can nri invest in indian stock market?

Question

La nynef Owais · Answer

Click the button below to ask any questions related to NRI investment in India.

Also Read: NRI Repatriable Demat Account: Meaning and Purpose

Generally, NRIs continue with their resident accounts as before, which is not legal. As per the RBI guidelines, once someone attains NRI status, he/she can’t operate a resident account to conduct transactions in India. Non Resident Indians are required to change their bank account and Demat account, and update KYC details. If you want to use your resident accounts after a change in resident status, you must convert the savings account into an NRO (Non-Resident Ordinary) account and Demat account into an NRO Demat account. If you have invested in mutual funds, you must inform your AMC about the status change and update the KYC details.

You can’t use the usual trading account for NRI investment in stock market. NRIs planning to trade in shares and non-convertible debentures of Indian companies on the Indian stock exchange need to open a designated Portfolio Investment Scheme (PIS) account. Non-compliance may carry heavy financial penalties from the regulator.

NRIs can continue with their PPF account opened in India, but it can’t be extended beyond 15 years (maturity period) and they can’t open a new PPF account as an NRI.

Note: A Demat account is not mandatory for NRIs to invest in mutual funds in India. NRIs can download SBNRI App to choose from 3000+ mutual fund schemes in India or to ask any questions related to mutual fund investment.

NRI investment in India in financial instruments such as mutual funds, stocks, gold, bonds, IPOs, etc. is subject to TDS (tax deducted at source). For example, TDS for LTCG made in equity funds is applicable at 10% and 20% for debt funds. For NRIs who have rented property in India, there is compulsory TDS to be paid by the tenant at the rate of 30%. Likewise, TDS of 20% – 30% is applicable on capital gains made from sale of property by an NRI.

Also Read: NRI Capital Gains Tax on Shares 2021 | Tax Slab for NRIs 2021-22

Moreover, NRIs often pay double tax i.e. in India and where they live. You must know that India has signed Double Taxation Avoidance Agreement (DTAA) with more than 90 countries in the world. NRIs living in these countries don’t have to pay double tax. If an NRI has already paid taxes in India for any type of capital gains, he/she is not required to pay tax for the same in the country of their residence.

While young tech-savvy NRIs tend to diversify their portfolio, most NRIs still disproportionately invest in traditional fixed-return assets such as real estate, bank FDs and gold. However, it makes little financial sense in terms of diversification and income generation. Rental yields of 2 – 3% from residential properties are very low. Moreover, maintenance costs of property are quite high.

If NRIs are much interested in real estate, they can invest in commercial real estate (CRE) for attractive returns.

Also Read: Can an NRI buy or own property in India?

For the last few years the Indian market has changed a lot and so has the perception of informed investors’. There are several more investment avenues available in India that are known to perform better and also come with better liquidity. Some of the NRI investment options in India that offer higher returns include direct equity, ETFs, mutual funds, IPOs, pre-IPO investment, Micro VC, NCDs, etc.

Also Read: TDS on Sale of Property by NRI (Non-Resident Indian) in India

It is one of the common mistakes made by investors including NRIs. Generally, people prefer to take advice from relatives and acquaintances when investing in the market. To get desired returns and avoid potential hurdles, you must make informed decisions. First of all you should be clear about your financial goals, future plans like returning to India, etc. If you are investing in both countries, make sure these investments are working together towards your financial goals.

NRIs must consult certified investment professionals who keep abreast of markets and are well versed in the rules and regulations for both countries. They will guide you in the NRI investment process and also provides robust planning that will facilitate smooth transfers of your assets in India and abroad in case of any unfortunate event.

NRIs must review or settle their investments made before leaving India because they may not be able to enjoy the same privileges and retain them as before. For example NSCs are considered encashed, a PPF account can’t be continued beyond 15 years and you won’t be eligible to hold savings or postal schemes once you attain the NRI status.

Yes, NRIs (Non-Resident Indians) can invest in the Indian stock market, subject to certain guidelines issued by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). NRIs can invest in the Indian stock market by opening a PIS (Portfolio Investment Scheme) account with a designated bank authorized by RBI. This account is a special bank account that allows NRIs to invest in Indian securities like shares, debentures, and mutual funds.

An investor can’t directly buy or sell shares on a stock exchange. To start trading in stock market in India, you need to open a Demat and trading account with a registered stock broker, also called a trading member, in India. For example, some of the top stock brokers that offer a Demat and trading account for NRIs are Zerodha, Angel Broking, ICICI Direct, HDFC Securities, Kotak Securities, Sharekhan, etc.

A Demat account holds shares you have purchased in electronic format, whereas a trading account facilitates share buying and selling activities.

