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NRI FAQ
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1. Who is an NRI?
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As per Indian Income Tax Act, 1961, any Indian person staying outside India
more than 182 days is considered as NRI (Non-Resident
Indian).
Categories of NRIs:
I. Indian citizens who stay abroad for employment or for carrying on a business
or vocation or for any other purpose in
circumstances indicating an indefinite period of stay outside India.
II. Indian citizens working abroad on assignments with foreign Governments/government
agencies or International/Regional Agencies like the
UNO,IMF,World Bank, etc.
III. Officials of the Central and State Governments and Public Sector Undertakings
deputed abroad on temporary assignments or posted
to their offices (including Indian Diplomatic Missions) abroad.
According to FEMA , a Non Resident Indian national is a person who generally
falls under the following broad categories: According to FEMA, a Non Resident Indian
national is a person who generally falls under the following broad categories:
a) Indian citizens who stay abroad for employment or for carrying on any
business or vocation or for any other purpose, in circumstances
indicating an indefinite period of stay outside India.
b) Indian citizens working abroad on assignments with foreign Governments,
Government agencies or IMF or IBRD etc.,
c) Officials of Central and State Governments and Public Sector Undertakings*
deputed abroad on assignments with foreign governments/agencies/organizations
or posted to their own offices (including Indian Diplomatic Missions) abroad.
Indian Citizens who proceed abroad for short business visits, medical treatment,
higher studies# and such other purposes which do not indicate their intention to
stay outside Indian for an indefinite or uncertain period are considered as persons
resident in India during their temporary absence from India”.
Officials of Pvt. Sector Undertakings, going abroad, have also since been included
for NRI Status.
# Students who go abroad for purposes of studies, though their length of
stay abroad is generally definite, are also conferred with
NRI Status as per RBI Notification dated 08.12.2003.
Persons staying abroad on dependent visas (spouses of employed persons) including
minor children are also eligible for NRI Status.
In other words, A “Person Resident outside India” means a person who is not resident
in India. A “Person Resident in India” means:
(i) A person residing in India for more than 182 days during the preceding
financial year, but does not include:
(a). A person who has gone out of or stays outside India for employment or
business or vocation, or for any other purpose, indication
an intention to stay outside India for an uncertain period.
(b). A person who come to or stays in India otherwise than for employment
or business or vocation in India or for any other purpose,
indicating an intention to stay in India for an uncertain period.
(ii) Any person or body corporate registered or incorporated in India.
(iii) An office, branch or agency in India owned or controlled by a person
resident outside India.
(iv) An office, branch or agency outside India owned or controlled by a person
resident in India.
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2. Who is a PIO?
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A citizen of any country (other than a citizen of Bangladesh or Pakistan) is deemed
to be a Person Of Indian Origin (PIO), if,
I. He, at any time, held an Indian passport, or
II.He or either of his parents or any of his grand parents was a citizen
of India by virtue of the Constitution of India or Citizenship
Act, 1955, or
III.A spouse (not being a citizen of Bangladesh or Pakistan or Sri Lanka)
of an Indian citizen or of a person of Indian origin is also
deemed to be PIO.
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3. Who are OCBs’?
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An Overseas Corporate Body (OCB) means a company, partnership firm, society and
other corporate body owned directly or indirectly to the extent of at least sixty
percent by Non-Resident Indians and includes overseas trust in which not less than
sixty percent beneficial interest is held by Non-Resident Indians directly or indirectly
but irrevocably. OCBs were debarred from Portfolio Investment Scheme w.e.f November
29, 2001. OCBs have been banned as a class of investor w.e.f September 16, 2003.
However, they have been permitted to continue to hold the securities acquired by
them prior to these dates. Accordingly OCBs may open a demat account, however it
can be only for the purpose of dematerializing the existing holdings.
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4. Why Invest in India?
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India embarked on a series of economic reforms since 1991 in reaction to a severe
foreign exchange crisis, those reforms have included liberalized foreign investment
and exchange regimes, significant reductions in tariffs and other trade barriers,
reform and modernization of the financial sector, and significant adjustments in
government monetary and fiscal policies placing India to the world's as 12th largest
economy in US dollar terms in 2005.
