Penalty for Not Converting to NRO Account

This article was last updated and fact checked on January 28, 2023 by Mani Karthik.

When an Indian becomes an NRI, it is mandatory to close all existing bank accounts or convert them into Non-Resident Ordinary (NRO) accounts. According to the FEMA regulations, when a person’s residential status changes, this conversion is mandatory, which means that it is illegal for NRIs to hold a normal savings bank account in an Indian bank.

Here’s a look at the process to convert a savings account to an NRO account and its features.

Non-Resident Account Features

• NRO accounts are quite similar to savings accounts. Although there are many restrictions on sending income from India to a foreign country.
• Income received in India, such as property rent, investment returns, pension, etc., need to be deposited in these accounts.
• Payment for loan EMIs or premiums for insurance schemes taken in India need to be made through NRO accounts.
• Interest applicable on NRO accounts is the same as that for regular savings accounts.

Converting a Savings Account into an NRO Account

Fill the bank’s prescribed form for conversion from savings to NRO. These forms are available online as well as at the bank’s physical branches. All holders of the account to be converted are required to sign the form.

If there are any fixed deposits associated with your account, receipts for the same need to be submitted with the form.

You need to submit a number of documents to the bank, such as:

• A copy of the applicant’s passport
• PIO/OCI card, if applicable
• A copy of the work permit or a valid visa
• Address of foreign residence
• Two passport sized photographs

Additional proofs will also be required, based on applicability, such as:

• Dependent visa status
• Student status
• Employment details
• Resident permit of the foreign country

These proofs have to be attested by an Indian consulate, notary or Indian bank with an overseas branch. Self-attested copies are accepted by many banks too, so find out before attesting the documents.

If you want to make the process easier, include an address proof document, showing your local Indian address.

After your form and documents are received and verified by the bank, the savings account will be converted to an NRO account. The account number usually remains the same, as does the amount already present in the account at the time of conversion.

What is the Penalty if I Don’t Convert to NRO?

Section 13 of the Foreign Exchange Management Act (FEMA) of 1999 says, “If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the RBI, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to ₹2 lakhs where the amount is not quantifiable.”

If the violation is a continuing one, you may have to pay a heavy penalty. In such cases, additional penalty may extend up to ₹5000 for each day that the violation continues for. Therefore, it is recommended that you convert your savings account into an NRO one as soon as possible.