Here are the four steps you need to take to start trading in stock market in India:

1. Open Demat and Trading Account

First of all you need to open a Demat and trading account with a registered stock broker in India. A Demat account holds shares you have purchased in electronic format, whereas a trading account facilitates share buying and selling activities. To open a Demat and trading account with a broker, you need to fill an account opening form designed by the broker.

2. Login to Your Account and Add Money

Once you have opened a Demat and trading account, you can log in to your account and add money from your bank account to your trading account. Now you can use your trading account to buy shares.

3. Start Trading in Stock Market in India

Now you are ready to start trading in India. You can select a share and view everything about it, including live market prices, historical prices, charts, other details, etc. Once you have analyzed, you can start buying and selling shares. Money is debited from your bank account and the share is transferred to your Demat account.

While NRIs have similar rights as resident Indians when it comes to investing in India, they are required to go through a more regulated framework and compliance considerations. Here is the process for NRIs to trade in the stock market in India.

An NRI investor needs to open a 3-in-1 NRI account to trade in the stock market in India. A 3-in-1 account for NRIs is a combination of NRI Demat account, trading account and NRE/ NRO bank account. An NRI investor can appoint a mandate holder to operate his NRE/ NRO account in India and must give an ‘Appointment of Mandate Holder’ application to the bank with necessary documents and the specimen signature of the mandate holder.

NRI can appoint a power of attorney (POA) in India for trading as well as redeeming the investment in India. However, NRIs can trade online through a broker after fulfilling the compliance requirements and KYC guidelines.

The NRI can invest in India on repatriable basis through their NRE account or non-repatriable basis using their NRO account. However, in case of non-repatriable basis, the maximum fund they can transfer abroad is $1 million per year.

Also Read: Common problems faced by NRIs when investing in India

These are some of the most common mistakes NRIs make when investing in India. You must keep the above points in mind to ensure your hard-earned money is invested judiciously. SBNRI has a team of experts to help NRIs invest in India, in tax filing and NRE account opening, etc. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to investment in stock market/ mutual funds, NRI account opening online and tax filing in India. To ask any questions, click on the button below. Also visit our blog and YouTube channel for more details.

Ask Indian Friend Now

Trudie Naderi · Answer

Non Resident Indians can invest with ease in Indian stocks through various intermediaries in the stock markets. There are guidelines specified for such investments by regulators like the Reserve Bank of India that have to be followed while making such investments. An NRI can invest in Indian stocks through a Portfolio Investment Scheme (PIS) account. A PIS account is required specially when there are foreign funds being used for investment on a repatriable basis. Alternately, NRIs can also use their Indian funds from a NRO account to invest in Indian stocks.

All NRI investments are governed according to the Foreign Exchange Management Act (FEMA).

As per FEMA, an NRI is an Indian resident or a person of Indian origin who resides outside of India for employment, education or business, etc. NRI must also satisfy two other conditions:

Or

PIS account stands for Portfolio Investment Scheme. A PIS Account enables NRIs to buy and sell shares and convertible debentures in Indian stock exchanges. It is used to route all NRI transactions in listed securities via valid banks that have to report back to the RBI on these investments.

Purchases are debited from the account while sales are credited. The RBI needs to provide a PIS permission letter to open a trading and demat Account. The PIS-enabled account can be an NRE or an NRO account. NRE accounts allow repatriation of funds, while NRO accounts do not allow the same. An NRI can choose between the two or choose both depending on their needs.

The RBI uses PIS accounts to track all NRI investments in India. NRIs also need Trading and Demat Accounts to operate in the stock market. These accounts have to be linked to the PIS account.

Apart from these formalities, the actual trading process for NRIs is the same as Indian residents. However, a few considerations have to be kept in mind. The ceiling for overall investment for NRIs/PIOs is 10 per cent of the paid up capital of the Indian company. And the ceiling for individual investment for NRIs/PIOs is 5 per cent of the paid up capital of Indian company. A list of companies can be found on the RBI’s website.

NRIs are also not permitted to engage in intraday trading. They have to make investments that are delivery-based.

The Indian capital markets are attractive investment avenues. And so, they find investors from across the globe. Among this investor fraternity, NRIs occupy a significant portion. NRIs may migrate to affluent countries for employment, education, and business, but when it comes to equity investments, their home country remains one of their favourites.

Did you know that there are some tax implications for NRIs on the capital gains earned through equity instruments? And these implications could go on to disturb financial plans too. Hence, if you are an NRI, you ought to be aware of these implications before going deeper into equity investments.

