How can I invest in Indian stocks as an NRI?
With the rupee’s strength dwindling in comparison to major foreign currencies, non-resident Indians (NRIs) may look at investing in their home markets in order to reap high returns. If you are among these NRIs looking to capitalize on the falling rupee, all you need to do is follow the below steps:
First of all, you must find out whether you are eligible to invest as an NRI. By definition, an NRI is an Indian citizen who -
- Has been in India for less than 182 days in a financial year
- Has been in India for less than 365 days in the past 4 financial years
Once you have figured out your eligibility criteria, you can get down to the brass tacks.
Step 1: Opening an NRE (Non-resident Rupee)/NRO (Non-resident Ordinary Rupee) savings account
An NRI has to open either one of these accounts to be able to invest in the Indian markets. The major differences between the two accounts are as follows:
All funds along with interest earned may be repatriated without paying
Only $1 million may be repatriated per year, including interest
It is tax-free
It is subject to Income tax, Wealth tax, and Gift Tax
Only NRIs may jointly hold this account
Both resident Indians and NRIs may be joint account holders
Step 2: Get a PIS permission letter from the bank
PIS (Portfolio Investment Scheme) permission letters allow NRIs to purchase/sell shares and debentures under the Portfolio Investment Scheme. It stands as an approval from the Reserve Bank of India (RBI) to invest in the stock markets. The bank where you open your NRE/NRO savings account takes care of this process.
Step 3: Open a trading & demat account, connect it to the PIS
Finally, you will need to open a trading and a demat account to start investing. The following documents are a must for opening the accounts:
- Copy of PIS permission letter
- Copy of FEMA (Foreign Exchange Management Act) declaration
- Copy of PAN card
- Overseas address proof – (driving license/foreign passport/bank statement (not more than 2 months)/notarized copy of rent agreement)
- Passport size photograph
- Proof of bank account (cancelled cheque leaf of NRE or NRO savings bank account)
- Declaration of P.O. Box in your residing country
- FATCA (Foreign Account Tax Compliance Act) Declaration Form
Note: Copies of PAN card, passport, the power of attorney, and foreign address proof must be notarized by the Indian Embassy, the Consulate General, or through a public notary in the NRI’s country of residence.
Step 4: Trading
- To begin trading, you must first allocate funds from the NRE/NRO bank account to the PIS
- The bank notifies the brokerage firm about the allocated funds. These funds are then updated to the trading account
- Upon purchasing a stock, the brokerage firm sends the buy contract note to the bank at the closure of business. The bank then debits the PIS account and credits the firm
- Similarly, on selling a stock, the brokerage firm sends a sell contract note to the bank at the closure of business before crediting the PIS account with the proceeds.
Preferable avenues for investment
- Real estate: NRIs can only invest in commercial or residential properties. Proceeds from the sale of agricultural land, etc., must be deposited in an NRO account
- Direct equities: PIS account is mandatory for investment
- Term deposits & NCD: A safe and viable option for risk-averse NRIs
- NPS: Ideal for those retaining their Indian citizenship and planning to come back
- Mutual funds: These do not need a PIS account for investing, but FATCA rules impose certain restrictions on US and Canadian citizens
- You cannot hold more than 10 % stock in any listed Indian company
- For short-term capital gains (STCG), a taxation of 15% is made on any gains on stocks sold before 1 year
- For long-term gains on stocks held for more than a year, profit on which is less than Rs1,00,000 the tax is exempted
- To map both NRE/NRO accounts with the trading account, you need to get two client IDs from the broker
- Profiting from the F&O segment is considered as business income according to the Income Tax department
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