A guide to converting your resident account to an NRI account

Relocating abroad has recently become very common, whether for work, business, or even higher education. Many Indians look to foreign horizons to seek lucrative opportunities and grow their careers. Are you one of them?

If you are a non-resident Indian (NRI) or someone whose residency status is about to change, you need to understand the financial implications. The Foreign Exchange Management Act (FEMA) mandates the opening of an NRI account, especially in banking. If you hold an Indian bank account, you must convert it into an NRI account to comply with FEMA regulations.

How do you go about it?

Let’s understand.

Resident account vs. NRI account
 

There are two major differences between a resident account and an NRI account. Let’s have a look –

1. Eligibility
 

A resident account is a savings account that only resident Indians can hold in an Indian bank. You can make deposits and withdrawals and enjoy interest income on the maintained balance.

An NRI account, on the other hand, is specifically meant for NRIs. As an NRI, you can manage your finances in India and abroad through the account. There are three types of accounts for NRIs: NRE, NRO, and FCNR accounts.

2. Tax implications
 

Interest earned on resident accounts is taxed at your slab rates. You can enjoy a deduction of up to ₹10,000 (₹50,000 for senior citizens) under Section 80TTA (80TTB for senior citizens) on the interest earned.

In the case of NRI accounts, the taxation of interest depends on the type of NRI account that you have. The interest from a Non-Resident Ordinary (NRO) account is taxable, while that from a Non-Resident External (NRE) or Foreign Currency Non-Resident (FCNR) is not taxable.

Conversion rules under FEMA
 

Under the FEMA Act, it is mandatory for NRIs to convert their resident accounts into NRI accounts. You can convert your savings account into an NRO or NRE account. The conversion facility is available both online and offline. Failure to convert will attract penalties and hefty fines.

How to convert a resident account to an NRI account?
 

The actual steps of converting your savings account to an NRI account depend on the bank where you hold the account. However, some of the common conversion steps are as follows –

1. Online conversions
 

You can convert your account to an NRO account online through your bank's website or mobile application. The process usually involves the following steps –

1. Step 1 - Download, fill out, and submit the account conversion form or account opening form, depending on your bank.

2. Step 2 - Submit a set of self-attested documents required by the bank.

3. Step 3 - Complete the KYC formalities of your bank.

4. Step 4 - Close the existing account.

5. Step 5 - Open a bank account meant for NRIs.

2. Offline conversions
 

Offline account conversions can be done either by visiting your bank’s branch or through courier. In the first instance, you can get the account conversion form from the bank, fill it out, and submit all the relevant documents. In the second instance, you will have to download the form, fill it out, and mail it to your bank with all the relevant documents.

Documents needed for the conversion
 

As mentioned in the conversion process, you will have to submit a set of documents to complete the formalities. All the documents should be self-attested.

Some of the important documents include the following –

1. Identity proof, such as a passport, Aadhaar card, etc.
2. Account conversion form - filled out and signed
3. Copy of your passport
4. Copy of your Visa to show a change in residential status
5. Indian or overseas address proof
6. A declaration in a specified format if you are a joint account holder on a resident account

Once you follow the conversion process and submit the relevant documents, your resident account will be converted within a few days. The bank will keep you updated so that you can better manage your finances.

Why does an NRI account make sense?
 

Besides the FEMA regulations, having an NRI account is beneficial for all your banking needs. Here are some of the benefits of the account –

1. Hassle-free banking
 

An NRI account becomes important if you intend to maintain your finances in India and provide funds for your family back home. It allows easy foreign remittances, allowing you to bank in India with ease. For instance, IDFC FIRST Bank offers seamless NRI banking services to help you effortlessly manage your money back home.

2. Easy repatriation

You can easily repatriate the funds maintained in your NRI account at your convenience. Except for the NRO account, there is no limit on repatriation, making it easy for you to access your funds overseas.

3. Tax exemption
 

The interest from your NRE and FCNR accounts is tax-free in your hands. These accounts help you plan your taxes effectively so that you can lower your tax liability.

4. Seamless financial management
 

NRI accounts allow you to invest in Indian instruments and diversify your portfolio across borders. This diversification optimises your portfolio by enhancing its return potential while spreading out the risks across geographies.

Which NRI account should you choose?
 

There are three distinct types of NRI accounts to choose from. Here’s a comparative analysis of all to help you make an informed choice –

Mistakes to avoid during conversion
 

When converting your resident account, here are some common mistakes that you should steer clear of –

1. Delay
 

Do not delay the conversion, or you will get penalties. Start the process immediately after your residential status changes.

2. Incomplete documentation
 

Incomplete documentation can cause delays or hassles in the conversion process. Therefore, it is important to understand and keep the required documents handy.

3. Wrong information
 

Provide all the correct information regarding your name, changed address, and even the country of relocation. Errors or mistakes might derail the conversion. Also, provide your updated contact information so the bank can correspond with you and update you on the conversion status.

Convert your resident account seamlessly
 

Make banking easier with an NRI account for savings, investments and financial management back home. Follow the FEMA guidelines and convert your resident account as soon as possible. For a hassle-free NRI account opening experience, choose IDFC FIRST Bank and enjoy –

1. A digital-first approach which facilitates conversion from wherever you are
2. Round-the-clock assistance for all your queries
3. Choice of NRI accounts tailored to meet your needs
4. Easy account-opening process with minimal documentation

Get started with converting your resident account to an NRI account today. Visit IDFC FIRST Bank NRI Banking for more information.