Can an NRI keep a resident savings account?

This guide is for you if you have moved abroad, for a job or for good, and still hold the ordinary savings account you had in India. NRI, short for non-resident Indian, is the everyday word for an Indian who lives abroad. The two laws in this guide each have their own test of who is resident. For the account, the term that counts is FEMA’s “person resident outside India”. For tax, it is “non-resident”. If you went abroad to take up a job, FEMA’s definition of a resident in India leaves you out. Whether you are a non-resident for tax depends on your days in India in the tax year, as the sections below show.

Why the account changes

The law. FEMA, the Foreign Exchange Management Act, is India’s law on money crossing the border.

Your status under it. Under FEMA you are one of two things: resident in India, or a person resident outside India. A person resident outside India is simply anyone who is not resident in India; there is no separate test for it.

The account. An NRO (Non-Resident Ordinary) account is a rupee account that any person resident outside India may open for genuine transactions in rupees, including income that arises in India. Our NRE, NRO or FCNR guide covers what else it does.

The rule. Your resident account is the ordinary savings account you held while you lived in India. When you stop being resident in India under FEMA, that account should be re-designated as an NRO account. Re-designation means the account you already hold becomes an NRO account.

Two laws, two questions

FEMA and income tax both use the word “resident”, and each has its own test.

FEMA. FEMA’s definition starts from a day count: you are resident in India if you resided there for more than 182 days in the previous financial year. But the definition leaves out anyone who has gone abroad in one of three ways. This is FEMA’s exclusion for people who go abroad:

1. to take up a job;
2. to carry on a business or vocation;
3. for any other purpose, in circumstances that show they mean to stay away for an uncertain period.

How long you mean to stay away matters only for the third way.

If you went abroad to take up a job, you are in the first of these three ways. That holds for a fixed-term job too, such as one for two years, because the condition about an uncertain period does not apply to a job.

Income tax. Income tax counts the days you were in India in the tax year, which runs from 1 April to 31 March. 182 days or more in that year makes you resident. Income tax also has a shorter-stay rule, but the law switches it off or changes it for Indian citizens who leave for work abroad, and for some people who live abroad and come on a visit. The sections “What each status does” and “Later years, and visits home” explain how.

So the two day counts look at different years: FEMA’s looks back at the previous financial year, while income tax counts the days in the tax year you are in.

Where the law leaves a point open, a dotted line marks each sentence that turns on it, and its “Our reading” label links to both readings, set side by side under “Points of interpretation” at the end. The law does not say exactly when your FEMA status changes, so this guide shows two readings.Our reading Both readings agree that the account becomes an NRO account; they differ only on when.Our reading

Read across each row to compare the two laws.

Here is what that looks like for two people who leave in the same year.

One tax year, two people who leave

Neha and Ritu are made up for this guide, and their numbers are illustrative. Both are Indian citizens who had always lived in India, so each spent all of the previous financial year in India. Both have small Indian incomes. In the same tax year, each leaves India to take up a job abroad. Each opens a bank account in her new country for her salary.

Neha leaves in July, after 100 days in India that tax year. Ritu leaves in January, after 280 days in India that tax year. If you left a few months into the tax year, you are in Neha’s position; if you left near its end, you are in Ritu’s.

Both left to take up a job. Under FEMA, the exclusion for a job has no day count or month in it. We read FEMA as moving each of them from resident in India to a person resident outside India at the point each leaves, whatever her days in India the year before. The other reading is that someone with more than 182 days in India in the previous financial year stays resident, and may keep the resident account, until the current financial year ends.Our reading

Under income tax, each gets one status for the whole tax year, from the day tests for that year. Neha has fewer than 182 days. Ritu has 182 or more.

In this example, Ritu’s 280 days are over the 182-day mark, and Neha’s 100 are under it.

What each status does, in the year they leave

For tax, Neha is a non-resident for that year, and Ritu is a resident. Two rules explain why.

