Failure to update residency status and account information could lead to regulatory, tax and banking complications
Non-Resident Indians (NRIs) should regularly review their banking arrangements in India to avoid costly mistakes that could result in tax issues, regulatory breaches or restrictions on their accounts, according to financial experts.
One of the most common errors is failing to inform banks after returning to India permanently. Under the Foreign Exchange Management Act (FEMA), individuals who cease to be NRIs are required to update their residential status with their bank. NRE and NRO accounts are designed exclusively for non-residents, and continuing to operate them after becoming a resident could lead to compliance issues.
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Experts also caution against using a resident savings account after moving overseas without converting it into an appropriate NRE or NRO account
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Such accounts are governed by different regulations, and non-compliance may attract penalties under FEMA
Financial planners advise NRIs to understand the distinct purposes of NRE and NRO accounts. NRE accounts are meant for income earned abroad and offer tax-free interest in India, while NRO accounts are intended for income generated within India, such as rent, pensions or dividends. Interest earned on NRO deposits is generally taxable and may be subject to tax deducted at source (TDS).
Other frequent mistakes include failing to update Know Your Customer (KYC) details, overlooking nominee information, ignoring tax obligations on Indian income and not informing banks about changes in residency or contact details. These oversights can delay transactions, complicate account operations and create avoidable compliance issues.
Banking professionals recommend that NRIs review their accounts periodically, keep documentation current and seek professional advice where necessary. Those returning to India should promptly convert their non-resident accounts into appropriate resident accounts to ensure continued compliance with Indian banking and foreign exchange regulations.
