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How can NRI Invest in Indian Stock Market

How NRI can Invest in Indian Stock Market

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Who is an NRI (Non-Resident Indian)?

As the name suggests, NRI means Non-Resident Indian, who has been out of India or residing overseas, for any reason are termed as NRIs. 

To be more specific NRIs could be described as any Indian citizen who has been residing outside India for a combined total of at least 183 days in a financial year is considered to be an NRI. 

The NRIs are also eligible to vote. 

The NRIs can earn in India and have to pay taxes only on the money earned in India. 

NRI status gives the benefits of tax exemptions, incentives, and preferential treatment for property and capital market investment quotas and children’s admission to professional courses.

Who is a PIO (Person of Indian Origin)?

PIO or Person of Indian Origin, refers to any foreign citizen who held an Indian Passport at any point in time or whose parents/ grandparents/ great grandparents were citizens of India. PIO states that any foreign citizen except from Bangladesh and Pakistan who has at any point:

  1. Held an indian passport or
  2. He, his parents or his grandparents were citizen of India by the constitution of India or the Citizenship Act 1955
  3. Or the person is a spouse to an Indian citizen or a person referred to in (a) or in (b)

Benefits for the PIOs

  1. The PIO card holder can visit India for upto 15 years from the date of issuance of the PIO card, and do not require any visa for that.
  2. They can even stay in India for upto 180 days, without registering to the FRRO (Foreigner Regional Registration Office)
  3. The PIOs  can study or work in any Indian private institution without a special visa for that

Are NRIs allowed to invest in Shares in India?

Yes, NRIs are allowed to invest in Indian stock market under the Portfolio Investment Schemes (PIS) of the Reserve bank of India (RBI). Under the PIS scheme, the NRI has to open a NRE/ NRO account with a RBI authorized Indian bank. They can have only one PIS account for buying and selling stocks. There is one limitation, that the total investment of an NRI cannot exceed 10% of the paid-up capital in an Indian company.

The NRIs cannot do any transaction in India without registering themself with a SEBI registered brokerage firm. They have to open a demat and a trading account to do the transactions. The NRIs cannot do day trading or short selling in India, they can only sell stocks after two days of purchasing it.

Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?

Yes, NRI can invest in Exchange Traded Funds (ETFs). This can be done on repatriation as well on a non repatriation basis. The ETFs are marketable security which tracks stock market elements like index, commodity, index funds and bonds. These types of stocks can be traded like a common stock on a stock exchange. ETFs do not possess a Net Asset Value (NAV) like mutual funds, as they are traded like stocks

Can NRIs Invest in the Indian Stock Market?

Yes, NRIs can invest in the Indian Stock Market. If an NRI wishes to invest in the Indian stock market, he or she has to do that through the Portfolio Investment Scheme (PIS) by approaching a RBI authorized bank. They need to open a NRE(Non-Resident External) or a NRO (Non-Resident Ordinary) account.

In general investors often get confused between NRE and NRO accounts, as they almost serve the same purpose but have some major differences among them. In an NRE account, we can repatriate funds including interest from our account with no limits. For NRO, account holders, the RBI has set a limit of USD 1 million in a financial year. 

When it comes to taxation policies, both the accounts have different taxation norms. NRE is exempt from taxes like income tax, wealth tax and gift tax, and the NRO account holder has to pay each of the taxes levied. Moreover, in an NRO account,the interest earned is taxable too, but we can avoid paying taxes by availing tax benefit under Double Taxation Avoidance Agreement (DTAA).

Few of the regulations that an NRI must abide to while investing in the Indian stock market is:

  1. Regulations like barrier of extraction of the intraday transaction in the cash segment
  2. Barriers of trade in the currency derivative segment of the Exchange should be observed while trading

Who is an OCI (Overseas Citizen of India)?

OCI or Overseas Citizen of India, a term used to define the dual citizenship that authorizes a foreign citizen of Indian origin to live, study and work in India for an indefinite period. This OCI card includes 

  1. a person who was previously an Indian citizen, 
  2. or whose parents or grandparents were an Indian citizen 
  3. or one who is married to an Indian citizen 
  4. or is an existing OCI for at least two continuous years. 

