This article shows you the steps to follow to once you become an NRI regarding your accounts in India.

Disclaimer: Taxation and NRI related rules is a dynamic concept, and the content of this article is valid on the date of publication (02-Feb-2022, post budget 2022). The list here is meant to provide a checklist and is not meant to be exhaustive or handle all edge cases. Readers should perform their due diligence, specifically in the context of taxation laws in their respective countries.

📚 Table of Contents

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• Introduction
• Who is an NRI?
• KYC update
• Bank accounts - NRE and NRO
  • Non-Resident External (NRE) Account
  • Non-Resident Ordinary (NRO) Account
  • Foreign Currency Non-Resident (FCNR) Account
  • Resident Foreign Currency (RFC)
  • Foreign Currency Non-Repatriable (FCNR) account
• Marking residential status as NRI in Income tax portal
• Investing in stocks
  • NRI Demat account
  • Portfolio Investment Scheme (PIS) account
  • Non PIS account
• Investing in mutual funds
• Public Provident Fund (PPF)
• Sukanya Samriddhi Yojana (SSY)
• National Pension System (NPS)
• Employee Provident Fund (EPF)
• Power of attorney (PoA)
• Mobile phone number
• Documents and id cards
• Memberships
• Bank lockers
• Credit cards and loans
• Insurance
  • Life insurance
  • Health insurance
• Filing Income Tax return

Introduction

There are several steps to be followed when you become an NRI to ensure things run smoothly and you follow applicable laws. Also, you do not wish to waste time in banks and government offices every time you visit India, and so do these now before you shift. Once you shift abroad, follow these steps to take care of your elderly parents’ finances in India: How can NRIs easily manage their parents’ finances in India?.

Who is an NRI?

The income tax website defines an NRI like this:

KYC update

First, you need to update the new KYC (resident > NRI) and FACTA status with the KYC Registration Agency (KRA). You can locate the form here.

Second, you need to inform each bank, Demat account, credit card, loan provider, AMC, insurer, income tax authorities and NPS provider regarding your status change.

Bank accounts - NRE and NRO

To comply with the Foreign Exchange Management Act (FEMA) rules, an NRI cannot have regular savings accounts in India. Therefore, you must convert existing accounts to NRO accounts and excess accounts must be closed. This step is important once your status changes from resident Indian to NRI and can be done either online, for selected banks, or during your next visit to India.

Feature	NRO Account	NRE Account	FCNR(B) Account	RFC Account
Income Source	Indian income (including capital gains)	Primarily foreign income, some taxable Indian income	Foreign currency deposits	Funds held in foreign currency by returned NRIs
Repatriation	Allowed with Forms 15CA/15CB, up to $1 million/year	Fully repatriable (for foreign income and taxable Indian income)	Fully repatriable	Fully repatriable
Limits	Unlimited when deposited; $1 million/year on repatriation	No limits on deposits/withdrawals	No limits on deposits/withdrawals	Generally no specific limits defined, but related to funds brought back upon return or received from specific sources
Capital Gains	Can receive proceeds from sale of assets	Cannot receive proceeds from sale of assets directly. Proceeds must go to NRO	Cannot receive proceeds from sale of assets	Can receive proceeds from sale of foreign assets held before returning
Taxation	TDS applies to Indian income	Generally no tax on foreign income, tax applies to specific Indian income	Interest earned is tax-free in India	Interest is taxable at slab in India
Currency	INR and Foreign currency	Foreign currency	Foreign currency	Foreign currency

Non-Resident External (NRE) Account

An NRE account can be opened only once you are an NRI as a fresh account. Old accounts, which existed when you were a resident Indian, must be converted into NRO accounts, not NRE accounts. You can check your NRI status here: Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts.

This account is used to send money to India. The features and uses are:

• This is a fresh account that can only be opened by an NRI. Existing resident Indian or NRO accounts cannot be converted to NRE.
• Money deposited in this account must originate outside India.
• Interest earned is tax-free in India but may be taxable in the country where the NRI is residing.
• You can send both interest and principal out of India without limits.
• Deposits can only be made in foreign currency, and withdrawals are in INR.
• Joint accounts are allowed only with another NRI.
• You can transfer funds to other NRE or NRO accounts.
• It may be used for stock investing but is not recommended.
• It is the best option for Mutual Fund investing due to easy repatriation.
• It cannot be used for investing in RBI/Gilt bonds.
• Once you return to India, NRE account must be converted to a resident account once you are a resident Indian as per FEMA (“intention to stay in India for more than 182 days”)

