Just Became an NRI? Why Your Resident Bank Accounts and Fixed Deposits Must Be Redesignated as NRO Under RBI Rules

The day your residential status changes, your savings account does not change with it. A salaried professional who leaves India in October 2026 for a job in Dubai, London or New Jersey usually walks away with a resident savings account, two or three fixed deposits and perhaps a recurring deposit, all opened under resident KYC. Under the Reserve Bank of India's Master Direction on Deposits and Accounts (FED Master Direction No. 14/2015-16, last updated on 2 September 2026), those accounts cannot simply carry on as before. Section 6.10 of that Direction says that when a resident becomes a person resident outside India, the existing resident account "should be designated" as a Non-Resident Ordinary (NRO) account.

Every rate quoted here is drawn from the RBI Direction, the Income-tax Act, 1961 or India's tax treaty schedules for the United States, the United Kingdom and the United Arab Emirates.

FEMA / DTAA Position

What Section 6.10 of Master Direction No. 14 actually says

The Foreign Exchange Management Act, 1999 (FEMA) draws a hard line between a "person resident in India" and a "person resident outside India", defined in Section 2(v) and Section 2(w) of the Act. Bank accounts follow that line. Master Direction No. 14/2015-16 sets out which accounts each category may hold, and Section 6.10 deals with the crossover: when a resident Indian becomes a person resident outside India, the existing resident account should be designated as an NRO account. The same paragraph works in reverse, allowing an NRO account to be re-designated as a resident account when the holder returns to India intending to stay for an uncertain period.

Three practical consequences follow from that single paragraph:

1. It is the bank's record that changes, not necessarily the account number. Most banks redesignate rather than close the account.
2. The duty to inform rests with the customer. FEMA status is a question of fact, and a bank has no way of knowing that you accepted an overseas job on 1 October 2026 unless you tell it.
3. Fixed deposits are covered too. Section 6.10 refers to the "existing resident account", and banks apply it to term deposits held under the same customer ID, which become NRO term deposits.

The Direction is published on the RBI's website at rbi.org.in, and the parent statute is available on indiacode.nic.in. Our glossary entry on FEMA summarises the residence test in plain English.

Why FEMA residence is not the same as tax residence

FEMA residence and income-tax residence are tested separately. FEMA Section 2(v) looks at the preceding financial year and, crucially, at intention: a person who leaves India to take up employment or business abroad, or for any purpose indicating an intention to stay outside India for an uncertain period, ceases to be resident from the date of departure for FEMA purposes. Income-tax residence under Section 6 of the Income-tax Act, 1961 is a day-count test applied to the whole financial year. The two can diverge for months, which is why a person can be "resident outside India" for banking purposes in October 2026 and still be assessed as a resident for tax purposes for FY 2026-27. Our residential status entry walks through the Section 6 test.

Where the tax treaties come in

A redesignated NRO account earns India-source interest, and India's Double Taxation Avoidance Agreements (DTAAs) cap the rate at which India may tax that interest when it is paid to a resident of the treaty country. The rates published in the treaty schedules are:

The capital-gains column matters for anyone whose NRO account is also linked to a demat holding. Under all three treaties India retains the right to tax long-term gains on Indian shares at 12.5%; none of them takes those gains outside the Indian tax net. The DTAA glossary entry and the DTAA benefit calculator show how the treaty rate interacts with the domestic rate.

Tax Treatment in India

From Section 194A to Section 195

While your account was a resident account, interest on fixed deposits fell under Section 194A of the Income-tax Act. Following Budget 2025, a bank deducts tax under Section 194A only once interest crosses Rs 50,000 in a financial year (Rs 1 lakh for senior citizens). That threshold disappears the moment the account becomes NRO. Interest paid to a non-resident falls under Section 195, which requires withholding at the rate in force under the Income-tax Act or the DTAA rate, whichever is lower. There is no Rs 50,000 floor under Section 195: the first rupee of NRO interest is subject to withholding.

To claim the lower treaty rate, banks generally ask for a Tax Residency Certificate (TRC) from your new country and a Form 10F declaration filed on the income-tax portal, under Section 90(4) of the Act. Without them, the bank applies the domestic rate. See our TDS glossary entry.

Slab rates, cess and surcharge for a non-resident

Withholding is not the final tax: an NRI is taxed on India-source income at slab rates, with credit for TDS deducted. For FY 2025-26, the new-regime slabs are nil up to Rs 4 lakh, 5% from Rs 4 lakh to Rs 8 lakh, 10% from Rs 8 lakh to Rs 12 lakh, 15% from Rs 12 lakh to Rs 16 lakh, 20% from Rs 16 lakh to Rs 20 lakh, 25% from Rs 20 lakh to Rs 24 lakh and 30% above Rs 24 lakh. Health and education cess of 4% applies on tax plus surcharge.

One difference catches many new NRIs out. The Section 87A rebate, which under the new regime for FY 2025-26 is up to Rs 60,000 for income up to Rs 12 lakh, is available only to an individual resident in India. A non-resident with Rs 10 lakh of NRO interest therefore pays tax that a resident with the same income would not.

Higher-income NRIs also face surcharge on the base tax:

The 37% band exists only under the old regime; the new regime caps surcharge at 25%. If you hold equity alongside your deposits, gains on listed shares are taxed at 12.5% for long-term holdings above the Rs 1.25 lakh annual threshold and 20% for short-term holdings, per the Budget 2024 rates. You can model your own position with the NRI tax calculator.