The Indian capital markets have witnessed a transformation over the last decade.
India is now placed among the mature markets of the world. Key progressive initiatives
in recent years include:
- The depository and share dematerialization systems that have enhanced the efficiency
of the transaction cycle.
- Indian capital markets have rewarded Foreign Institutional Investors (FIIs) with
attractive valuations and increasing returns.
- Many new instruments have been introduced in the markets, including index futures,
index options, derivatives options and futures in selected stocks
and Currency derivatives. Along with these Mutual Funds trading on the equity platform
has added a new step in the growth.
- Growth of GDP is expected to grow rapidly.
- Foreign portfolio and direct investment flows have risen significantly since reforms
began in 1991.
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5. What are the kinds of transactions allowed for NRI?
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NRI can trade only in delivery based transactions (T+2). No Intraday trading (Spot)
and no BT/ST (Buy Today/Sell Tomorrow) (T+1) allowed.
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6. What is a Designated Bank Branch?
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RBI has authorized a few branches of some Banks in India to conduct the business
under Portfolio Investment Scheme (PIS) on behalf of NRIs/OCBs. These are called
Authorized Dealers.
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7. What is PIS?
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Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI)
defined in Schedule 3 of Foreign Exchange Management Act 2000 under which the ‘Non
Resident Indians (NRIs)’ and ‘Person of Indian Origin (PIOs)’ can purchase and sell
shares and convertible debentures of Indian Companies on a recognized stock exchange
in India by routing all such purchase/sale transactions through their account held
with a Designated Bank Branch. PIS account is applicable only for NRIs and not for
resident Indians. It is only for trading in Indian markets and not any other foreign
markets. It is applicable only for equity trades and not MF investments.
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8. What are the types of PIS account?
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There are two types of PIS account:
NRE PIS account
NRO PIS account
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9. Why is PIS required?
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For all the Indian companies or companies listed on Indian stock exchanges, there
are certain limits which have to be monitored under FEMA regulations. For any company
the foreign investment into that company cannot cross certain limit. This limit
is different from company to company and sector to sector. Also individually any
NRI or a PIO cannot invest more than 5% in any Indian company.
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10. What are the Transactions covered under PIS?
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1. Fresh purchase from the secondary market as an NRI.
2. Sale of shares, which were bought under PIS.
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11. What are the Transactions not allowed and not covered under PIS?
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1. Sale of shares, which were not bought under PIS, like Gifts, subscription
to IPOs or shares bought as resident Indian, or
received in bonus.
2. Fresh subscription for IPOs as an NRI.
3. Investment in Mutual Funds
4. Future & Options. These transactions need to be routed through NON PIS
account.
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12. How many PIS accounts an NRI /PIO have ?
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Any NRI or a PIO wanting to trade/make fresh investments in the Indian Equity Secondary
Market needs and must have one PIS account with only one designated bank in India.
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13. Can an NRI client transfer its PIS account from one bank to another?
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Yes. If the NRI is already having a PIS account with some other bank, he/she has
to close that account and provide the following documents to the new bank along
with the application form:
1. NOC: No Objection Certificate is required from the previous bank stating
that the client does not have any dues with them and the bank does not have any
problem in his transferring the relationship to other bank. (It is not required
for fresh PIS approval).
2. Previous approval letter: Bank X would have issued a PIS approval letter.
This letter is required.
3. Details of the existing investments in the form on Annexure II and Annexure
III.
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14. What are the Documents required for reporting to PIS?
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For any transaction to be reported to PIS, contract note of the broker should reach
PIS department within one working day following the day of transaction. |
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15. What is the Limit for Purchase by NRI’s under the PIS?
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An NRI can purchase up to a maximum of 5% of the aggregate paid up capital of the
company (equity as well as preference capital) or the aggregate paid up value of
each series of convertible debentures as the case may be. For the purpose of this
ceiling, investment under the Portfolio Investment Scheme on repatriation as well
as non-repatriation basis will be clubbed together. There is an overall ceiling
of 10% of paid-up equity share capital of the company/paid-up value of each series
of convertible debentures for purchase by all NRIs/OCBs put together. The overall
ceiling can be raised if the company concerned passes a special resolution to that
effect in its general body meeting.
