Can NRIs Have Both NRE and Savings Accounts in India?

NRIs are allowed to maintain specific types of accounts in India, but there are restrictions on holding a regular Savings Bank (SB) account once NRI status is acquired. Let’s understand the regulations and implications:

1. NRE and NRO Accounts for NRIs
NRIs can hold the following types of accounts under the Foreign Exchange Management Act (FEMA):

• NRE (Non-Resident External) Account:
• • Used to deposit foreign income.
  • Funds are fully repatriable (freely transferable abroad).
  • Interest earned is tax-free in India.
• NRO (Non-Resident Ordinary) Account:
• • Used to deposit income earned in India (e.g., rent, dividends).
  • Repatriation is limited to $1 million per financial year.
  • Interest is taxable in India.

2. Restrictions on Regular Savings Bank Accounts

Once an individual’s status changes to NRI, they cannot continue holding a regular Savings Bank (SB) account. As per RBI regulations:

• All existing SB accounts must be converted into NRO accounts.
• Operating an SB account while being an NRI is considered a violation of FEMA and can attract penalties.

3. Implications of Holding Both NRE and SB Accounts
If an NRI retains both an NRE account and a regular SB account:

a) FEMA Violations

• Holding a resident SB account as an NRI breaches FEMA rules.
• Penalty can be up to 300% of the transaction amount in the account.

b) Tax Compliance Issues

• Earnings in the SB account may be taxed as if the individual were a resident.
• Tax authorities may investigate income sources for discrepancies.

c) Bank Account Freezing
    Banks regularly monitor account status and may freeze accounts if they detect residency violations.

4. Why Convert SB Accounts to NRO Accounts?

Converting SB accounts to NRO accounts ensures compliance and allows NRIs to manage their India-based income legally. The key differences between SB and NRO accounts are:

Feature                                     Savings Account (SB)                                          NRO Account
Account Holder's Status         Resident Indian                                                         NRI
Taxation on Interest                 Exempt up to ₹10,000                                         Fully taxable
Repatriation Facility                 Limited to ₹1,50,000                                     $1 million/year limit

5. Recommendations for NRIs

• Close or Convert SB Accounts: Contact your bank to convert existing accounts into NRO accounts.
• Separate NRE and NRO Accounts: Use NRE accounts for foreign income and NRO accounts for managing Indian income.
• Seek Professional Guidance: Consult tax and financial advisors to ensure compliance with FEMA and tax laws.