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FEMA & RBI

Your old resident bank account is still running after you became an NRI

You moved abroad years ago, but your resident savings account and demat in India are still ticking along, and someone has finally told you that's a FEMA problem.

You became a non-resident some years back. A job overseas, then a settled life abroad, but the savings account you opened as a resident is still open, the salary-era SIPs are still debiting it, and the demat account is still in resident form. Nobody at the bank flagged it, so it kept running. Under FEMA, once your status changed you were meant to redesignate that resident account as an NRO account; leaving it as resident is a compliance gap. The worry is whether years of it running quietly has created a problem, and how to set it right without inviting trouble.
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Last reviewed: 10 June 20268 min readReviewed by Preetesh Maloo, CA

The short answer

When a resident becomes an NRI, FEMA requires the old resident savings or current account to be redesignated as an NRO account (per the RBI Master Direction on Non-Resident deposits). It is not meant to keep running as a resident account. The same applies to a resident demat: it has to be converted to an NRO / NRI demat so future holdings sit on the right footing. The good path is to redesignate the accounts now, route past credits correctly, and document the date your residential status changed, banks regularise these routinely, and a clean, voluntary fix is far better than waiting for the bank to freeze the account.

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Related situations

Why a resident account can't keep running once you're an NRI

FEMA ties the accounts you may hold to your residential status. While resident, an ordinary resident savings account was correct. The day you became non-resident, once you left India for employment, business or an indefinite stay abroad. It had to be redesignated: converted into an NRO (Non-Resident Ordinary) account, designed to hold an NRI's India-source income, rent, dividends, interest. Leaving it open as a resident account is the FEMA gap.

Most people never get told this. Banks rarely detect a status change on their own; salary-era standing instructions keep firing and the account carries on. That silence is why so many NRIs discover the problem years later, when a KYC refresh flags an overseas address, a remittance is queried, or a new CA reviews the file.

NRO, NRE, FCNR: which account holds what

An NRI typically ends up with more than one account, each with a clear job:

AccountWhat it holdsRepatriable?
NROIndia-source income, rent, dividends, interestWithin the USD 1M-a-year route
NREForeign earnings remitted into IndiaFreely repatriable
FCNRForeign-currency fixed depositsFreely repatriable

Your old resident account, holding India-source receipts, maps to NRO. Money earned abroad and brought in belongs in NRE, where it stays freely repatriable. Redesignation converts the resident account to NRO; a fresh NRE is opened for foreign income going forward.

The demat account has to move across too

The bank account is only half of it. If you held shares or mutual funds in a resident demat before you moved, that is on the wrong footing too. Existing holdings move into an NRO-linked demat : matching the non-repatriable nature of the money that bought them, while fresh repatriable investing goes through an NRE / PIS route. This also fixes how gains are reported and TDS applied when you eventually sell.

The trading-account side is covered in the situation on converting a resident demat and trading account.

A worked example: a resident account that ran for six years

Arjun moved to Dubai in 2019 and never closed his Pune resident savings account. Rent kept landing in it, two old SIPs debited it, and the linked demat held student-era shares. In 2026 a KYC refresh flagged his non-resident status and the account was put under review.

His CA pins the date his status changed, 2019, redesignates the savings account to NRO, opens a fresh NRE for Dubai salary, and converts the demat to an NRO-linked NRI demat. No penalty arises from redesignating, and the rent was declared in his returns, so no hidden tax gap. What he avoids is the bank freezing the account entirely. The real risk of leaving it unconverted.

Redesignating isn't optional: the law requires it

Redesignating your resident savings or current account to NRO on becoming non-resident is a legal requirement, not a courtesy. The Foreign Exchange Management (Deposit) Regulations and the RBI Master Direction on Deposits and Accounts are clear: a non-resident is not permitted to operate an ordinary resident account and must close it or have it redesignated as NRO.

Running an unconverted account is a contravention (Section 13, FEMA 1999), carrying a penalty of up to three times the sum involved, or ₹2 lakh where the amount cannot be quantified. In ordinary cases that penalty is not pursued when the account is voluntarily put right, but it is the legal backdrop, and why a quiet redesignation now beats hoping nobody notices.