While limits of individual holdings by NRIs/OCBs are monitored by the respective
designated bank branch, RBI monitors the holding limits by NRIs/OCBs in aggregate.
Once the aggregate holding of NRIs/OCBs builds up/ about to build up to the maximum
prescribed ceiling, RBI puts the concerned stock under the Restrict List/Watch List
which is published by RBI from time to time.
NRI is not allowed to buy certain scrips under this regulation. Report of the same
is available on the RBI Website: http://www.rbi.org.in/BS_fiiUSer.aspx
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16. What happens if an NRI purchases a stock in excess of the prescribed limit?
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The NRI will have to immediately off load such portion of the holding, which is
in excess of the prescribed limit.
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17. What is a PIS-NRE account?
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An NRE bank account is Non-Resident External Account. Since it is an external Account,
any monies lying in NRE account can be taken outside the country or in other words,
the monies lying in NRE account are fully repatriable. This money can be converted
into any foreign currency at the behest of the account holder and can be remitted
outside the country. Money can be freely transferred from NRE account to NRO account.
An NRI will have to open NRE account with a designated bank branch. The repatriation
of the sale proceeds, net of taxes, are allowed if the original purchase was made
on repatriation basis and such investments were made out of funds from NRE/FCNR
account or by means of remittance from abroad.
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18. What is a PIS-NRO account?
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An NRO bank account is a Non-Resident Ordinary Account. Monies lying in NRO account
cannot be taken outside the country or in other words, it is Non-Repatriable. This
money cannot be converted into foreign currency and hence cannot be remitted outside
the country. Money cannot be transferred from NRO account to NRE account.
Erroneously transferred money from NRE account to NRO account, cannot be transferred
back to NRE account. An NRI will have to open an NRO account with designated bank
branch for the sale proceeds of Non-Repatriation investment. If the customer is
having any previous holdings, he needs to open NRO bank account as the sale proceeds
of these investments will go to NRO account only.
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19. What is a Non-PIS Account ?
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It is a normal savings bank account, which can be opened with any bank in India.
Non-PIS is an account for which the transactions are not reported to RBI. This account
takes care of selling all those shares, which are not allowed under PIS. Shares
acquired under IPO or received as gift or bought as resident Indian can be sold
under Non-PIS account.
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20. What are the types of Non-PIS Account?
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There are two types of Non-PIS account
- NRE Non-PIS account.
- NRO Non-PIS account.
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21. What are the Transactions allowed and covered under Non-PIS?
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1. Sale of shares, which were not bought under PIS, like Gifts, subscription
to IPOs.
2. Shares bought as resident Indian, or received in bonus.
3. Fresh subscription for IPOs as an NRI .
4. Investment in Mutual Funds.
5. Future & Options These transactions need to be routed through Non-PIS
account.
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NRI FAQ
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22. What is a Non-PIS-NRE account?
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A NRE bank account is Non-Resident External Account. Since it is an external Account,
any monies lying in NRE account can be taken outside the country or in other words,
the monies lying in NRE account are fully repatriable. This money can be converted
into any foreign currency at the behest of the account holder and can be remitted
outside the country. Money can be freely transferred from NRE account to NRO account.
An NRI will have to open NRE account with a designated bank branch.
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23. What is a Non-PIS-NRO account?
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A NRO bank account is Non-Resident Ordinary Account. Monies lying in NRO account
cannot be taken outside the country or in other words, it is non repatriable. This
money cannot be converted into foreign currency and hence cannot be remitted outside
the country. Money cannot be transferred from NRO account to NRE account. Erroneously
transferred money from NRE account to NRO account, cannot be transferred back to
NRE account. An NRI will have to open a NRO account with designated bank branch
for the sale proceeds of non-repatriation investment.
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24. Can money be transferred from NRO account to NRE account?
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No, money cannot be transferred from NRO account to NRE account.
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25. Can money be transferred from NRE account to NRO account?
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Yes money can be freely transferred from NRE account to NRO account.
