Open NRI Demat Account

The Portfolio Investment Scheme (PIS) is an engine that helps NRIs trade in equity and convertible debentures of Indian companies.

RBI offers the Portfolio Investment Scheme (PIS) wherein you (NRI) can buy and sell securities of listed Indian companies in the secondary market, routed through recognised stock exchanges. For this purpose, the NRI or the PIO (person of Indian origin) must apply to a designated branch of a bank that deals in Portfolio Investment (not all bank branches are authorized to undertake the same). Once the PIS account is activated, all buying and selling of shares and convertible debentures must be routed through this account only.

The technical definition of Non-Resident Indian (NRI) refers to a “person resident outside India.” Such a person can either be an Indian citizen or they can be a person of Indian origin (PIO) as defined under the ambit of FEMA regulations.

There is a difference between the definition of NRI under the Income Tax Act and the FEMA. Under the Income Tax Act, to quality as an NRI, the person must have stayed abroad for minimum 182 days in the previous year. However, under the FEMA, the moment a citizen of India leaves India for the purpose of employment, business, education, or any other reason, with the clear intention of staying abroad for an uncertain period, they are classified as an NRI. Then, it does not matter whether that person has stayed abroad for 182 days or not.

For investment in shares/securities in India, Person of Indian Origin (PIO) is an Indian who is currently a citizen of another country (with the exception of Pakistan and Bangladesh) and

(a.) at any point in time, held an Indian passport; or

(b.) either the person or any of the person’s parents or any the grandparents were a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955; or

(c) the person is the spouse of an Indian citizen or a person referred to in clause (a) or (b).

Overseas Citizenship of India (OCI) scheme was launched on 2^nd December 2005, where the government decided to grant overseas citizenship of India to certain individuals. An OCI holder will be any foreign national who was eligible to become a citizen of India on 26.01.1950 or was a citizen of India on or at any time after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grandchildren, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws. Such persons are eligible to be registered for an Overseas Citizenship of India (OCI). The minor children of such persons are also eligible for OCI registration.

However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she would not be eligible for OCI.

A few branches of each authorised dealer bank (subject to satisfying certain conditions) have been authorised by the Reserve Bank of India to conduct business under the Portfolio Investment Scheme (PIS) on behalf of NRIs.

NRI investor can only have one designated bank for investing in India (even if they open both NRE PIS account and NRO PIS account) and route the transactions through the branch designated by the authorised dealer bank.

There are mainly two types of savings bank accounts that can be opened by NRIs/PIOs in the Indian context.

• NRO account: The NRO bank account is like any normal resident savings bank account, the only difference being that this account is held by an NRI. Funds held in NRO account cannot be freely repatriated abroad. However, the interest earned on the bank account is allowed to be remitted abroad while the principal account cannot be remitted abroad.
• NRE account: An NRE bank account stands for Non Resident External account. It is opened for receiving funds that you need to be repatriated abroad. This is an external savings bank account opened for NRIs. Since the NRI bank account is a repatriable bank account, any monies lying in the account can be repatriated abroad, without any limits. The designated bank can be instructed by the account holder to convert the funds into any foreign currency and the same can be remitted outside the country.
• FCNR account: This is a foreign currency non-resident account, where the exchange risk is borne by the bank at the time of repatriation, due to which the rates of interest are relatively lower. FCNR account is a term deposit account, while NRE account can be fixed deposit, savings, current, or recurring.

Repatriation: Investing on repatriation basis means the funds can be converted from Indian Rupee to foreign currency and transferred back to the NRI’s overseas account in their current country of residence at any time.

Non-Repatriation: When investing on non-repatriation basis, the funds can neither be converted to any foreign currency nor be transferred back to the NRI’s overseas account in their country of residence.

NRIs can invest in India on both repatriable and non-repatriable basis via separate types of bank account types available for investments.

NRI Repatriable Account:Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) are two types of bank accounts designed for investment on a repatriation basis. Funds held in any of these two accounts can be converted into foreign currency and transferred to your overseas account at any time.

NRI Non-Repatriable Account: Non-Resident Ordinary (NRO) bank account is designed for investment on non-repatriation basis. The NRO account is a savings account most commonly used to manage the NRI’s deposits or earnings in India such as dividends, pension, rent, etc.

