Most people are in search of additional avenues besides their regular source of income to augment their earnings and one such option is share trading. It is the general perception that it is very difficult for Non-Resident Indians (NRIs) to invest in stock market but this thinking needs to be changed as with diminishing strength of the rupee, they can tap the Indian stock market for earning money. Let’s take a look at how this can be done.
Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Account Opening
Any person living in the country for less than 182 days in the current financial year and less than 365 days during the previous 4 such years is classified as an NRI and they are required to open either the NRE or NRO account for share trading purposes. The NRE which can be jointly operated with another NRI is totally tax-free while the NRO which can be held with a resident Indian is subject to income, gift and wealth taxes. An NRO account holder can repatriate only $1 million per year including the interest while there are no restrictions for NRE account holders who can repatriate the whole amount.
Portfolio Investment Scheme (PIS) Permission
This is the instrument that RBI has provided for enabling NRIs to invest in the stock market and the process to get this sanction is conducted through the bank chosen for opening the NRE/NRO account. Persons of Indian Origin (PIO) and Overseas Citizens of India (OCI) can also get this permission letter for making investments.
Demat Account Opening
The investor needs to open a demat account with a SEBI registered brokerage firm by furnishing the following documents :
- Document ensuring the NRI status: Indian passport holders need to provide their valid passport and proof of birth in India along with valid Visa (Student/ Work/ Employment or Resident permit).
- Foreign passport holders need to provide their passport displaying place of birth as India. PIOs and OCIs need to give copies of their issued cards.
- PIS Letter
- PAN Card
- Overseas Address Proof: Foreign Passport/ Driving License/ Bank Statement or Utility Bills not more than two months old
- Bank Account Proof: Cancelled cheque of the NRE/NRO account
- Passport size photographs
This account is linked with the PIS letter issued to the person intending to conduct foreign investment in India.
Trading
One needs to allocate funds from the NRO/NRE account to the PIS account for starting the process of stock market trading. The bank notifies the brokerage firm of the transfer which starts conducting business as per the agreement with them. Whenever a purchase is completed on the client’s behalf the money used is debited from the PIS account and credited to the brokerage firm after it notifies the bank of the buy contract at the end of the day. Similarly, on completing a sale the PIS account is credited with money by the brokerage firm after it has notified the bank of the sale contract at the end of business hours.
Points To Remember
NRIs cannot hold more than 10% of stocks in any Indian listed company besides paying 15% Short-term Capital Gains (STCG) tax on any profits made on stocks sold before one year. However, there is relief with no taxes levied on any long-term gains earned and held for more than a year. Any earnings made in the Futures and Options (F&O) segment are categorized as business income by the Income-tax authorities. Anyone wishing to link both the NRE as well as NRO accounts with the demat trading account needs to get two separate IDs with the brokerage firm.
Conclusion
NRIs looking to invest in the stock market in India can also appoint a local mandate holder for NRE account operations or give Power of Attorney to a chosen person who can carry out investment and the related paperwork. Any NRI after reading this article must feel confident about investing and earning profits from the Indian stock market.