What actually goes wrong while the account runs unconverted

The risk is a set of small things quietly going wrong, not a dramatic one-off.

TDS on interest is the most common: a resident account deducts tax as a resident's would; an NRO account at the higher non-resident rate. The bank has been applying the wrong rate, and reconciling it at filing is fiddly. Credits are the next problem, rent, dividends, sale proceeds flowing into a resident account is exactly the mismatch a KYC review flags.

What's running wrongWhy it matters
Interest taxed at resident TDS rateWrong rate, messy reconciliation at filing
India-source credits in a resident accountThe mismatch a KYC review flags
Re-KYC marks you non-residentAccount can be frozen or put under review

The re-KYC freeze forces the issue: the bank sees a non-resident and puts the account under review or freezes operations until the status is regularised, far more disruptive than redesignating on your own terms.

How to regularise it cleanly, step by step

Pin down the date your status actually changed, when you left India for employment, business or an indefinite stay, because the bank redesignates from that date, not from the day you walk in.

The bank then converts the account using a standard document pack:

DocumentWhy the bank needs it
Passport with entry/exit stampsEstablishes when you left India
Visa or work permitConfirms your non-resident basis
OCI / PIO card (if held)Proves Indian-origin status
Overseas address proof + PANRe-KYC on a non-resident footing

From there it is mechanical: the resident account becomes NRO; a fresh NRE is opened for foreign earnings; the demat moves onto an NRI footing. The account number and history usually carry over. You are correcting the form, not starting again.

When you might need to compound the breach with the RBI

For most ordinary accounts, voluntary redesignation is the whole story. Compounding is the formal route for cases where the contravention is significant enough that you want it settled and closed on the record.

Compounding is a voluntary settlement, not a criminal proceeding. You admit the contravention, the RBI assesses an amount, you pay, and the matter is administratively closed, no prosecution, no court (Section 15, FEMA 1999; Foreign Exchange (Compounding Proceedings) Rules, 2024; RBI Master Direction on Compounding).

A resident savings account that ran on with declared income is normally regularised by redesignation alone. Compounding earns its place when the breach is larger: significant repatriations through the wrong account, sizeable undeclared flows, or when you want documented closure before a property sale or large remittance. We tell you plainly which side of the line your situation sits on.

If you do go that route, the 2024 Rules changed the practical details and most write-ups still carry the old ones. They took effect on 12 September 2024, replacing the 2000 Rules. The application fee doubled, from ₹5,000 to ₹10,000 plus GST. The amounts an officer can decide were raised sharply, so more cases now settle at a lower level instead of escalating: an Assistant General Manager can decide up to ₹60 lakh where the old ceiling was ₹10 lakh, a Deputy General Manager up to ₹2.5 crore, a General Manager up to ₹5 crore, and anything above that goes to a Chief General Manager. Payment can now be made by NEFT or RTGS rather than only a demand draft.

None of that changes whether you should compound. It changes what to expect once you do, and it is the part worth checking against a current source rather than an older write-up.

What's involved

What the CA actually does

  1. 1

    We pin down the date your status actually changed

    Redesignation, the tax treatment of past credits, and which account holds what all key off the date you became a non-resident. We establish that date from your travel and employment history first, because the rest follows from it.

  2. 2

    We redesignate the resident account to NRO

    We prepare the bank's redesignation paperwork so the old resident savings or current account is converted to an NRO account, and we help open an NRE account for your foreign earnings going forward, so each kind of money sits where FEMA intends.

  3. 3

    We move the demat onto an NRI footing

    We arrange conversion of the resident demat to an NRO-linked NRI demat for your existing holdings, and point you to the NRE / PIS route for fresh repatriable investing, so future sales report and deduct TDS correctly.

  4. 4

    We check there's no tax gap sitting underneath

    A FEMA account gap often sits alongside undeclared rent or interest. We review whether the India-source income that flowed through the account was returned, and tell you plainly what, if anything, needs catching up before the regularisation is clean.

What to have ready

Documents you'll typically need

  • Passport with entry / exit stamps, or visa, showing when you left India
  • Statements of the resident savings / current account still running
  • Demat holding statement for the resident demat account
  • Records of India-source income credited (rent agreement, interest certificates)
  • Your recent income tax returns
  • PAN and overseas address proof

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next, how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 46 countries.

