| FAQ (NRI Services)
Who is a NRI (Non Resident Indian)?
A NRI is an Indian citizen who stays outside India
(a) For purposes of carrying out employment or any business or vocation;
(b) Under circumstances indicating an intention to stay outside India for an uncertain duration;
The term also includes an Indian citizen deputed outside India for a temporary period in connection with employment.
Who qualifies to be a Person of Indian Origin (PIO)?
A foreign citizen (not being a citizen of Pakistan or Bangladesh) is deemed to be of Indian origin if,
(a) he/she, at any time has held Indian passport, or
(b) he/she or either of his/her parents or any of his/her grandparents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955.
A spouse (not being a citizen of Pakistan or Bangladesh) of an Indian citizen or of a Person of Indian Origin is also treated as a Person of Indian Origin for the above purposes provided the bank accounts are opened or investments in shares/ securities in India are made by such persons only jointly with their NRI spouses.
Please note that an NRI holds an Indian passport whereas PIO holds a foreign passport.
What is an Overseas Corporate Body (OCB)?
Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60% by NRIs and includes overseas trusts in which not less than 60% beneficial interest is held by NRIs directly or indirectly but irrevocably.
Which investments can be made by NRIs on repatriation basis?
NRIs can invest on repatriation basis in:
* Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme (PIS).
* Shares and convertible debentures of Indian companies under FDI (Foreign Direct Investment Scheme).
* Shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.
* Government dated securities/treasury bills through authorized dealers.
* Units of domestic mutual funds.
* Bonds issued by a public sector undertaking (PSU) in India.
Funds for such investments are to be received through foreign inward remittance or by debit to NRE/FCNR a/cs. The above securities can be sold through authorised stock brokers on a recognized stock exchange or by tendering units of mutual funds to the issuer for repurchase/ maturity proceeds or by tendering Govt. dated securities/Treasury Bills to RBI for maturity proceeds. The sale proceeds can be repatriated, net of Indian Tax.
Can NRI invest in shares/debentures of Indian Cos. and other securities on non-repatriation basis?
Yes, NRIs can invest on non-repatriation basis in shares and convertible debentures of Indian Cos. issued either by public issue or private placement or right issues. NRI can also purchase on non-repatriation basis, dated Govt. Securities (other than bearer securities), Treasury bills, units of domestic mutual funds, units of money market mutual funds and national plan/saving certificates.
When are NRI investments considered repatriable?
If the original purchase of investments is made on a repatriable basis i.e. such investment are made out of funds out of remittances from abroad or from NRE/FCNR accounts in India, then the sale proceeds, net of taxes, can be repatriated abroad. For investments made on repatriable basis, an NRI is required to open an NRE account with the designated bank, as the repatriable amount will be credited to an NRE account only.
In case investments are made on a non-repatriation basis, sale proceeds of the same can be credited only to the NRO account held with the designated bank branch. Therefore, an NRI interested in making investments on both repatriation and non-repatriation basis will have to open an NRE as well as an NRO account with a bank in India.
Do NRIs need any permission of RBI to subscribe to Mutual Funds/ Initial Public Offerings (IPOs) or Private placements of equity shares/convertible debentures of existing or new companies?
NRIs are not required to apply for RBI Permission to invest in new issues (primary market offerings) or units of Mutual Funds as the company offering the primary issue takes a blanket approval from the Reserve Bank of India for sale to Non-Resident Indians. The RBI has granted general permission to domestic mutual funds to issue units or similar instruments to NRIs on both repatriation and non-repatriation basis.
What is Portfolio Investment Scheme (PIS)?
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 Persons of Indian Origin (PIOs) can purchase and sell shares/ convertible debentures of Indian Companies through an authorized broker on a recognized stock exchange in India, by routing all such purchase/ sale transactions through a dedicated account held with a branch of a Designated Bank.
What is a Designated bank branch?
The Reserve Bank has authorized a few branches of each bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs. These branches are the main branches of major commercial banks located close to the stock exchange/s. NRIs have to route their applications through any of the designated bank branches that have authorization from Reserve Bank of India.
Are NRIs allowed to apply through multiple designated banks or branches?