NRO versus NRE: the tax line

Redesignation as NRO is not optional, but adding an NRE account is a choice worth making. Interest on a Non-Resident External (NRE) account is tax-free in India under Section 10(4)(ii), and interest on FCNR(B) deposits is likewise not taxed in India for a non-resident under Section 10(15)(iv)(fa). NRE and FCNR(B) accounts may only be funded from money earned abroad or from other repatriable balances; your old resident savings cannot be paid into them directly. See our NRE account, NRO account and FCNR deposit entries, and use the NRE FD calculator to compare post-tax returns.

Tax Treatment Abroad

India taxing your NRO interest does not stop your new country of residence from taxing it too; the Rs 41,600 of Indian tax in the example above may be reported again abroad, with credit given under the relevant DTAA.

United States

US citizens and residents are taxed on worldwide income, so NRO interest is reportable on the US return. Article 24 of the India-US DTAA provides for a foreign tax credit in the country of residence, which means Indian tax withheld at up to 15% under the treaty can be credited against US tax on the same interest, subject to US limitation rules. Keep the Form 16A issued by the bank as evidence of the Indian tax. US persons with Indian accounts also have foreign-account reporting obligations, and a redesignated NRO account is a foreign account for those purposes.

United Kingdom

The India-UK treaty caps Indian tax on interest at 15%, and Article 4 contains the tie-breaker for anyone who is resident in both countries in the year of the move. A UK resident who is taxed on worldwide income may claim credit for Indian tax deducted on NRO interest.

United Arab Emirates

The India-UAE treaty caps Indian tax on interest at 12.5%. Claiming that rate requires a UAE Tax Residency Certificate, and the treaty notes record that the TRC requires proof of a UAE establishment. The UAE does not levy federal personal income tax on an individual's interest, so there is usually no second layer of tax to credit; the cost to watch is the Indian withholding itself.

For a step-by-step estimate of how much Indian tax can be credited abroad, use the foreign tax credit calculator.

Repatriation Mechanics

How the redesignation is done

The process is administrative, but the sequence matters:

1. Notify each bank in writing as soon as your FEMA status changes, quoting Section 6.10 of Master Direction No. 14/2015-16 if a branch is unfamiliar with it.
2. Submit updated KYC: passport with visa or work permit, overseas address proof and a fresh photograph.
3. Confirm that every linked product has been converted, including fixed deposits, recurring deposits and sweep-in deposits held under the same customer ID.
4. Provide your TRC and Form 10F so that Section 195 withholding is applied at the DTAA rate rather than the domestic rate.
5. Open an NRE account and, if useful, an FCNR(B) deposit for fresh overseas earnings, keeping India-source income such as rent and dividends in the NRO account.

Continuing to operate a resident account after becoming a non-resident is a contravention of FEMA, and penalties for contraventions are set out in Section 13 of the Act.

Moving money out of the NRO account

Balances in an NRO account, including those carried over from your resident accounts, are repatriable only within RBI's ceiling of USD 1 million per financial year, after payment of applicable Indian tax. Each remittance needs Form 15CA, and above specified thresholds a chartered accountant's certificate in Form 15CB, filed through the income-tax portal. Transfers from NRO to NRE fall within the same ceiling. The NRO-to-NRE transfer calculator and the repatriation calculator estimate the tax and charges involved. If you also receive Indian rent, the rental income tax calculator shows the withholding a tenant must apply.

Small-savings accounts and the reverse journey

A Public Provident Fund account opened while resident may be continued to maturity on a non-repatriation basis; it currently earns 7.1% for the October-December 2026 quarter, but no new PPF account may be opened as a non-resident. When you eventually return to settle in India, Section 6.10 lets the bank re-designate your NRO account as a resident account. Foreign-currency savings can then be held in a Resident Foreign Currency account, which we covered in our guide to the RFC account for returning NRIs.

FAQ

Is redesignating my resident account as NRO compulsory?

Yes. Section 6.10 of RBI Master Direction No. 14/2015-16 (updated 2 September 2026) states that a resident account "should be designated" as an NRO account once the holder becomes a person resident outside India. Continuing to use it as a resident account is a FEMA contravention under Section 13.

Do my fixed deposits have to be broken when I become an NRI?

Not usually. Banks redesignate existing fixed deposits as NRO term deposits, and they can typically run to maturity. From redesignation, interest is subject to withholding under Section 195 rather than Section 194A, so the Rs 50,000 threshold no longer applies.

Can I still claim the Rs 60,000 Section 87A rebate on NRO interest?

No. The Section 87A rebate of up to Rs 60,000 under the new regime for FY 2025-26 is restricted to individuals resident in India. A non-resident pays slab-rate tax plus 4% cess on NRO interest, as the Rs 41,600 example above shows.

What TDS rate applies to NRO interest if I live in the UAE?

Section 195 requires withholding at the domestic rate or the DTAA rate, whichever is lower. Under the India-UAE treaty, Indian tax on interest is capped at 12.5%, provided you furnish a UAE Tax Residency Certificate and Form 10F to the bank.

Can I move my old resident savings into an NRE account?

Not directly. NRE accounts may only be credited with foreign remittances and other repatriable funds. Money in a redesignated NRO account can be transferred to NRE only within the RBI ceiling of USD 1 million per financial year, with Forms 15CA and 15CB as applicable.

Is income-tax residence decided on the same date as FEMA residence?

No. FEMA residence under Section 2(v) can change from the date you leave India for employment, while income-tax residence under Section 6 is tested for the full financial year. You can be non-resident for banking from October 2026 and still resident for tax for FY 2026-27.

This article is general information based on RBI Master Direction No. 14/2015-16, the Income-tax Act, 1961 and published DTAA rates as of 17 October 2026. It is not tax or legal advice; confirm your position with your bank and a qualified adviser.