Non-Resident Ordinary (NRO) Account

This account is used for any income and investments in India. The features and uses are:

• Existing savings accounts are converted to NRO accounts (and not NRE) once you leave the country and status changes to NRI from resident Indian as per tax residency rules.
• Interest earned is taxable in India at current slab rates. The benefit of the Double Taxation Avoidance Agreement (DTAA) is available with most countries so that you can offset tax paid in India as an input tax credit in your home country.
• You can send both interest and principal out of India, but the principal must be within $1 million. A CA must certify that you have paid taxes on this income.
• You can make deposits in both foreign currency and INR, and withdrawals are in INR.
• Joint accounts are allowed with another NRI or a resident.
• Incoming transfer into NRO from Indian resident accounts do not attract TCS under the LRS rules
• Funds can be transferred only to another NRO account or to even resident accounts.
• Transfer from NRO to an NRE account i.e. for repatriation is capped at $1 million per financial year and requires CA input on the required forms to be filled
• This account is used to receive income from interest, FD, rent, stock and MF dividends, and the proceeds from selling real estate, stocks, and mutual funds.
• It can be used for both stock and MF investing.
• Only NRO accounts can be used for investing in and for receiving interest from RBI/Gilt bonds from the RBI Retail Direct Portal.

Foreign Currency Non-Resident (FCNR) Account

Note: FCNR(A) accounts were discontinued in 1993 and used to have exchange rate guarantee from the RBI. Now only FCNR(B) accounts, without exchange rate guarantees, exist.

• NRIs or PIO card holders can open FCNR(B) accounts either singly or jointly with other NRIs
• FCNR(B) accounts are term deposit (FD-type) accounts held in foreign currency (USD, EUR, GBP, AUD, SGD, CAD, CHF, HKD are typical)
• Interest is paid every 180 days and the account matures in one to five years
• Interest earned is tax-free in India
• Both principal and interest are fully repatriable
• Pre-mature withdrawal is possible with interest rate penalties
• They eliminate currency conversion risk since they are held in foreign currency
• Can be used for payments in India, making investments and transfers to other NRE or FCNR accounts

Resident Foreign Currency (RFC)

Resident Foreign Currency (RFC) are for NRIs who have returned to India and used to store foreign currency, say in USD, GBP and EUR

• Allows returning NRIs to hold onto foreign currency instead of immediately converting to INR
• These amounts are repatriable and can receive funds from abroad or other NRE / FCNR accounts
• Interest rates are generally lower than FCNR or NRE accounts. Interest rates in RFC accounts are comparable to those offered by foreign bank accounts to maintain interest rate parity (e.g. resident ₹ savings accounts offer 2.75-3.5% while USD RFC accounts offer 0.25%)
• The interest income on these accounts are taxable at slab rates for ROR. If you are an RNOR status holder then you are not liabile to pay tax on these accounts in India.
• RFC accounts help you time your currency conversions from foreign currency to INR based on expected exchange rate movements
• Use the RFC account if you have large INR liabilities (e.g. builder payments for an under-construction house) and you expect the Rupee to depreciate against your foreign currency holdings
• RFC accounts can be maintained indefinitely (e.g. savings accounts) while RFC fixed deposits (FDs) will mature on their specific maturity date
• RFC accounts can only be opened NRIs who are Indian nationals with a valid Indian passport (or other government-issued identification)

This table summarises NRE, NRO, FCNR and RFC account types for every type of tax status:

Account Type	NRI	RNOR	Resident (ROR)
NRE	Open & Operate	Can Continue (if not yet reclassified) New not allowed	Must be converted to Resident Account
NRO	Open & Operate	Continue as-is	Continue as-is
RFC	Cannot open	Can Open & Operate	Can Continue / No tax benefits
FCNR (B)	Open & Operate	Cannot open new Continue till maturity	No new deposits Continue till maturity → must convert

Foreign Currency Non-Repatriable (FCNR) account

FCNR accounts come later and is not a step when emigrating.

This bank account, also called a FCNR(B) account, can be used to have tax-free FDs in India:

• the FD is for 1-5 years and is tax-free. This is not a savings account
• the money is not converted to INR but held as either USD, CAD, EUR, AUD, JPY, GBP, SGD and a few other currencies. This removes any exchange rate risk of that currency against the INR
• these FDs offer higher interest rates than in countries with the above currencies
• the amount can be repatriated without restrictions
• you can take loans against an FCNR account
• choose this account instead of NRE if you are planning to take the money out of India without any forex risk

Marking residential status as NRI in Income tax portal

Many NRIs after 30th June, 2023 have found their PAN numbers becoming inoperative since Aadhaar is not linked with PAN. The easy solution to this problem is discussed here: What should NRIs do if your PAN has become inoperative?.