No. Each NRI has to select one bank branch for PIS purposes. If he is already having a PIS account with say X Bank branch and he wants to shift his PIS a/c to say Y Bank branch, then he has to close the PIS account with X Bank branch and then open a PIS account with Y Bank branch.
Are NRIs allowed to square up their transactions within a settlement?
As per regulations, NRIs are permitted to do delivery-based transactions only. It is mandatory to take delivery of shares purchased and give delivery of shares sold.
Can NRI investments under the PIS be made on repatriable as well as on non-repatriable basis?
Yes, investments can be either on repatriable or non-repatriable basis.
What are the salient features of PIS?
* PIS account is applicable only for NRIs and not for resident Indians.
* It is only for trading in Indian stock markets and not in any other foreign markets
* It is applicable only for secondary market equity trades and not for MF investments or IPO deals.
What is the procedure for making investments under this scheme?
* An NRI should open a PIS account with a designated bank branch, which is approved by the Reserve Bank of India, for this purpose. It is also advisable to maintain a NRE/ NRO bank account with the same designated branch for administrative convenience.
* He should apply for RBI approval through his designated bank branch, for investment in Indian Stock Markets, by completing the prescribed forms. Reserve Bank issues general permission for a period of 5 years that can be renewed further.
* He should open Demat Account/s with a Depository Participant to hold his shares. Separate Demat accounts have to be opened for maintaining repatriable and non-repatriable investments.
UTI Securities Ltd is an approved Depository Participant.
* He needs to register with an authorised broker to execute his buy/sell orders on the stock exchange(s).
UTI Securities Ltd is an authorized broker to execute orders on behalf of Non Resident Indians, Persons of Indian Origin and Foreign Institutional Investors (FIIs).
* Payment for purchase of shares and /or debentures has to be made out of inward remittances/ funds held in NRE/FCNR account maintained in India, if the shares have to be purchased on repatriation basis. The share can also be purchased on non-repatriation basis for which the investments can be made from inward remittances or out of funds held in NRE/FCNR/NRO account maintained in India.
* The net sale proceeds (after payment of taxes) of shares and/or debentures can be remitted abroad or credited to his NRE/FCNR/NRO account if the shares and or/debentures were purchased on repatriation basis. Where the shares and /or debentures were purchased on non-repatriation basis, the sale proceeds can only be credited to the NRO account of the NRI.
What are the transactions covered under PIS?
For transactions to be covered under PIS, they need to satisfy two conditions:
* Purchase from Indian Equity Secondary market
* Purchase as an NRI
Thus, following transactions are allowed under PIS:
* Fresh purchase from the secondary market as an NRI
* Sale of shares, which were bought under PIS
The following transactions are not allowed or are not covered under PIS:
* Sale of shares, which were not bought under PIS like: Gifts, subscription to IPOs or shares bought as resident Indian.
* Fresh subscription for the IPOs as an NRI
* Investment in Mutual Funds.
* An NRI has bought few shares when he was a resident Indian. Now he has become an NRI. Since he did not buy these shares under PIS (as they were acquired when he was a resident Indian), these shares cannot be sold by him under PIS.
* X, an NRI has bought some shares under PIS. He has now gifted those shares to Y, also an NRI. Although X under PIS bought these shares, these shares represent a gift received by Y. So Y cannot sell these shares under his PIS.
Is there any limit for purchase by NRIs under the PIS?
Yes. 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.
Why have the limits been laid down?
For all the Indian companies or companies listed on Indian stock exchanges, there are certain limits which have to monitored under FEMA regulations. For any company, the foreign investment into that company cannot cross a certain limit. Hence the limits have been laid down. However Shares/convertible debentures acquired through IPO/Private Placement are excluded for the purpose of above limits as the onus of allotting the shares in the specified limits rests with the issuing company.
Who monitors the ceilings on the holdings by NRIs/OCBs? What is RBI's Restrict List/Watch List?
The limits of individual holdings by NRIs/OCBs are monitored by the respective designated bank branch. On a daily basis, fresh purchases/sales done by any NRI or a PIO are reported to RBI by the bank branch.
As regards aggregate holding limits, RBI monitors the same. Once the aggregate holding of NRIs/OCBs builds up or is 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.
Under PIS, how many types of accounts are normally maintained?