Neha, with fewer than 182 days in India, is not resident for that tax year, which makes her a non-resident. Besides the 182-day test, income tax has a shorter-stay rule that could have made her resident: 60 days or more in India in the year, plus 365 days or more over the four years before it. But that rule does not apply to an Indian citizen who leaves India in the year for a job abroad.

Ritu, with 280 days in India that year, is resident.

Tax law also has a middle status, “resident but not ordinarily resident”. You are in it if you were a non-resident in nine of the ten earlier tax years, or spent 729 days or less in India over the seven earlier tax years. Ritu had always lived in India, so she meets neither of these two conditions. That matters because both of Ritu’s tax results in the table below apply only to a resident who is not in this middle status.

For the tax itself on that year’s income, and any relief under a DTAA (Double Taxation Avoidance Agreement), ask your accountant. Our guide to mutual fund tax for NRIs explains what a DTAA is.

Later years, and visits home

After the year you leave, you live abroad and come to India on visits. The shorter-stay rule does not apply to an Indian citizen or a person of Indian origin who lives outside India and comes on a visit, so on a visit only the 182-day count applies to you. For income tax, a person of Indian origin is someone who was born in undivided India, or one of whose parents or grandparents was.

Two further rules apply only if your income other than from foreign sources is above Rs 15 lakh in the tax year.

• On a visit. With that income, the shorter-stay rule does apply to you on a visit, with 120 days in place of 60.
• Deemed resident. With that income, an Indian citizen who is not liable to tax in any other country because of domicile, residence or similar criteria is deemed resident in India for that year.

If either of these is you, ask Rohit about your case in the question box on this page.

If neither of these applies to you, a tax year with fewer than 182 days in India leaves you not resident, which makes you a non-resident for that year. India then counts only income received, or deemed received, in India, or arising or deemed to arise there. You must file a return if your income is above the amount that is not taxed.

What happens to each thing you hold

• Your savings account. It should be re-designated as an NRO account once you are a person resident outside India. “One tax year, two people who leave” sets out the two readings of when that is.
• A fixed or recurring deposit. An NRO account may be held as savings, current, recurring or fixed deposit, so a re-designated fixed or recurring deposit carries on as an NRO deposit. The tax deducted on NRO interest is covered in our NRE, NRO or FCNR guide.
• Income coming in. Income arising in India, money you send from abroad, and transfers from other NRO accounts are permitted credits to an NRO account, so Indian income such as rent or dividends keeps coming in.
• Shares and a running SIP. For shares, or a SIP (Systematic Investment Plan) you already run, ask Rohit in the question box on this page. If you live in the Gulf, our investing from the Gulf guide shows how a SIP is set up from there.
• A joint account. Who may hold an NRO account jointly is in the “Holding it jointly” row of our NRE, NRO or FCNR guide.

How soon

The rule sets no number of days. We read re-designation as due when your status changes: as soon as you become a person resident outside India.Our reading If you have already gone abroad for a job, that point has passed on our reading.Our reading So, on this reading, the step is due now.Our reading

Wherever you live

If you are a US person, your Indian accounts are reportable on an FBAR (FinCEN Form 114, the US foreign-accounts report), which you file once all your foreign accounts together pass USD 10,000 at any point in the calendar year. If you live in the UK or the Gulf, what your country does with the interest is covered in our NRE, NRO or FCNR guide.

What to do

• Ask your bank to re-designate your resident account as an NRO account once you have become a person resident outside India. See “How soon” above.
• Count the days you spent in India in the tax year you left. Your tax status is decided for each tax year as a whole, from the day tests for that year. The sections above show what each status means for your income and your return. Ask your accountant about the return for that year.
• If you are a US person, include the NRO account when you add up your foreign accounts for the FBAR.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

When you are ready, we will answer your question and take you through this guide. We help with the mutual fund side of the move, such as your SIP; your bank handles the re-designation, and your accountant the tax for the year you left. One question is enough to start: ask Rohit in the question box on this page.

Ask Rohit about this guide. The question box sits beside the article, under the contents, and starts from this guide's question. Go to the question box