References on this page

  • FEMA, residential status governs which bank and investment accounts you may hold
  • RBI Master Direction on Non-Resident (External) / (Ordinary) deposits, NRE, NRO and FCNR accounts
  • Redesignation of a resident account to NRO on change of status to non-resident
  • Demat held by a non-resident, to be held on an NRO / NRE (NRI) basis, not resident

Frequently asked questions

Common questions

It is a FEMA non-compliance rather than a criminal matter for an ordinary account. Once you became a non-resident, the resident account was meant to be redesignated to NRO. The practical answer is to regularise it now, banks handle this routinely, and a voluntary fix is far better than the account being frozen or queried later.

Redesignating the account itself does not trigger a penalty in the ordinary case. You are bringing it into line. The risk that does matter is leaving it unaddressed, or having undeclared income that flowed through it. We check the income side too, so the regularisation is clean rather than just cosmetic.

An NRO account holds India-source income, rent, dividends, interest, and is repatriable only within the [USD 1 million-a-year route](https://www.rbi.org.in/commonperson/english/Scripts/Notification.aspx?Id=847). An NRE account holds foreign earnings you bring into India and is freely repatriable. Your old resident account, holding India-source money, is usually redesignated to NRO; an NRE account is opened separately for foreign income.

You usually do not close it. The resident account is redesignated, meaning the same account is converted to NRO form so its history carries over. Closure is rarely necessary or desirable; redesignation is the standard route and keeps your banking record continuous.

Yes. A non-resident's holdings should sit in an NRI demat, not a resident one. Existing shares are typically moved to an NRO-linked demat, with fresh repatriable investing routed through an NRE / PIS account. We cover the trading side separately in the situation on converting a resident demat and trading account.

The FEMA redesignation itself is the same wherever you live. It follows from being a non-resident, not from which country. What varies by country is how the India-source income in the account is taxed at home and how the DTAA applies, so we factor your country in when we review the tax side of the regularisation.

NRE and FCNR interest is exempt in India while you are non-resident; NRO interest is taxable with TDS deducted. Foreign earnings you want to grow tax-free and take back abroad belong in NRE or FCNR; India-source money that must stay in rupees sits in NRO. FCNR holds the deposit in foreign currency, removing rupee exchange risk for money you will repatriate. A sensible ladder staggers maturities across all three so you always have a deposit coming due without breaking one early. Our NRE / NRO / FCNR chooser walks through which balance belongs where.

Yes, within limits. You can give a resident close relative a mandate or power of attorney to operate NRI accounts for local purposes, paying bills, local investments, running NRO day to day. What a POA holder cannot do is repatriate funds abroad on your behalf or open the account; those stay with you. We set the mandate up so it covers what you need without overreaching FEMA's limits.

Yes, NRO is the right home for it. Fees from Indian clients are India-source income, taxable in India; NRE is for foreign earnings remitted in, not Indian-source receipts. The income still has to be returned, the right TDS applied, and your DTAA decides whether it is taxed again at home, which we line up so you are not paying twice.

An NRI can hold a joint NRO, NRE or FCNR account with a resident close relative (Companies Act, 2013 definition), but always in 'former or survivor' mode: you are the primary holder during your lifetime; the resident relative can only operate it after your death. A joint holding does not let your parents run the account day to day while you are alive; for that, give them a mandate or power of attorney instead. We set up the joint holding and, if needed, the operating mandate to match how you want it run. Which account, whose money and whose tax is covered in [joint accounts with a resident parent](/situations/nri-joint-bank-account-resident-parent).

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

NRO account: what it costs and what it caps

Right now: Interest taxed at 30% plus surcharge and cess; repatriation capped at USD 1 million a financial year

Where it works differently

A TRC and Form 10F (Form 41 from 1 Apr 2026) are furnished
The treaty rate applies to the interest, commonly 10-15% under Article 11 instead of 30% plus surcharge.
s.90(2). This is the single largest recurring recovery item for most NRIs.
Remitting out
Form 15CA is needed, plus Form 15CB from a CA where the remittance is chargeable and above Rs 5 lakh in the year.
Rule 37BB.
Joint holders
The USD 1 million ceiling is per person per financial year, so joint holders each have their own.
FEMA 13(R).