While different banks/ depository participants may designate the following accounts by different names, broadly the following are maintained in under PIS:
Normal NRE bank account: This account can be utilized for making investment in Mutual Funds, new issues of companies as well as for meeting daily routine expenses such as rent, telephone bills, etc. Credits from remittances from abroad, sale proceeds of shares acquired under public issue with foreign funds can also be deposited in this account.
NRE PIS account: This account can be utilized only for making secondary market investments in Indian stock markets on repatriation basis and for depositing the sale proceeds of shares purchased from this account. No other expenses can be paid from this account. All investments made in this account are subject to investment limits as specified by RBI.
Normal NRO Account: This account can be utilized for making investment in Mutual Funds, new issues of companies as well as for meeting daily routine expenses such as house rent, telephone bills, demat charges etc. Credits from sale proceeds of shares acquired under public issue from funds originated in India can be deposited in this account.
NRO PIS account: This account can be utilized only for making secondary market investments on non-repatriation basis and for depositing the sale proceeds of shares acquired from this account. No other receipts / expenses can be credited/paid to/from this account. All investments made in this account are subject to investment limits as specified by RBI.
NRE Demat account: Securities bought out of funds remitted from abroad (NRE PIS) will be credited to this account. When securities bought out of NRE PIS are sold, the shares are debited to this demat account.
NRO Demat account: Securities bought out of funds originating in India and will be credited to this account. When shares bought out of NRO PIS are sold, the shares under this demat account will be debited.
Thus under the PIS, outflow of funds from the PIS account for all investments will eventually be reflected as credit of shares/ debentures in Demat account. In order to demarcate investments (in terms of repatriable or non-repatriable in nature), a linkage is normally maintained by designated bank (between the outflow and inflow of funds) in the following manner:
|Non-Resident Repatriable Account
||NRE Demat Account
||NRO Demat Account
Do NRIs need to route investments made though Initial Public Offerings (IPOs) or Private placements AND the sale of securities acquired through IPO/Private Placement through the Portfolio Investment Scheme?
No. The shares/convertible debentures acquired under IPO cannot be routed through designated bank account meant for Portfolio Investment Scheme.
Do NRIs need approvals from RBI for selling securities acquired through IPOs/Private Placement?
No. NRIs can sell such shares/debentures on the Exchange without any approval. However, while seeking the credit of sale proceeds to NRE/NRO account, the bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.
Can income earned on Portfolio Investment be remitted abroad?
Income such as interest and dividend earned by NRI from portfolio investments acquired whether on repatriation basis or on Non- repatriation basis, can be remitted abroad provided applicable taxes have been deducted/paid. However capital gains can be repatriated only if investment is on repatriable basis.
Are NRIs required to file any reports to RBI?
The NRI investor is not required to file any Return or Report with the RBI with regard to acquisition or sale of shares and/ or debentures in an Indian Company. The concerned office of the designated bank branch is required to furnish a report on daily basis on Portfolio Investment Scheme Transactions to RBI.
Can NRIs invest under Portfolio Investment Scheme out of funds borrowed in India?
No. NRIs cannot invest out of borrowed funds in India.
Can NRIs make investments in Mutual Funds and IPOs (Initial Public Offer) from PIS Account?
No. NRIs are only permitted to make such investments from their normal NRE and NRO A/cs.
Can NRIs make Investments in Derivative Instruments?
NRI is permitted to invest in exchange traded derivatives contracts approved by SEBI from time to time out of his Rupee funds held in India on Non-Repatriable basis subject to the limits described by SEBI.
Can Power of Attorney holder manage portfolio on behalf of NRIs?
Yes. A Power of Attorney holder can manage portfolio on behalf of NRIs. However, he cannot effect remittance outside India.
Can NRIs avail of loan against such securities?
Yes. NRIs can borrow against shares or other securities. However, the loan should be utilized for meeting the borrower's personal requirements or for his own business purposes.
What are the tax obligations applicable to NRIs?
Income on investments (capital gains) forming part of sales proceeds is subject to Capital Gains tax. Long-Term capital gain (arising out of sale of shares/debentures held for more than 12 months from the date of its acquisition) is not applicable to tax. Short-Term capital gain (arising out of sale of shares/debentures held for a period of less than 12 months from the date of its acquisition) will be levied tax at the rate of 10%.
