I am moving to the US. Should I convert my savings accounts into NRO/NRE accounts? How will my monthly instalments get deducted?

I am moving to the US permanently. I want to know when I convert my savings account into NRO/NRE what happens to my existing funds?  Will my ongoing ECS be deducted from the NRE or NRO account? If NRO then do I need to transfer funds from NRE to NRO every month?

Bhupinder, Delhi

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) has the option to establish three distinct types of accounts through an authorised dealer in India: the Non-Resident (Ordinary) Rupee Account, known as the NRO Account; the Non-Resident (External) Rupee Account, referred to as the NRE Account; and the Foreign Currency Non-Resident (Bank) Account, denoted as the FCNR (B) Account.

An NRE account is established in India under the NRI's name to hold their foreign earnings, while an NRO account is created for the purpose of managing their income within India. Both NRE and NRO accounts are maintained in Indian rupees and offer flexibility in terms of account types, including savings, current, recurring, or fixed deposit. On the other hand, an FCNR (B) Account can be established in various permissible foreign currencies, and its account type is limited to term deposit.

Here is a reply from Rahul Jain, President & Head, Nuvama Wealth on the specific query on how to manage existing savings and monthly instalments if one permanently shifts to the US.

As per the Foreign Exchange Management Act, an NRI cannot have a savings account. If your resident status has changed to Non-Resident, you must convert the existing savings account into an NRO account to manage income earned in India. To transfer foreign income to India, you must open an NRE account.  You can even transfer funds from the NRE account to the NRO account, but not vice versa. It must be known that NRE is a foreign currency account while NRO is a rupee account. 

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If the ECS is going from the savings account, the same will continue to go from the NRO account. You must regularly transfer funds from NRE to NRO to continue with the ECS. Transfer of funds from NRE to NRO account doesn’t attract any tax.

It would be best to update the KYC for bank accounts and investments. The banks must be informed of the change in residential status to NRI accompanied by required proofs, which generally include self-attested copies of passport, visa, and overseas address to be mentioned in the account conversion form. You must seek assistance from your banker for a smoother account conversion process.