DB(International) Stock Brokers Ltd.

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:

• 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.
• Indian citizens working abroad on assignments with foreign Governments/government agencies or International/Regional Agencies like the UNO,IMF,World Bank, etc.
• 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:

• 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.
• Indian citizens working abroad on assignments with foreign Governments, Government agencies or IMF or IBRD etc.,
• 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:

• A person residing in India for more than 182 days during the preceding financial year, but does not include:
  • 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.
  • 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.
• Any person or body corporate registered or incorporated in India.
• An office, branch or agency in India owned or controlled by a person resident outside India.
• An office, branch or agency outside India owned or controlled by a person resident in India.

A citizen of any country (other than a citizen of Bangladesh or Pakistan) is deemed to be a Person Of Indian Origin (PIO), if,

• He, at any time, held an Indian passport, or
• 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
• 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.

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.

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.

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.

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.

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.

There are two types of PIS account:

• NRE PIS account
• NRO PIS account

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.

• Fresh purchase from the secondary market as an NRI.
• Sale of shares, which were bought under PIS.

• Sale of shares, which were not bought under PIS, like Gifts, subscription to IPOs or shares bought as resident Indian, or received in bonus.
• Fresh subscription for IPOs as an NRI.
• Investment in Mutual Funds
• Future & Options. These transactions need to be routed through NON PIS account.

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.

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:

• 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).
• Previous approval letter: Bank X would have issued a PIS approval letter. This letter is required.
• Details of the existing investments in the form on Annexure II and Annexure III.

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.

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

The NRI will have to immediately off load such portion of the holding, which is in excess of the prescribed limit.

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.

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.

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.

There are two types of Non-PIS account

• NRE Non-PIS account.
• NRO Non-PIS account.

• Sale of shares, which were not bought under PIS, like Gifts, subscription to IPOs.
• Shares bought as resident Indian, or received in bonus.
• Fresh subscription for IPOs as an NRI .
• Investment in Mutual Funds.
• Future & Options These transactions need to be routed through Non-PIS account.

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.

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.

No, money cannot be transferred from NRO account to NRE account.

Yes money can be freely transferred from NRE account to NRO account.

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.

• 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.

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.

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.

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.

No. NRIs can link only one bank account (NRE/NRO) with each of their broking account.

Two separate approvals will be granted for investment through NRE and NRO account.

• 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

• 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.

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

Index options

• Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative

Index Futures

• Disclosure requirement for any person or persons acting in concert holding 15% or more of the open interest of all derivative

Stock Options

• 1% of free float market capitalization or 5% of open interest on a particular underlying whichever is higher

Single stock Futures

• 1% of free float market capitalization or 5% of open interest on a particular underlying whichever is higher

Interest rate futures

• Rs.100 Cr or 15% of total open interest in the market in exchange traded interest rate derivative contracts, whichever is higher.

Source: http://www.sebi.gov.in/faq/derivativesfaq.html

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:

The Capital Gain tax rates for non-resident individuals in relation to sale of securities for tax year 2008-09 are as follows:

* 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;
• 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.

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.