Can Overseas Corporate Body [OCB] invest in Indian stocks through PIS?
OCBs are not allowed to make fresh investments in India under the Portfolio Investment Scheme vide Notification No. FEMA 46 dated 29th November 2001. Further, in September 2003, RBI has banned OCBs from investing in any manner in India. However, they can continue to hold and sell shares purchased before 29th November 2001. Accordingly OCBs may open a demat account, however it can be only for the purpose of dematerializing the existing holdings. Existing OCBs (i.e. prior to Sep 16, 2003) must intimate the designated bank branch immediately on the holding/interest of NRIs in the OCB becoming less than 60%.
What is the difference between NRE and NRO accounts?
Funds remitted from abroad or local funds, which can otherwise be remitted abroad to the account holder, can be credited to NRE Accounts. Local funds, which do not qualify for remittance outside India, are required to be credited to NRO accounts. Funds can be freely transferred from NRE account to NRO account. However, no funds can be transferred from NRO account to NRE account.
What is a Pan Card?
Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a laminated card by the Income Tax Department.
Is Pan Card compulsory for opening Investment account in India?
Pan Card is not compulsory for opening Bank accounts in India. However, if an NRI wishes to open demat account with any of the recognized depositary participants, copy of Pan card has to be submitted. It is advisable to possess a PAN Card as regulatory authorities are now increasingly seeking this document for various purposes in India.
What is a Demat Account? What is a Depository and who is a Depository Participant?
A demat account is one by which the investor is able to hold his securities in electronic form as beneficial owner through opening such account with a depository participant.
A depository holds the securities of investors in electronic form just like a bank holds cash for its customers. As in a Bank, securities get credited/debited on purchase/sale through a registered Broking Firm. The National Securities Depository Limited (NSDL) and Central Depository Services Ltd (CDSL) are the two depositories in India. Their functions are regulated by the Securities and Exchange Board of India (SEBI).
The Depository Participants (DPs) are the link between the Shareholder, the Company and Broking Firm. Banks, Financial Institutions, Custodians, Stock Brokers etc. can become DPs subject to their meeting certain requirements prescribed by NSDL / CDSL and SEBI. An NRI/PIO open Demat accounts with one or more DPs. After opening the account, you can hold shares of any number of companies in your account, provided all such companies have entered the depository system.
How to open demat accounts?
NRIs can open a demat account with any Depositary Participant of NSDL/CDSL in India by filling the prescribed forms, submitting requisite documents and completing necessary formalities. The NRI needs to be careful to mention the type (‘NRI' as compared to ‘Resident') and the sub-type (‘Repatriable or ‘Non-Repatriable') in the account opening form.
Can securities purchased under repatriable and non-repatriable category be held in a single demat account?
An NRI must open separate demat accounts for holding ‘repatriable' and ‘non-repatriable' securities.
Can investments made under different schemes be held under a single demat a/c?
No. Securities received against investments under ‘Foreign Direct Investment scheme (FDI)', ‘Portfolio Investment scheme (PIS)' and ‘Scheme for Investment on non – repatriation basis' have to be credited into separate demat accounts. Investment under PIS could be on repatriation or non – repatriation basis. Investment under FDI scheme is on repatriation. Further, It is advisable to keep the shares purchased from the secondary market and the shares subscribed from the primary market into two separate demat accounts so that upon sale of secondary market or primary market shares, the same can be easily distinguished
In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non-Resident to Resident?
Yes. It is the responsibility of the NRI to inform the change of status to the designated authorized dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident demat account and then close the NRI demat account.
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?
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, on a non-repatriable basis.
Does an NRI need any RBI permission to open a demat account?
No permission is required from RBI to open a demat account. However, credits and debits from demat account may require general or specific permissions as the case may be, from designated authorities.
Does NRI require any permission to subscribe to Rights issue of a company or to receive bonus shares?
Are there any charges for PIS, demat, broking etc.?
Yes, there are charges associated with the PIS account like Annual Maintenance charge, transaction charge etc. Similarly the depository participant and authorized broker will also charge for the trades as per their fees schedule. Please contact a designated bank, DP and the broker for the Schedule of charges. The charges vary from bank to bank, DP to DP and broker to broker.