The Indian savings account you were supposed to turn into an NRO account

The Reserve Bank of India’s guidance on accounts held by non-residents puts it in one sentence: “when a resident Indian becomes a person resident outside India, his existing resident account should be designated as NRO account.” The rule is written into the Foreign Exchange Management (Deposit) Regulations, 2016, and the account left behind turns up even in the Australian Taxation Office’s guidance: its page on bank accounts uses, as a worked example, a former overseas student who visits relatives in India and “has left his Indian bank account open for easy access to funds in India”. The example does not say how that account is classified. Under Indian exchange control rules, an account “should be designated” as an NRO account when its holder leaves India for work, business or an open-ended stay, and FEMA sets penalties for contravening its regulations. The ATO, separately, requires interest on overseas bank accounts to be reported.

Resident, as the Reserve Bank sees it

Section 2(v) of the Foreign Exchange Management Act 1999 (FEMA) opens with a time test: a person resident in India is one “residing in India for more than one hundred and eighty-two days during the course of the preceding financial year”. It then carves out anyone who has gone out of India “for or on taking up employment outside India”, for a business or vocation, or with an “intention to stay outside India for an uncertain period”. The carve-out turns on the purpose of leaving, with no day count. An Indian citizen who is resident outside India in this sense is a non-resident Indian (NRI). An Australian citizen resident outside India who was once an Indian citizen, or whose parent, grandparent or great-grandparent was one, is a person of Indian origin (PIO), as is an Overseas Citizen of India cardholder resident outside India. The same accounts are open to both.

NRE, NRO and FCNR(B): three accounts, three jobs

The Non-Resident (External) Rupee account, or NRE account, is built around money sent to India from abroad. “Proceeds of remittances to India in any permitted currency” are a permitted credit and “remittances outside India” a permitted debit, and the Reserve Bank lists the account as “Repatriable”. The Reserve Bank’s Master Direction states: “Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax.”

The Non-Resident Ordinary Rupee account, or NRO account, is for a non-resident’s rupee dealings in India. “Legitimate dues in India of the account holder” can be paid in, and “all local payments in rupees” made out of it. The Reserve Bank’s FAQ lists its interest as taxable. It is the scheme a departing resident’s account should move to.

The Foreign Currency (Non-Resident) Account (Banks), or FCNR(B), is a term deposit only, in “any permitted currency i.e. a foreign currency which is freely convertible”, for terms of one to five years according to the Reserve Bank’s FAQ.

What the NRO account designation rule actually says

Schedule 3 of the Deposit Regulations, paragraph 9(a), is the operative text: “When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non-Resident (Ordinary) account.” The paragraph ties designation to leaving India for one of those purposes and does not mention 182 days.

The move back to India

NRE accounts “should be re-designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts” (Resident Foreign Currency accounts) on return to India for employment, business or an open-ended stay; on a short visit the account “may continue to be treated as NRE account”. FCNR(B) deposits “may be allowed to continue till maturity at the contracted rate of interest, if so desired by him”, though for other purposes they count “as resident deposits from the date of return”. An NRO account “may be designated as resident rupee accounts” on return.

Joint accounts with resident relatives

An NRE account may be held “with resident relative(s) on ‘former or survivor’ basis”, with “relative” borrowed from section 2(77) of the Companies Act 2013; the resident relative is eligible to operate it “as a Power of Attorney holder” during the account holder’s lifetime. An NRO account “may be held jointly with residents on ‘former or survivor’ basis”. The Reserve Bank’s 2015 master circular on customer service explained the mandate for term deposits: “the ‘Former’ alone can operate/withdraw the matured amount of the fixed/term deposit, when both the depositors are alive”, and if the former dies first “the ‘Survivor’ can withdraw the deposit on maturity”.

Moving money out: the US$1 million a year limit

An NRO balance is “not repatriable except for all current income”, which may leave “net of applicable taxes”. For everything else, the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 allow an NRI or PIO to remit “an amount, not exceeding USD 1,000,000 (US Dollar One million only) per financial year” out of “the balances held in the Non-Resident (Ordinary) Accounts (NRO accounts)”. The Indian financial year runs from April to March. Sale proceeds and inherited assets fall under the same ceiling, on documentary evidence, and remittances “shall be subject to the applicable tax laws in India”. The facility refers to NRO accounts “opened in terms of” the Deposit Regulations; it does not mention resident accounts. An amendment dated 18 June 2026 added to the Deposit Regulations transfers from an NRO account to an NRE account “within the limit specified in Regulation 4” of the Remittance of Assets Regulations.

What the law says about carrying on as before

FEMA is, in the Enforcement Directorate’s words, “a civil law”, and the Directorate’s role includes adjudicating contraventions and imposing penalties. Section 13(1) covers anyone who “contravenes any rule, regulation, notification, direction or order” issued under the Act. The penalty is “up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable”, that is ₹2 lakh (₹200,000), plus up to “five thousand rupees for every day after the first day during which the contravention continues”, or ₹5,000 a day. The designation rule sits in regulations made under FEMA; the amounts above are ceilings, applied on adjudication.

The Australian side of the ledger

The ATO states: “As an Australian resident for tax purposes, you must declare any foreign income you earn on your Australian tax return”, listing “interest from bank deposits or bonds”. Its page on bank accounts adds: “Some tax authorities in other countries don’t require you to report interest earned overseas, but we do.” In its worked example the former student discloses the interest on his Indian account, and the ATO adds: “We receive information from the Indian Department of Revenue about interest payments as part of the Automatic Exchange of Information program.”

NRE interest is exempt in India, so no Indian tax is paid on it to offset; it is still declared here. NRO interest is taxable in India and also declared here. One ATO condition for claiming a foreign income tax offset is that you “have actually paid or deemed to have paid an amount of foreign income tax”.

The Indian exemption carried over into the Income-tax Act 2025, which replaced the Income-tax Act 1961 on 1 April 2026. Serial number 1 of its Schedule IV, listing income not included in the total income of eligible non-residents, covers interest in a Non-Resident (External) Account where the individual “is a resident outside India as defined in section 2(w) of the Foreign Exchange Management Act, 1999” or has the Reserve Bank’s permission to maintain the account, the same two conditions the old section 10(4)(ii) carried.

Under the Deposit Regulations, the account left behind by someone leaving India for work or an open-ended stay should become an NRO account, with NRE and FCNR(B) accounts available for money sent from Australia. The schemes differ on what may leave India: the Reserve Bank lists NRE balances as repatriable and NRO balances as not, apart from current income and the US$1 million facility. The ATO’s reporting rule covers interest from any overseas bank account. This article is general information, not legal or tax advice.