE account into a resident saving account OR

B. Funds in NRE account can be converted into a Resident Foreign Currency account at the option of the account holder.

This needs to be done if NRI comes to India for taking up employment or carrying any business or if the NRI intends to stay in India for uncertain period.

If a NRI is in India for short visit, the account can continue to be maintained as NRE.


NRO account

Most of the matters noted in NRE account with regards to converting it into resident account are applicable for NRO account as well.

NRO accounts may be re-designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.


Resident Saving Account

Foreign citizens coming to India for employment or returning NRIs can open resident saving account. Earlier opened NRO accounts for such foreign citizens / NRIs would need to be converted to resident saving accounts. Once leaving India (i.e. becoming non-resident), the resident accounts would need to be converted back into NRO account.  If your bank is giving you hassles in opening a resident bank account for you considering you are on foreign passport and have a PIO / OCI card, just show them a print out of RBI master circular No.2 /2013-14 dated 1 July 2013. A verbatim copy of the relevant section of this circular is :

(ii) Foreign nationals who come to India on employment and become residents in terms of section 2 (v) of FEMA, 1999 and are eligible to open/hold a resident savings bank account are permitted to re-designate their resident account maintained in India as NRO account on leaving the country after their employment to enable them to receive their legitimate dues subject to certain conditions.


If you have any other banking related queries, please feel free to ask at the bottom of this article.

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6 Replies to “Banking for Returning NRIs in India”

  1. Yatin Thaggarse says:

    I have one question about transistion from Resident to NRI status:

    (1) I have a Resident bank account in a cooperative jointly opened with a resident brother.
    (2) I am a share holder in the cooperative bank, started when i was a resident.
    (3) I move abroad and become an NRI.
    (4) What happens to the bank account? Do I have to declare non-residential status to the bank?
    (5) The cooperative bank does not deduct TDS for residents who are share holders. Does this apply for NRIs?
    (6) I file returns considering the interest tax burden applicable in my case. Is this allowed?

  2. Yatin,
    You should inform the cooperative bank about your change in residence. I am not familiar about the cooperative bank’s rules, but your resident account may have to be changed into a NRO bank account.

    Regarding the interest on resident account – it is taxable. Hence you should disclose it in your tax returns.

  3. NRI Banking says:

    Thanks for sharing the info…

  4. Yatin Thaggarse says:

    I spoke with the bank and they informed me that the account needs to be changed to NRO status if the first holder is an NRI, in which case they will deduct the TDS applicable (30%) although I hold shares. However if we juggled the first and second account holder and the primary account holder remains resident and also has the bank’s shares; no TDS would be deducted and this was what I did. So all it requires is an approval from each account holder to make this change.

  5. I have a query.
    I am a NRI, I Have took a 10 year FD in my NRE account. But I am permenantly shifting to India next year. So whether the FD Interest income as non taxable in nre accounts remains non taxable or taxable after I shift to India?

  6. Bittu,
    After you shift to India and become a resident in India, Interest on NRE FDs become taxable. NRE FD interests are tax free only till such time you are a NRI.

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