Moving abroad? Changes you must make in your bank, demat, and MF accounts

NRIs must also comply with the tax filing norms that apply to them once their residency status changes

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced new rules for the National Pension System (NPS) applicable to individuals who have renounced their Indian citizenship. If such a subscriber does not hold an Overseas Citizen of India (OCI) card, they must notify the NPS Trust immediately, after which their account will be closed. Let us explore some of the other key changes on the financial front that a person must undertake when their status changes from resident to non-resident.

Bank accounts

On becoming a non-resident, all resident bank accounts must be redesignated as non-resident ordinary (NRO) accounts. An NRE (non-resident external) account should also be opened.

 

NRO accounts are used to receive income generated in India, such as rent, or income from investments made earlier in India. “An NRE account should be used to invest in India income that is earned abroad. It is repatriable in nature and allows a person to transfer the money back to their adopted country,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

 

Interest on NRO accounts is taxable, while interest on NRE accounts is exempt from tax in India.

 

Banks ask for an overseas address proof to change the nature of a bank account.

Mutual fund compliances

Upon relocation, investors must update their mutual fund status from resident to non-resident. The linked bank account must be redesignated as an NRO account, after which the mutual fund folios will be linked to it. As mentioned above, an NRE account should be opened through which fresh investments using money earned abroad can be made in mutual funds in India.

 

NRIs must also undergo a more comprehensive KYC, which can be done through the asset management company or the distributor. This involves submitting the updated information to a Sebi-registered KYC registration agency (KRA) like CAMS or KFINTECH.

 

The KYC form must be submitted with proof of identity, NRI status (visa, work permit, residence permit, OCI card, etc.), Indian contact address, and overseas residence proof.

 

Existing systematic investment plans (SIPs) can continue under NRI status post-KYC update.

 

“If the NRI is from the US, they need to give a FATCA (Foreign Account Tax Compliance Act) declaration, while an NRI from the UK, Canada and 100 other nations must give a CRS declaration,” says Mota.

 

Some fund houses are not compliant with the FATCA imposed by the US or the Common Reporting Standard (CRS) regulations adopted by the UK, Canada and a hundred other countries. “Such fund houses bar investors from certain jurisdictions (which demand those compliances) from investing in their funds,” says Nehal Mota, co-founder and chief executive officer, Finnovate.

 

Taxation of mutual funds remains the same, whether you are a resident or an NRI. “However, redemption proceeds are only paid to NRIs after deducting tax at source (TDS),” says Mota.

 

Mutual fund earnings may be taxed in both India and the country of residence. “However, if India has a double taxation avoidance agreement (DTAA), then you get partial relief,” says Mota.

 

Dhawan adds that non-residents must understand the taxation and reporting requirements of their new geography as well.

Demat account

When the residency status changes, investors must update their KYC with their brokers. The demat account must be converted to a non-resident version. Shares are moved from the resident to the non-resident account.

 

“You need to log into the Income Tax Department’s website and update your status as NRI. If the client is not present in India physically or is not visiting a broker’s branch in person, then notarisation of documents might be required,” says Kazi Rahman, head (NRI sales), Zerodha.

 

To convert an existing demat account, inform the broker, and submit updated KYC documents — NRI KYC form, PAN, passport, visa, and overseas address proof. A new NRO non-PIS trading and demat account is opened. All holdings from the old resident account are then transferred to the new account. The process requires FEMA and FATCA declarations and takes about 7–10 working days.

 

Repatriation from NRE accounts is unrestricted. “In the NRO account, repatriation is allowed up to US $1 million per financial year,” says Rahman.

 

NRE Portfolio Investment Scheme (PIS) accounts do not permit futures and options trading. However, such trading is possible through the NRO non-PIS account via a custodian and requires a custodian participant (CP) code.

 

“NRIs cannot engage in intraday equity trading. Buy-today-sell-tomorrow (BTST) trades may be allowed by some brokers in NRO non-PIS accounts,” says Rahman.  

 

NRIs are also barred from short selling and trading in commodities, currencies, or sovereign gold bonds.

PPF, EPF and other financial instruments

If an individual already holds a Public Provident Fund (PPF) account, it can be continued until maturity. “Once the original 15-year tenure is completed, NRIs are not allowed to extend it,” says Dhawan.

 

Interest earned on Employees’ Provident Fund (EPF) accounts becomes taxable after a person’s status changes to non-resident. “Hence, you will need to decide whether you want to continue with your EPF account or close it down,” says Dhawan.

 

Inform life and health insurers about your updated residential status. Some policies may not provide coverage in certain countries. “Put systems in place so that the payment of premiums for life insurance, health insurance, etc. gets automated,” says Dhawan.

Residential status and tax liability

Tax residency in India is determined annually based on citizenship and days of physical presence in India. “A person qualifies as a tax resident if they spend 182 days or more in India in a financial year, or spend 60 days or more in a financial year and 365 days or more over the preceding four years,” says Suresh Surana, a Mumbai-based chartered accountant. Consult a tax expert for further nuances and exceptions to these basic rules.

 

Non-residents are taxed only on income sourced or received in India. This includes income from capital gains on Indian assets, salary earned in India, dividends from an Indian company, interest payable by the government, etc.

 

“An NRI must file a tax return if their Indian income exceeds the basic exemption limit. Even if their income does not cross this limit, a return must be filed if they have long-term capital gains, if they wish to claim TDS refunds, or carry forward losses,” says Surana.

 

A permanent account number (PAN) is mandatory for carrying out financial transactions and filing income tax returns in India.

 

Key points to know about DTAA

 

• Double taxation occurs when the same income is taxed in both the country of residence and the source country. To prevent this, many countries have signed Double Taxation Avoidance Agreements (DTAAs), which are bilateral treaties
• Non-resident Indians (NRIs) earning income in India—such as capital gains, interest, or dividends—can avail of lower tax rates under the applicable DTAA
• To claim DTAA benefits, NRIs must submit a valid Tax Residency Certificate (TRC) from their country of residence, along with Form 10F and/or a self-declaration confirming the absence of a permanent establishment in India