Commonly got wrong

  • NRO interest is taxed at 30%. Incomplete. Surcharge and 4% cess sit on top, and a treaty can cut it to 10-15%.30% plus surcharge and cess by default, but 10-15% under most treaties if you hold a TRC and file Form 10F.

Penalty for a FEMA contravention (s.13)

Right now: Up to three times the sum involved where it can be quantified; up to Rs 2 lakh where it cannot; and up to Rs 5,000 a day for a continuing contravention

Where it works differently

An NRI has an inadvertent contravention, such as running a resident savings account after becoming non-resident
These are civil, compoundable penalties, normally settled with the RBI for a modest fraction, not the three-times ceiling.
s.13 sets maximums; compounding under the FEMA rules resolves most inadvertent breaches.

Commonly got wrong

  • Any FEMA breach means a three-times penalty and confiscation. The 3x / Rs 2 lakh / Rs 5,000-a-day figures are the general s.13(1) maximums. The heavier confiscation limb sits in s.13(1A) to (1C) for undisclosed foreign assets.Treat the general s.13(1) penalty as a compoundable maximum; the undisclosed-foreign-asset limb is a separate, heavier sub-section.

Joint holding basis for NRI accounts with a resident

Right now: NRE, NRO and FCNR (B) accounts may be held jointly with a resident relative on a 'former or survivor' basis only; the NRI is the first holder and operates the account. A resident's own account may take an NRI relative as joint holder on an 'either or survivor' basis. During the NRI's lifetime the resident relative may operate the NRI's account only as a power-of-attorney holder, for local payments and remittances to the NRI abroad.

Where it works differently

The NRI wants the resident parent to operate the account freely
Not on the NRI's NRE or FCNR account. Use the parent's own resident account with the NRI added as joint holder (either or survivor), or a power of attorney for the NRE account with the RBI limits on what an attorney may do.
Master Direction 14 (Deposits and Accounts), paras on NRE, FCNR (B) and NRO joint holding.
Money in the joint account belongs to the resident
Whose money it is decides whose income it is for Indian tax, whatever the account label.
Beneficial ownership, not the name order, drives the tax.

Commonly got wrong

  • An NRO account can be held with a resident on an either-or-survivor basis. The RBI allows former or survivor for an NRI's NRO account held with a resident; either or survivor is for a resident's own account with an NRI relative added.Your NRE, NRO or FCNR account can have a resident relative as joint holder on a former-or-survivor basis. Their own resident account can have you on an either-or-survivor basis.

Power of Attorney executed abroad: the stamping clock

Right now: Stamped in India within 3 months of receipt in India

Where it works differently

The country is a Hague Apostille Convention member
Notarise locally, then apostille. Otherwise it needs attestation by the Indian mission.
Two different routes; using the wrong one means a rejected document at the sub-registrar.
The 3 months lapse
Penalty stamping is required and the document may be questioned. Sub-registrars do check the receipt date.
Indian Stamp Act.
The PoA is meant to transfer the property itself
It cannot. A GPA does not convey title, per Suraj Lamp (SC, 2011). A PoA authorises someone to ACT for you, not to receive your property.
The commonest and costliest misunderstanding.

Commonly got wrong

  • A PoA can be used to sell the property to the holder. Suraj Lamp held GPA sales convey nothing. A PoA lets an agent act for you; it does not transfer ownership to them.A Power of Attorney lets someone sign on your behalf. It does not transfer the property to them. Only a registered sale deed does that.

Related

If this matched your situation, these go further

Joint bank account between an NRI and a resident: which accounts allow it, and whose tax it isCan an NRI invest in a PPF account? The straight answer, and the rules for one you already holdStill trading on a resident demat account after moving abroadMoving money from your NRO account to NRE or abroad, 15CA, 15CB and the USD 1 million routeYour old Indian bank account has gone quiet, and what that actually meansRepatriation unblock (15CA / 15CB)Switch your NRI CA (free audit)NRE / NRO / FCNR chooserAm I NRI yet?

Old resident account or demat still running after you became an NRI?

Tell us when you moved and what's still open. A practising CA will map out the redesignation and check there's no tax gap underneath, on a free call, no obligation.

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