Should an NRI student close a domestic savings account?

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Should an NRI student close a domestic savings account?
It is illegal if an NRI student maintain normal resident bank accounts according to the FEMA (Foreign Exchange management Act) regulations. A student becomes an NRI if he / she stays abroad for more than 182 days in a financial year. He / she must convert the account into Non Resident Ordinary (NRO) savings account. 

It is seen that many students even after becoming an NRI continue to hold domestic savings account as the tax deducted at source (TDS) on them is much lesser than an NRO account. But such action is against the law.

Therefore, once you become an NRI you have to inform the bank about your change of status from resident to non resident. Read here for understanding Resident Indian, Not Ordinarily Resident Under the IT Act.

The NRO account will give the student to keep the money in rupee from funds originating in India. But one must remember that TDS is applicable at a rate of 30.9 per cent on NRO account.

However, if you fill the DTAA form then you will be able to avail a TDS of only 10 per cent. Read here on NRIs must submit the DTAA (Double Taxation Avoidance Agreement) form and other details or face higher TDS.

In order to avoid double taxation, India has signed DTAA with 88 countries, out of which 85 countries are in force. Get the list of countries with whom India has signed DTAA.

However, it is advisable to open an NRE account instead of NRO account. Both NRO and NRE account offer the same rate of interest but Interest earned is not taxable in NRE account. Know the difference between NRO and NRE account here.

If you have an existing PPF account then you can contribute from either NRE account or NRP account. However, you cannot open a new one.


So, if you go abroad to study and become an NRI then you must inform the bank about the change of your status. You can convert your savings account into NRO account or open an NRE account. Here are some financial steps that you must remember.

Story first published: Tuesday, July 1, 2014, 15:19 [IST]
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