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26. In case a resident Indian becomes a non-resident, will he/she be required to
change the status of his/her holding from Resident
to Non-Resident?
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As per section 6(5) of FEMA, NRI can continue to hold the securities, which he/she
had purchased as a resident Indian, even after he/she has become a non-resident
Indian, but has to transfer the shares to his NRO (Non Resident Ordinary) account.
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27. What are the steps for an NRI to Investments in Indian Stock Markets?
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• An NRI should open a new NRE /NRO savings bank account with designated bank (AD)
branch which is approved by RBI (Reserve Bank of India)
for this purpose.
• He/ She should apply for a general approval for investment in Indian Stock Market
through his designated bank branch (PIS approval).
• He / She should open a Demat Account with a Depository Participant to hold his
shares.
• He / She needs to register with a broker to execute his buy/sell orders on the
stock exchange(s).
DB International offers broking account for the NRIs to trade in equities and the
NRI can trade at his /her convenience.
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28. Under what circumstances can investments made under Portfolio Investment Scheme
are repatriated?
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The repatriation of the sale proceeds, net of taxes, are allowed if the original
purchase was made on repatriation basis and such investments were made out of funds
from NRE/FCNR account or by means of remittance from abroad.
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29. Do a NRI need to have separate broking account for investment with repatriation
and non-repatriation basis ?
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Yes, NRI would need to have two separate broking accounts for investments with repatriation
and non-repatriation basis. At the same time, NRIs also need to have two separate
bank accounts respectively i.e. NRE and NRO account which would be linked with their
broking account. Also separate DP account(s) with repatriation and non- repatriation
basis shall be accordingly linked with respective broking account.
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30. Can a NRI have a common Demat account for crediting securities acquired on repatriation
as well non- repatriation basis?
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No. Demat account can be opened for both, on repatriation and non-repatriation basis.
Thus any purchases made on non-repatriation basis has to be credited in the demat
account opened on non-repatriation basis and vice-versa.
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31. Can a NRI have multiple Bank accounts linked to my broking account?
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No. NRIs can link only one bank account (NRE/NRO) with each of their broking account.
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32. Do NRIs need to have separate approvals for investment through NRE and NRO account?
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Two separate approvals will be granted for investment through NRE and NRO account.
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33. What is the Role of a Bank for NRI’s investing in equities?
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• Issues authorization letter on behalf of RBI for investment under PIS
• Facilitates transfer of funds from PIS account to the broker’s account in case
of a purchase transaction
• Facilitates receipt of funds in to customer’s account from broker’s account in
case of a sale transaction
• Computes Capital gains and effects payment of applicable taxes to Income-Tax Authorities
• Handles mandatory reporting of PIS transactions to Reserve Bank of India
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34. What is the Role of a Broker for NRI’s investing in equities?
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• Provide facility for trading
• Ensure contract note for each and every transaction is sent to the bank ie. Authorized
Dealer for the RBI reporting.
• Ensure that the credit for sale is not directly credited into the client account.
The cheque has to be forwarded to the Authorized Dealer. The bank will credit the
proceeds after applying the necessary capital gain tax.
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35. What are the regulatory requirements for a NRI to invest in derivatives?
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NRIs are permitted in invest in exchange traded derivative contracts subject to
the margin and other requirements which are in place for other investors. NSE has
laid down the procedure for providing specific UCC number to NRIs for undertaking
trades in Derivative segment. In addition, a NRI is subject to the following position
limits
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Index options |
Index Futures
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Stock Options
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Single stock Futures
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Interest rate futures
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Disclosure requirement for any person or persons acting in concert holding 15% or
more of the open interest of all derivative
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Disclosure requirement for any person or persons acting in concert holding 15% or
more of the open interest of all derivative
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1% of free float market capitalization or 5% of open interest on a particular underlying
whichever is higher
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1% of free float market capitalization or 5% of open interest on a particular underlying
whichever is higher
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Rs.100 Cr or 15% of total open interest in the market in exchange traded interest
rate derivative contracts, whichever is higher.
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Source: http://www.sebi.gov.in/faq/derivativesfaq.html
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36. Capital Gain Tax requirements for a NRI in India?