It does not include those foreigners who are citizens of Pakistan or Bangladesh or have worked i foreign military cannot be considered as an OCI. An OCI who has been holding this card for more than five years and those who have been living in India for at least one year are eligible for Indian citizenship.

Few of the benefits given to the OCIs are

  1. They are allowed to visit India anytime during their lifetime
  2. They can stay in India for any time period without registering to the FRRO (Foreigner Regional Registration Office) or local authorities
  3. The OCI can study or work in any private institutions in india without any special permission

However the OCIs cannot vote in India, and cannot purchase agricultural lands or work for any Indian Government offices.

Can PIO and OCI invest in the Indian stock market?

Yes, both the PIOs and OCIs invest in the Indian stock market. Like the NRIs they also can avail all the facilities available to the NRIs in the economic, financial and educational fields except in matters relating to the acquisition of agricultural/ plantation properties.

What is a PIS Account and How to Open it?

Portfolio Investment Scheme is a scheme of Reserve Bank of India, wherein an NRI can purchase/sell shares/convertible debentures of Indian companies on Stock Exchanges by routing these transactions through their account with a designated bank branch.

To carry out the purchase and sale of shares through a recognised stock exchange, one has to set up an account with the designated bank that has a global presence. Then the investments can be made either through a repatriation basis or a non-repatriation basis.

  1. For portfolio investment through repatriation, one requires a NRE (Non-Resident External) Rupee account for foreign inward remittances from an overseas account.
  2. For portfolio investment on a non-repatriation basis, you require a NRO (Non-Resident Ordinary) account for remittances either from overseas accounts or local resources.

Steps to open a PIS account

  1. First you need to open an NRE account/ NRO account or you may already have it
  2. You have to ask your bank for the PIS form and then fill the PIS form for “Application for designating bank account for PIS and submit that to the bank. Bank will then send the form to RBI for approval
  3. When the RBI approves the form, the requested bank account NRE/ NRO, is designated as PIS account
  4. After this process, the assigned demat account and the trading account is linked with the PIS account, to enable to buy and sell stocks at the stock exchange
  5. The PIS account cannot be a joint account 

Now let us understand what is a NRE account / NRO account

For any kind of investment in the indian stock market, NRIs must have a NRE / NRO account. 

  1. NRE Account – NRE account is a bank account where the money is deposited in Indian as well as foreign currency. You can use the money deposited in it, in the country of your residence or in India. Therefore, it is called repatriable.
  2. NRO Account – NRO bank account is only partially repatriable, means you can use the money only in India. And you can only deposit Indian income in this account. It is used to deposit rent, interest, and other source income earned from India.

What is Repatriation

Repatriation means converting any foreign currency to one’s local currency. This method of investment allows NRIs to freely move their foreign earnings invested in India to their country of residence. NRE Bank account and FCNR account is designed for this.

If an NRI invests his foreign earnings in India on repatriation basis, it means that the funds he invested can be transferred back to the NRIs country of residence by converting them from Indian Rupee to the foreign currency at any time. The Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) bank accounts are designed for investment on a repatriation basis. Any funds held in these accounts can be converted into foreign currency and transferred to your overseas account at any time.

On the other hand, non-repatriation basis of investment means that the funds cannot be transferred back to the NRIs country of residence nor can they be converted to any foreign currency. The Non-Resident Ordinary (NRO) bank account is designed for investment on a non-repatriation basis. The NRO accounts are commonly used to manage NRIs earning in India from sources like rent, pension, dividends etc.

What is a designated bank branch?

Reserve Bank of India has authorized a few branches of each authorised dealer bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. NRI can appoint only one Designated Bank for the purpose of routing the transactions under PIS.They have to route the applications through any of the designated authorised dealer branches who have authorisation from Reserve Bank of India.

Useful links

https://www.nseindia.com/trade/members-faqs-nri-trading-account

https://support.zerodha.com/category/account-opening/nri-account-opening

https://upstox.com/knowledge-base/documents-required-nri/

How NRI can Invest in Indian Stock Market

width=980

Who is an NRI (Non-Resident Indian)?

