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How do NRIs Trade in the Stock Market in India

25 Jul 2022 0 COMMENT

Introduction

Non Resident Indians can invest with ease in Indian stocks through various intermediaries in the stock markets. There are guidelines specified for such investments by regulators like the Reserve Bank of India that have to be followed while making such investments. An NRI can invest in Indian stocks through a Portfolio Investment Scheme (PIS) account. A PIS account is required specially when there are foreign funds being used for investment on a repatriable basis. Alternately, NRIs can also use their Indian funds from a NRO account to invest in Indian stocks.

All NRI investments are governed according to the Foreign Exchange Management Act (FEMA).

Who is an NRI?

As per FEMA, an NRI is an Indian resident or a person of Indian origin who resides outside of India for employment, education or business, etc. NRI must also satisfy two other conditions:

  • They should stay abroad for more than 183 days or more during the course of preceding financial year                                                                               

Or

  • They need to be in India for a tenure of less than 60 days during the last year and less than 365 days during four years before the previous year, on an aggregate.

PIS account

PIS account stands for Portfolio Investment Scheme. A PIS Account enables NRIs to buy and sell shares and convertible debentures in Indian stock exchanges. It is used to route all NRI transactions in listed securities via valid banks that have to report back to the RBI on these investments.

Purchases are debited from the account while sales are credited. The RBI needs to provide a PIS permission letter to open a trading and demat Account. The PIS-enabled account can be an NRE or an NRO account. NRE accounts allow repatriation of funds, while NRO accounts do not allow the same. An NRI can choose between the two or choose both depending on their needs.

Trading and Demat accounts 

The RBI uses PIS accounts to track all NRI investments in India. NRIs also need Trading and Demat Accounts to operate in the stock market. These accounts have to be linked to the PIS account.

How does trading work?

Apart from these formalities, the actual trading process for NRIs is the same as Indian residents. However, a few considerations have to be kept in mind. The ceiling for overall investment for NRIs/PIOs is 10 per cent of the paid up capital of the Indian company. And the ceiling for individual investment for NRIs/PIOs is 5 per cent of the paid up capital of Indian company. A list of companies can be found on the RBI’s website.

NRIs are also not permitted to engage in intraday trading. They have to make investments that are delivery-based.

Tax implications on NRI

The Indian capital markets are attractive investment avenues. And so, they find investors from across the globe. Among this investor fraternity, NRIs occupy a significant portion. NRIs may migrate to affluent countries for employment, education, and business, but when it comes to equity investments, their home country remains one of their favourites.

Did you know that there are some tax implications for NRIs on the capital gains earned through equity instruments? And these implications could go on to disturb financial plans too. Hence, if you are an NRI, you ought to be aware of these implications before going deeper into equity investments.

Profits or gains arising from transfer of a capital assets are called "capital gains". Long Term Capital Gains (LTCG) refers to gains arising out of sale/transfer of financial assets held for more than 1 year and securities held for less than 1 year are subject to Short Term Capital Gains (STCG). However, long term capital gain from equity investments up to Rs. 1 lakh is exempted from tax.

In India, NRIs are charged long and short term capital gains tax and it is deducted at source. Below are the TDS rates as on 1st April 2022: 

Segment

Base TDS Rate

Surcharge

Edu. Cess (4%)

Total TDS

Equity LTCG

10

1.5

0.46

11.96

Equity STCG 

15

2.25

0.69

17.94

 

Conclusion

The Indian government welcomes all kinds of participants to invest in the stock markets. NRIs can invest in the stock markets as long as they follow the guidelines specified by regulators. If you are an NRI and want to open a Trading and Demat account, contact a SEBI-registered broker of your choice and get the formalities started.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.