What is the Penalty for Not Declaring NRI Status?

Many NRIs are unaware that keeping a resident savings account after becoming an NRI is a FEMA violation and can attract heavy penalties. Many residents leave India and stay in a foreign country for education, business, employment, etc., and their resident status changes. It is important that after being an NRI, you convert your savings account for resident Indians to an NRO bank account. While not declaring the NRI status does not have any penalty, non-conversion of the savings account can lead to heavy penalties. 

The NRI full form is Non-Resident Indian, and they can enjoy some of the benefits available for resident Indians. In this blog, we have mentioned the penalty for not declaring NRI status, and you can also read the complete process for converting your account with a list of all the necessary documents required for it. 

How to know the NRI Status?

Two main laws can determine the NRI status. They are: 

1. Income Tax Act (ITA) of 1961
2. Foreign Exchange Management Act (FEMA) of 1999

As per the Income Tax Act (ITA)

According to the Income Tax Act, if the person can fulfil the following conditions, then he/she will be considered a resident indian: 

• If they stay in India for 182 days or more in a financial year.
• If they have stayed for 60 days in the previous FY and at least 365 days in the immediate four preceding years of the last FY in India.

As per the Foreign Exchange Management Act (FEMA) 

According to the guidelines of the Foreign Exchange Management Act, NRIs are those people who go outside India and live there indefinitely for the purpose of education, business, employment, etc. Also, as per this act, an OCI or PIO is also considered an NRI. 

NOTE: If any of the Indian citizens do not fulfil the above conditions, then they will not be considered an NRI, and they are required to comply with all the ITA and FEMA rules made for NRIs.

Is There A Penalty For Not Declaring The NRI Status?

According to the FEMA guidelines, there is no penalty for not declaring the NRI status. It is very important that after being an NRI, you must either close your savings bank account or convert it to an NRO (Non-Resident Ordinary) bank account as soon as possible. If you fail to do this on time, then there will be legal and financial penalties imposed on you. 

Under the rules of FEMA, it is considered illegal to hold a resident savings account in India after getting the NRI status, and it can lead to major penalties. If the authorities catch you with a resident savings account, then you may have to pay a fine of up to three times the bank balance in the savings account or Rs 2 lakhs (if the amount is not precise).

Additionally, a penalty of Rs 5,000 per day will be imposed, starting from the day of the first intervention, until you either convert or close your savings account. 

Steps To Convert Your Savings Account into an NRO Account

There are two types of NRI accounts you can open in India as an NRI: NRE (Non-Resident External) account and NRO (Non-Resident Ordinary) account. In an NRE account, you can park your foreign earnings in India, and with the NRO savings account, NRIs can manage their income earned in India. This can include interest, pension, rent, dividends, etc. 

Also, keep in mind that if you want to convert your present savings account, then you can only convert it to an NRO bank account. 

1. First of all, contact the customer care executive of the bank with which you have opened your existing savings account. You need to ask for the application form, which is used to convert your savings bank account into an NRO account. Also, you can download this conversion form by visiting the bank's official website. 
2. You need to fill in all the important details in the form and submit it to the required bank. Please also include any other bank accounts you may have, such as a recurring deposit account, fixed deposit account, or trading account. 
3. You have to attach all the required documents to prove your NRI status. The bank may also require you to get the attested form from the Indian Embassy in your new country. 
4. Now, you need to collect the acknowledgement slip and wait for the intimation from the bank. Within a few working days, your savings account for the resident Indians will be converted into an NRO account. It depends on how fast your documents get verified.

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Necessary Documents to Convert Your Savings Account Into An NRO Account

• Declaration form by FEMA
• Copy of your valid PAN card
• Conversion form of your savings account
• Proof of your indian Citiznship
• Passport copy 
• A copy of your valid visa
• Proof of your foreign address
• Recent passport-sized photographs

NOTE: There can be some additional documents, according to your specific bank, required to convert your savings account to the NRO account. 

Conclusion

As an NRI, there are many benefits that you can enjoy, similar to those of resident Indians. However, there are certain things that you must do after becoming an NRI, such as declaring your NRI status and converting your resident savings account to an NRO account. If you fail to do this conversion, you may have to face heavy legal and financial penalties.