As the name suggests, NRI means Non-Resident Indian, who has been out of India or residing overseas, for any reason are termed as NRIs. 

To be more specific NRIs could be described as any Indian citizen who has been residing outside India for a combined total of at least 183 days in a financial year is considered to be an NRI. 

The NRIs are also eligible to vote. 

The NRIs can earn in India and have to pay taxes only on the money earned in India. 

NRI status gives the benefits of tax exemptions, incentives, and preferential treatment for property and capital market investment quotas and children’s admission to professional courses.

Who is a PIO (Person of Indian Origin)?

PIO or Person of Indian Origin, refers to any foreign citizen who held an Indian Passport at any point in time or whose parents/ grandparents/ great grandparents were citizens of India. PIO states that any foreign citizen except from Bangladesh and Pakistan who has at any point:

  1. Held an indian passport or
  2. He, his parents or his grandparents were citizen of India by the constitution of India or the Citizenship Act 1955
  3. Or the person is a spouse to an Indian citizen or a person referred to in (a) or in (b)

Benefits for the PIOs

  1. The PIO card holder can visit India for upto 15 years from the date of issuance of the PIO card, and do not require any visa for that.
  2. They can even stay in India for upto 180 days, without registering to the FRRO (Foreigner Regional Registration Office)
  3. The PIOs  can study or work in any Indian private institution without a special visa for that

Are NRIs allowed to invest in Shares in India?

Yes, NRIs are allowed to invest in Indian stock market under the Portfolio Investment Schemes (PIS) of the Reserve bank of India (RBI). Under the PIS scheme, the NRI has to open a NRE/ NRO account with a RBI authorized Indian bank. They can have only one PIS account for buying and selling stocks. There is one limitation, that the total investment of an NRI cannot exceed 10% of the paid-up capital in an Indian company.

The NRIs cannot do any transaction in India without registering themself with a SEBI registered brokerage firm. They have to open a demat and a trading account to do the transactions. The NRIs cannot do day trading or short selling in India, they can only sell stocks after two days of purchasing it.

Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?

Yes, NRI can invest in Exchange Traded Funds (ETFs). This can be done on repatriation as well on a non repatriation basis. The ETFs are marketable security which tracks stock market elements like index, commodity, index funds and bonds. These types of stocks can be traded like a common stock on a stock exchange. ETFs do not possess a Net Asset Value (NAV) like mutual funds, as they are traded like stocks

Can NRIs Invest in the Indian Stock Market?

Yes, NRIs can invest in the Indian Stock Market. If an NRI wishes to invest in the Indian stock market, he or she has to do that through the Portfolio Investment Scheme (PIS) by approaching a RBI authorized bank. They need to open a NRE(Non-Resident External) or a NRO (Non-Resident Ordinary) account.

In general investors often get confused between NRE and NRO accounts, as they almost serve the same purpose but have some major differences among them. In an NRE account, we can repatriate funds including interest from our account with no limits. For NRO, account holders, the RBI has set a limit of USD 1 million in a financial year. 

When it comes to taxation policies, both the accounts have different taxation norms. NRE is exempt from taxes like income tax, wealth tax and gift tax, and the NRO account holder has to pay each of the taxes levied. Moreover, in an NRO account,the interest earned is taxable too, but we can avoid paying taxes by availing tax benefit under Double Taxation Avoidance Agreement (DTAA).

Few of the regulations that an NRI must abide to while investing in the Indian stock market is:

  1. Regulations like barrier of extraction of the intraday transaction in the cash segment
  2. Barriers of trade in the currency derivative segment of the Exchange should be observed while trading

Who is an OCI (Overseas Citizen of India)?

OCI or Overseas Citizen of India, a term used to define the dual citizenship that authorizes a foreign citizen of Indian origin to live, study and work in India for an indefinite period. This OCI card includes 

  1. a person who was previously an Indian citizen, 
  2. or whose parents or grandparents were an Indian citizen 
  3. or one who is married to an Indian citizen 
  4. or is an existing OCI for at least two continuous years. 