Investing in stocks

NRI Demat account

As per FEMA rules, the resident demat account must be closed and a new NRI demat account must be opened and shares transferred the new account. Two types of accounts are available for stock trading:

Portfolio Investment Scheme (PIS) account

The PIS account is also known as Portfolio Investment (NRI) Scheme or PINS.

• To open this account, you need to provide a permission letter from RBI via your bank. There are only a few banks that offer this like HDFC, Yes, IDFC, Indusind, ICICI, SBI, Kotak, Axis and a few others.
• NRO/NRE accounts can fund this account for buying shares
• fund transfers for trading has to go from bank account > PIS > trading account and can take up to a day
• this is a more expensive option with charges to be paid per trade to the broker as well as to the bank

PIS account have restrictions like not being able to sell bonus shares (which have to be transferred to a non-PIS account for selling).

Non PIS account

If you are an NRI wishing to buy stocks in India, a Non PIS account is the recommended route:

• You do not need RBI permission to open the account
• this account can be funded only from an NRO account
• fund transfers for trading goes from bank account to trading account immediately

While dividends can be credited to both NRE or NRO accounts, things might be complicated in case a transfer to the NRE account fails and a cheque needs to be sent to the registered address.

Due to these reasons, a NRO bank account and a non PIS account is the recommended combination for stock investment.

Investing in mutual funds

You need to inform the AMC of the KYC change. The rules here are a bit more complex depending on the country you are shifting to.

Due to the Fair and Accurate Credit Transactions Act (FACTA), there is a requirement of reporting of financial transactions of all US-linked citizens, including NRIs, to the US government. If you are shifting to the US or Canada, you can only invest in funds run by Aditya Birla, ICICI, Franklin Templeton, PPFAS, Reliance, SBI, Tata, and UTI. The list may change, so please check the latest rules. Investors shifting to other countries will not have such issues.

Do not mix and match folios and type of accounts to avoid problems:

• if a folio is linked to an NRE account, do not invest from an NRO account and vice versa
• ensure that existing MF investments are tagged to an NRO account
• new folios are explicitly created to invest from NRE accounts

Taxation of mutual funds will be identical as residents, like this, but there will be TDS on the redemption amounts at the same rates. The proceeds of the sale will come to the NRE or NRO account.

NRIs have an option of using DTAA to avoid paying tax again on the same income in their home countries.

Tax filing, compliance and investing for global income can be complicated for NRIs. Instead, assets held by the family in India, received as remittance and then invested, can be simpler to manage. LRS rules ($250,000/year) apply if you plan to remit that money out of India again.

It is important that the rules for creating PIS/non-PIS accounts and mapping folios to NRE/NRO accounts are done carefully to avoid delays and hassles. It will be easier to handle customer service.

Warning: Indian mutual funds and ETFs are PFIC-eligible investments in case you are going to become an US tax-resident and require payment of capital gains taxes on unrealised gains. You should refer to this post on the right steps to take before shifting to the US: Should US-based NRIs sell-off their mutual funds and stocks in India?.

Public Provident Fund (PPF)

This section uses the amendments in the PPF act made in 2019.

A PPF account offers tax-free growth of capital and offers tax-free (no tax in India) withdrawals, even in the case of NRIs. The account stays active once you shift outside India and can accept further contributions on non-repatriable basis. NRIs, like Resident taxpayers, can also claim 80C deduction for PPF in case they are filing returns in India. The account will provide the same rate of interest that residents get.

The account will mature in the usual way after 15 years and the maturity amount will be deposited in the NRO account. This is not taxable in India but you should check, depending on your resident country, if you need to pay any tax on foreign income.

If the account has been operating for more than five years, NRIs can close it after producing a passport and visa copy or IT return.

Restrictions: Two restrictions exist for NRIs:

• an NRI cannot open a new PPF account but existing accounts can be continued
• NRIs cannot extend the PPF account post maturity after 15 years

Sukanya Samriddhi Yojana (SSY)

When the girl-child’s status changes from resident to NRI, then the status of the SSY account changes to closed and interest will not be paid further. New SSY accounts can only be opened by residents or NRIs once they come back to India and become residents. The girl child needs to be a resident Indian to either open a new SSY account or continue an existing account.