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Non Resident Indian’s are subjected to tax under the provisions of The Income Tax
Act, 1961 in respect of Income generated in India subject to the provisions of Double
Tax Avoidance Agreement between India and the country of residence of the Non-Resident.
A Non-Resident would earn following types of Income from the investments/assets
held in India:
• Interest income on loans, debentures, bank accounts, Fixed Deposits with Banks,
etc;
• Gain on sale of investments/assets (i.e. Shares, Immovable properties) which can
be characterized as Capital Gains or Business Income;
• Income from rental of immovable assets; and
• Dividend income from the shares of Indian Companies, which are otherwise exempt
from tax in case Dividend Distribution Tax is paid by the Company on such dividends.
Capital Gain
Gain arising out of the sale or transfer of shares, debentures, govt. securities,
bonds, units of UTI & mutual funds, immovable property etc. are generally treated
as Capital Gains as per the Act.
Taxability and Rate of tax on Capital Gains depends on whether the capital gain
is a Long Term Capital Gains or it is Short Term Capital Gains. The segregation
between long terms and short term capital gain is made on the basis of period of
holding of that asset before its sale, as explained below:
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CAPITAL ASSET |
SHORT – TERM
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LONG – TERM
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Shares, Units of UTI, Mutual Funds, Zero Coupon Bonds, Debentures
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If period of holding is less than 12 months on the date of sale
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If the period of holding is more than 12 months on the date of sale
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The Capital Gain tax rates for non-resident individuals in relation to sale of securities
for tax year 2008-09 are as follows:
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Short term capital gains (other than listed securities sold through a recognized
stock exchange)
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30% plus applicable surcharge*
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Short term capital gains on listed securities sold through a recognized stock exchange
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15% plus applicable surcharge*
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Long term capital gains (including unlisted securities and listed securities sold
through private arrangements)
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20% plus applicable surcharge*
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Long term capital gains on listed securities sold through a recognized stock exchange
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Nil
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* The rate of surcharge in case of individual is 10% in case the total income is
more than Rs. One million. Additional, there is also a levy of Education Cess of
3% on the tax payable. Please note that the income of an individual is not taxable
if his total income in the tax year 2008-09 is less than Rs. 150,000. The above
tax rates are as mentioned in the Act and is subject to the relief as applicable
in the tax treaty of India with the home country of that Non-Resident in which he
is a tax resident.
In additional to income tax on Capital Gain, the investor doing transactions on
the stock exchange is also liable to pay the following Taxes:
Securities Transaction Tax (“STT”) (on listed securities sold through a recognised
stock exchange) is 0.125% of the value of security sold in delivery based transactions
by both the buyer and seller;
Stamp Duty is charged @ 0.02% of the value of transaction;
Transaction tax is charged @ 0.037% on the value of transaction;
& Service tax is also charged @10.3% on Brokerage and Transaction Tax.
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37. Income Tax Return requirements for a NRI in India ?
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Income Tax Return
Every individual whose income is greater than the minimum permissible limit under
the Act is liable to submit his Income Tax Return by 31st July every year for the
income earned during the tax for year ended 31st March.
Advantages of Filing Income Tax return
For NRIs, the tax deduction at source on profit arising out of sale of shares, debentures,
mutual funds is prescribed at maximum rate in the Income Tax Act (i.e. 11% to 34%
approx). However, the actual liability of tax for the year computed in accordance
with the provisions of Income Tax Act is generally lower for the following reasons:
- Income up to the basic exemption limit (other than capital gains) earned by NRI
is not liable to taxation. However, the tax is deducted at source at highest slab
(34% approx) from such income.
- The rate of TDS on NRO Account is 33.99 % (for Financial Year 2008-09) but tax
chargeable on Income as per Double Taxation Avoidance Agreements (DTAA) with the
country where NRI resides, may be lower.
- The income may not be liable to tax in case capital losses had been adjusted against
Capital gains but the payer (Banker) withholds the tax at source from capital gains
without setting off losses.
NRI can set-off the losses incurred in the same financial year with respect to their
profits and can lower down their tax rates by filing income tax return and reclaim
the refund on withholding of tax.
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