Here are some of the features on which you can compare and contrast the NRE account and the NRO account for NRIs.

Portfolio Investment Scheme (PIS) can be availed by NRIs to:

• buy or sell shares and to settle transactions.
• invest in initial public offerings (IPOs).
• invest in designated mutual fund schemes which are regulated by SEBI and floated by registered asset management companies. TDS on mutual fund dividends and capital gains is deducted at the peak rates applicable by the bank.
• trade in futures and options. However, such trading in F&O is not permitted on a repatriation basis, and hence, F&O trading is only permitted through the resident NRO (non-resident ordinary) account.

NRIs are barred from investing in any company that is in the business of chit funds, agriculture or into plantations. Also, NRI investments in a company is subject to foreign ownership limits, which need to be monitored.

Any shares purchased under the PIS route can neither be transferred off-market; nor be transferred from one demat account to another by way of gift. Any kind of off market transactions are barred under the PIS.

The designated PIS account will only be used for settling funds arising out of sale/purchase transactions. This applies to pay-ins and for pay-outs pertaining to transactions through the recognized stock exchange.

NRIs through the PIS account, cannot undertake intraday trading in stocks as it is classified as speculative trade under the Income Tax Act. They are allowed to trade in futures and options (F&O). However, F&O trading is only permitted through NRO account, where the broker is given a CP code through a custodian. However, the F&O transaction is settled directly between the broker and the NRI customer. Purchase and sale of shares and convertible debentures are only permitted on delivery basis.

The procedure to buy and sell shares for NRIs through SBI Securities has to be routed through the official PIS route only. Here’s how it can be done:

• You would need a PIS account with the designated branch of SBI (NRI branch Mumbai) linked with the trading and demat account at SBICAP Securities. Use NRE account for repatriation basis, and use NRO account for non-repatriation basis.
  
  
• A designated trading account must be opened with SBI Cap Securities and linked to the respective demat account and the PIS account with the NRI branch for seamless transactions.
  
  
• Demat account either an NRE demat account or NRO demat account with SBI Securities based on repatriation needs. Such demat account must be linked to the trading account and to the PIS account at designated SBI NRI branch for seamless transactions.
  
  
• Funds from F&O trading cannot be repatriated abroad and hence must be mandatorily routed through the NRO PIS account only.

That is perfectly possible. You can have a PIS NRE account and a PIS NRO account at the same branch of the bank. The trading and demat accounts opened on a repatriation basis can be linked to the NRE PIS account while the trading and demat account on non-repatriation basis can be linked to the NRE account. In the case of F&O trading, it has to be necessarily linked to an NRO PIS account only. An NRI investor can only have one designated bank for investing in India (even if they open both NRE PIS account and NRO PIS account)

That is not permitted. In such cases, the only way to transfer to another bank is to obtain an no objection certificate (NOC) from the current Bank; only after that the PIS permission can be transferred to the new bank. An NRI can hold only 1 PIS NRO account and 1 PIS NRE account; not more than that. However both will mandatorily have to be with one Designated Bank.

Only the PIS permission can be in the same order as the trading account and the demat account. Therefore, the PIS Account is always opened according to the holding pattern of the Demat Account. Hence, if Demat Account has a combination of A + B + C, then the PIS permission too has to be in combination of A + B + C. That does not apply to the bank account as it mapped to the NRI PAN account and hence the Bank Account can be solely in the name of A.

Here are some basic rules to remember pertaining to the taxation of Long Term Capital Gains (LTCG), Short Term Capital Gains (STCG) and taxation of trading in Futures & Options.

• Short term capital losses can be set off against LTCG and STCG.
• Long term capital losses can only be set off against LTCG.
• Capital lossed are allowed to set off for the particular financial year only. There is no benefit of carry forward of losses to next financial year in the case of NRIs.
• In the case of futures and options trading, any loss can be set off against profits on derivatives only in the same fiscal year. No carry forward is permitted.
• Total Tax rate in case of derivatives income will change as per income level of the client according to Income tax guidelines.
• Tax benefit upto Rs 1 lakhs is not provided in equity for NRIs. This can be claimed back by filling Income Tax returns separately.