National Pension System (NPS)

Existing NPS investments can continue. The withdrawal rules are the same as residents:

• before age 60: 20% withdrawable as a transfer to NRE/NRO account and 80% converted into an annuity that pays in INR into the NRO account
• after age 60: 60% withdrawable as a transfer to NRE/NRO account and 40% converted into an annuity that pays in INR into the NRO account

There is no benefit in opening a new NPS account as NRI if an NPS account is already not present or investing large sums in NPS. However, an NRI can keep an existing account active by investing ₹1000/year NRO accounts.

Employee Provident Fund (EPF)

NRIs cannot contribute to the EPF account. However, the EPF account will continue to accrue interest up to age 58 and will then get paid out into the NRO account.

But given that you are shifting out now and are technically no longer employed in India, you can withdraw the EPF entirely without any restrictions or penalties. This is applicable to those shifting abroad for at least several years to deploy elsewhere or use for shifting.

Power of attorney (PoA)

If you are not in India to undertake tasks like signing lease documents (for a rented house) or similar activities, consider giving a Power of Attorney (PoA). PoA can be General (applicable to everything you want to do like banking, tax filing, real estate transactions) or Specific (applicable to a single task from the examples in the General PoA case). PoA should only be granted to trusted individuals and useful for real estate transactions. The PoA can also be done in an Indian embassy if you missed this before shifting.

For real estate transactions, it is helpful to register the PoA in the same state as the property and give PoA to a parent or close family member.

Mobile phone number

It makes sense to retain an Indian number to receive OTPs. Switch to yearly prepaid plans and leave the SIM in India with a trusted family member. It is possible that the operator may randomly disable the SIM if it is outside India for too long. There have been cases where the SIM stops working after a few months being abroad, even with payments made on time, and can be replaced only once you visit India thereby locking you out of your accounts.

Please refer to this excellent article on keeping your Indian mobile number active: How to keep your Indian mobile number active while living abroad?

Documents and id cards

ID cards like Aadhaar, PAN, voter id card and driving license can be kept as is. To prevent misuse, lock down biometrics using UIDAI website. Ensure that the SIM linked to Aadhaar stays active to receive OTP.

Memberships

Any ongoing membership plans in gyms, mobile/broadband postpaid, OTT platforms must be cancelled. Mobile phones should be converted to prepaid plans.

Bank lockers

Bank lockers should be closed unless you have someone in India who is a joint holder and will operate the locker by physically visiting the locker once a year. Banks have the option of breaking into inoperative lockers even if rent is being paid. Read more here.

Credit cards and loans

It is convenient to have an Indian card to pay for local expenses when visiting or gifting online. You need to have an NRO account to pay the bill and an Indian mobile number to receive OTPs. You can close an excess number of cards and keep only one to keep things simple. Ensure that you have family in India to receive new cards and PIN letters for that card and update that address in the card issuer’s records. An alternative arrange can also be that once you inform the credit card company, they update your new foreign address and phone number in their records for sending the physical card and PIN/OTP respectively. Of course this is possible only once you have already settled in your new country.

You can pay loans like home, car and personal loans out of either NRE or NRO accounts.

Insurance

Life insurance

Term insurance policies generally have global coverage and should be continued. You need to ensure that the payment goes from an active bank account in your name and is not linked to a credit card that you might cancel later. Contact the insurance company to change your premium to an annual payment mode to reduce operational issues like payment failures. If there is a payment failure or something else goes wrong in renewal, there will be a requirement of a medical test to reinstate the policy which will not be possible from outside India.

Endowment, whole life and ULIPs should either be surrendered or made paid up. Do not waste additional money in paying the premiums for their meagre returns. You do not need to inform the agent. Instead, visit the nearest branch to get this done.

Health insurance

If your health insurance provides coverage outside India, it can be continued until you get settled in the new country and have your own health insurance. If you are planning to perform some procedures in India in the future or come back after a few years, then it will be good to keep the Indian policy active.

It is good practice to let the insurer know about your change in status from resident to NRI. If there is a geographical restriction clause in the policy, then you can let the current Indian policy lapse and take new policy abroad quickly.

You must have travel insurance to cover any gaps in the time you fly out and get a local health insurance policy.

Filing Income Tax return

You should file returns every year since your Indian income is taxable in India. Indian income includes:

• salary and rental income
• capital gains from shares, mutual funds, real estate and other capital assets -savings and FD interest in NRO account

Interest income in NRE and FCNR accounts is tax-free in India.

You must file a return compulsorily if the taxable income exceeds the current exemption threshold of ₹250,000. If there is no income, you may file a nil return.