“I moved to Toronto in June for a job. My Indian salary account still works, UPI still works and the bank hasn’t asked anything. Do I really need to change it?”
Yes. The account working is not the same as you being allowed to hold it.
What the Rule Says
Under the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Deposit) Regulations, 2016 and RBI’s directions on deposits, a person who becomes resident outside India must either:
- redesignate existing resident accounts as NRO (Non-Resident Ordinary) accounts, or
- close them.
The rules give no grace period. Banks expect you to tell them when your status changes.
The trigger is your FEMA status, not the income-tax 182-day count. If you leave India for a job abroad, FEMA treats you as a non-resident from the date you leave.
Why the Law Draws This Line
RBI tracks non-resident money separately because it controls what can leave the country and how it’s taxed. A resident account misstates who you are to three parties at once:
- The bank applies resident KYC and resident tax treatment.
- RBI’s framework puts NRO funds under a repatriation ceiling of USD 1 million per financial year, after tax, with Form 15CA/15CB. A resident account carries no such tag.
- The tax department expects NRO interest to face TDS at 30% plus surcharge and cess for non-residents (lower if you claim a treaty rate with a Tax Residency Certificate). A resident account doesn’t deduct at that rate.
What Changes When It Becomes NRO
| Resident savings | NRO savings | NRE savings | |
|---|---|---|---|
| Who can hold it | Residents | NRIs, OCIs | NRIs, OCIs |
| What can be credited | Anything | Indian income (rent, dividends, pension) and foreign remittances | Foreign earnings and other repatriable funds |
| Interest | Taxable at slab rates | Taxable, TDS at 30% plus surcharge and cess | Tax-free while you are a FEMA non-resident |
| Sending money abroad | Not as an NRI | Up to USD 1 million a year | Fully repatriable |
The account number usually stays the same, and a resident joint holder can stay on the NRO account. You can’t convert a resident account directly into NRE; open a separate NRE account for money you send from abroad. Our guide to the NRO account covers the operating rules.
The Penalty Exposure
Under section 13 of FEMA, a contravention can attract a penalty of up to three times the sum involved where it can be quantified, or up to ₹2 lakh where it can’t, plus up to ₹5,000 for every day the contravention continues.
Honestly, what “sum involved” means for an account that simply wasn’t redesignated is not settled. The more common consequence is the bank freezing the account during a KYC review. Where a contravention has run for long, compounding with RBI is the route to regularise it.
How to Redesignate Your Account
- Inform your bank in writing; most banks have an NRI status-change form.
- Submit your passport, visa or work permit, overseas address proof and fresh KYC with a FATCA/CRS declaration.
- Convert all resident deposits and your demat account, not just the savings account.
- If you want a lower treaty TDS rate on NRO interest, give the bank your Tax Residency Certificate and Form 10F.
At Tax Vic, we prepare the residency working banks ask for, the Form 10F and treaty-rate documentation for NRO interest, and Form 15CA/15CB when NRO funds are sent abroad.
Common Mistakes
- Keeping the old salary account “just for UPI”
- Crediting foreign salary into NRO and later struggling to repatriate it
- Updating the bank but filing the ITR with resident status
FAQs
I’m going abroad for a two-year master’s. Does this apply?
Yes. RBI treats Indian students studying abroad as persons resident outside India, so their resident accounts should become NRO.
Can I keep my PPF account?
An existing PPF account can continue till maturity, but you cannot open a new one or extend it as an NRI.
Once your NRO account is in place, our guide on moving funds from NRO to NRE explains the next step.
Key Takeaways
- A FEMA non-resident cannot hold a resident savings account; redesignate it as NRO or close it.
- The change applies from the date FEMA status changes, with no grace period in the rules.
- NRO funds can be repatriated up to USD 1 million a year after tax, with Form 15CA/15CB.
- FEMA penalties run up to three times the sum involved, plus ₹5,000 a day.
Just moved abroad and still on a resident account? Send us your departure date and account list. Tax Vic will confirm your FEMA status, prepare what your bank needs for the NRO conversion and set up treaty-rate TDS on your interest. Email info@taxvic.com or WhatsApp +91-9311070842.
Author: CA Reetu Bhandari
Published: 14 November 2026
Last Reviewed: 10 November 2026