It does not include those foreigners who are citizens of Pakistan or Bangladesh or have worked i foreign military cannot be considered as an OCI. An OCI who has been holding this card for more than five years and those who have been living in India for at least one year are eligible for Indian citizenship.

Few of the benefits given to the OCIs are

  1. They are allowed to visit India anytime during their lifetime
  2. They can stay in India for any time period without registering to the FRRO (Foreigner Regional Registration Office) or local authorities
  3. The OCI can study or work in any private institutions in india without any special permission

However the OCIs cannot vote in India, and cannot purchase agricultural lands or work for any Indian Government offices.

Can PIO and OCI invest in the Indian stock market?

Yes, both the PIOs and OCIs invest in the Indian stock market. Like the NRIs they also can avail all the facilities available to the NRIs in the economic, financial and educational fields except in matters relating to the acquisition of agricultural/ plantation properties.

What is a PIS Account and How to Open it?

Portfolio Investment Scheme is a scheme of Reserve Bank of India, wherein an NRI can purchase/sell shares/convertible debentures of Indian companies on Stock Exchanges by routing these transactions through their account with a designated bank branch.

To carry out the purchase and sale of shares through a recognised stock exchange, one has to set up an account with the designated bank that has a global presence. Then the investments can be made either through a repatriation basis or a non-repatriation basis.

  1. For portfolio investment through repatriation, one requires a NRE (Non-Resident External) Rupee account for foreign inward remittances from an overseas account.
  2. For portfolio investment on a non-repatriation basis, you require a NRO (Non-Resident Ordinary) account for remittances either from overseas accounts or local resources.

Steps to open a PIS account

  1. First you need to open an NRE account/ NRO account or you may already have it
  2. You have to ask your bank for the PIS form and then fill the PIS form for “Application for designating bank account for PIS and submit that to the bank. Bank will then send the form to RBI for approval
  3. When the RBI approves the form, the requested bank account NRE/ NRO, is designated as PIS account
  4. After this process, the assigned demat account and the trading account is linked with the PIS account, to enable to buy and sell stocks at the stock exchange
  5. The PIS account cannot be a joint account 

Now let us understand what is a NRE account / NRO account

For any kind of investment in the indian stock market, NRIs must have a NRE / NRO account. 

  1. NRE Account – NRE account is a bank account where the money is deposited in Indian as well as foreign currency. You can use the money deposited in it, in the country of your residence or in India. Therefore, it is called repatriable.
  2. NRO Account – NRO bank account is only partially repatriable, means you can use the money only in India. And you can only deposit Indian income in this account. It is used to deposit rent, interest, and other source income earned from India.

What is Repatriation

Repatriation means converting any foreign currency to one’s local currency. This method of investment allows NRIs to freely move their foreign earnings invested in India to their country of residence. NRE Bank account and FCNR account is designed for this.

If an NRI invests his foreign earnings in India on repatriation basis, it means that the funds he invested can be transferred back to the NRIs country of residence by converting them from Indian Rupee to the foreign currency at any time. The Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) bank accounts are designed for investment on a repatriation basis. Any funds held in these accounts can be converted into foreign currency and transferred to your overseas account at any time.

On the other hand, non-repatriation basis of investment means that the funds cannot be transferred back to the NRIs country of residence nor can they be converted to any foreign currency. The Non-Resident Ordinary (NRO) bank account is designed for investment on a non-repatriation basis. The NRO accounts are commonly used to manage NRIs earning in India from sources like rent, pension, dividends etc.

What is a designated bank branch?

Reserve Bank of India has authorized a few branches of each authorised dealer bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. NRI can appoint only one Designated Bank for the purpose of routing the transactions under PIS.They have to route the applications through any of the designated authorised dealer branches who have authorisation from Reserve Bank of India.

Useful links

https://www.nseindia.com/trade/members-faqs-nri-trading-account

https://support.zerodha.com/category/account-opening/nri-account-opening

https://upstox.com/knowledge-base/documents-required-nri/

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