Profits or gains arising from transfer of a capital assets are called "capital gains". Long Term Capital Gains (LTCG) refers to gains arising out of sale/transfer of financial assets held for more than 1 year and securities held for less than 1 year are subject to Short Term Capital Gains (STCG). However, long term capital gain from equity investments up to Rs. 1 lakh is exempted from tax.

In India, NRIs are charged long and short term capital gains tax and it is deducted at source. Below are the TDS rates as on 1st April 2022:

The Indian government welcomes all kinds of participants to invest in the stock markets. NRIs can invest in the stock markets as long as they follow the guidelines specified by regulators. If you are an NRI and want to open a Trading and Demat account, contact a SEBI-registered broker of your choice and get the formalities started.

As an NRI, you can engage in trading activities on the Indian stock market with the help of a trading and demat account. You can easily open one with an authorized bank or financial institution by submitting a few basic documents as listed below:

You must submit these documents along with the account opening form to open a demat cum trading account.

As an NRI you can trade in the Indian stock market. However, one of the most important aspects to keep in mind is that since you will be living abroad, you require a party acting on your behalf. Thus, you can rely on the following three options while investing in the Indian equities market:

You should also remember that you will have to pay capital gains tax similar to Indian residents. You will also be subject to TDS as far as dividends are concerned.

Prem Beloin · Answer

Since the NRI will be based abroad, they can appoint a mandate holder to handle their NRE / NRO accounts in India. The NRI must give an “Appointment of Mandate Holder” application to the bank with requisite documents and the specimen signature of the mandate holder. This is the first step. Then the NRI can also appoint a power of attorney (POA) in India for actually executing and redeeming the investments in India. A POA agreement will have to be signed on a stamp paper and notarized before it can be submitted as a mandate for investing. Thanks to the spread of internet trading, brokers are also permitted to offer online trading facilities for their NRI clients subject to meeting all the required compliance and KYC guidelines. Most brokers are offering this facility to NRIs now. NRIs can invest on Repatriable or non-Repatriable basis

The NRI can invest in India through the NRE account or the NRO account. While the NRE account is an external account and hence Repatriable, the NRO account is a resident account and hence the funds are non-Repatriable beyond the limit of $1 million per year. Once bank account is in place, the next step is to get the PINS approval from RBI.

What is the PINS approval from RBI?

Once the bank account opening formalities are done, the next step for the NRI is to open a PINS account. The Portfolio Investment Scheme (PINS) is a permission letter given by the RBI to trade in Indian equities and the NRI can open trading account and demat account with a broker. This PINS letter will be managed by the bank where the NRI’s bank account is located. Once the requisite documents are submitted and the PINS letter is obtained, the NRI is ready to open the trading cum demat account with a broker.
 
Documentation for opening trading cum demat account

For opening the trading cum demat account, the NRI is required to submit the following key documents. The broker can process the application form for trading and demat only after these documents are submitted and verified. Copy of PAN card along with the PINS letter and the FEMA declaration. The FEMA Declaration is important for verifying source of funds. NRI will be required to submit copies of Indian passport, foreign passport copy (if any), PIO card, OCI card etc. Photocopies can be notarized by the embassy officials. The NRI will have to submit an overseas address proof as well as a cancelled bank cheque of the overseas bank account for the bank records. In case, the NRI has an NRO account and an NRE account, they it must be specified which bank account must be mapped for trading and demat. Only 1 account can be mapped to one trading and demat account. As part of the PMLA, the NRI will also be required to sign and execute a FATCA declaration before the trading and demat account can be opened. Actual trading process for the NRI

The actual buying and selling process is the same for the resident Indians and for NRIs. However, there are a few things to remember. For example, NRIs are barred from investing in certain stocks and the NRI must check with the broker on this front. Any violation of this negative list will attract steep penalties. Once the NRI allocates funds to the broker from the NRE or NRO account, the trading account gets credited. When the actual transaction is done, the broker sends the contract note simultaneously to the NRI and to the PINS bank for authorizing debits. The PINS bank will then debit or credit the PINS account of the NRI accordingly.

Some key aspects that NRIs must remember while trading Indian equities Taxation of short-term and long-term gains of equities will b the same as for resident Indians. However, in case of investments in mutual funds, the NRI will get the dividend only after the TDS is deducted.

Liv geznkwoq Parth · Answer

While trading in equities can be down through NRE or NRO accounts, F&O trading can be done by NRIs only through NRO accounts that are non-Repatriable. Also, NRIs will have to get a Custodial Participant (CP) code before trading in F&O. NRIs can only trade on delivery basis in Indian equities.

Arndt-Wulf Myles · Answer