0 10 min 2 mths

For students intending to study abroad, there are certain financial nuances to consider when managing their Indian bank accounts. When residents leave India to live overseas for an extended period, it is mandatory to notify their bank. The bank will then convert the resident savings accounts into foreign currency accounts, specifically into Non-Resident Ordinary (NRO) or Non-Resident External (NRE) accounts.

The Reserve Bank of India’s guidelines allow for the inclusion of an NRI as a joint holder with a resident account holder, under certain conditions. The NRI account holder can utilize this account for domestic payments but is barred from creating any beneficial interest for themselves.

Raghwa Gopal, CEO of M Square Media (MSM), an education management company, comments on the significance of these rules. “Understanding the rules around account conversion is crucial. It safeguards the economic interests of both the country and the individual. It also ensures seamless financial transactions for the students studying abroad,” says Gopal.

Defining Residency Status for Tax Purposes

According to the Income Tax Act, the determination of a person’s tax residency status hinges on several conditions, both primary and additional. The primary conditions are related to the duration of the individual’s stay in India within the relevant financial year and the four immediately preceding financial years.

Gopal elaborates, “Residency for tax purposes can be quite complex, and its determination relies on an intricate blend of factors, most notably the duration of your stay in India. It’s essential to understand these stipulations to ensure tax compliance both at home and abroad.”

The primary conditions can be supplanted by deemed residency rules under specific circumstances, such as when the individual’s income from sources other than foreign exceeds ₹15 lakh during the financial year. In such cases, the individual is deemed a resident of India.

Additional Conditions and Implications

The additional conditions to determine the tax residency status consider the individual’s residency in the past ten financial years and their presence in India during the seven years immediately preceding the relevant financial year.

“The additional conditions contribute to a complete understanding of one’s residency status. For students who are planning to study overseas, it’s essential to factor these conditions into their financial planning,” advises Gopal.

As per these rules, if an individual meets any of the primary conditions and both of the additional ones, they are considered a resident of India. If they meet any of the primary conditions but not both additional ones, they are considered residents, but not ordinarily residents in India. If none of the primary conditions are met, the individual is deemed a Non-Resident Indian (NRI) for tax purposes.

“Indian students seeking international education need to be aware of these financial rules. While the regulations may seem complicated at first glance, understanding them can ease their journey and ensure that they remain compliant with both Indian and foreign financial laws,” Gopal notes.