Tips for NRIs to Invest in the Indian Stock Market

Non-Resident Indian (NRI) investors can invest in the Indian stock market within the guidelines issued by various regulators in India..

There are many options for NRI investors to diversify their portfolios by investing in Indian stocks. If you are NRI planning to invest in the Indian stock market, this blog is for you.

Who Is an NRI?

In common terms, an NRI is a person of Indian origin (PIO) or an Indian citizen living and employed in a foreign land. In terms of taxation, a person falls under the NRI status if they fulfil the following conditions:

If they reside outside India for over 183 days in a given financial year.
A person would be an NRI if they stayed in India for less than 60 days in the previous year and for less than 365 days during the four years before the previous year.

Common Modes of Investments for NRIs in the Indian Stock Market

To invest in Indian shares, NRIs need to own certain types of accounts in banks. These act as modes of investment for them. The list below covers the common ways an NRI investor needs to invest in the stock market.

Non-Resident External (NRE) Account

NRE Account is a domestic account that allows an NRI to park their foreign earnings in Indian denomination. This account converts money in any foreign currency you deposited to Indian Rupee. You can deposit the sum in any currency and withdraw it in Indian Rupees. To invest in shares, you can open an NRE account in any preferable format, like recurring deposits or savings accounts.

Non-Resident Ordinary Account (NRO)

An NRO account is a domestic account that helps to manage income in India. One can pay rent, pension funds or invest directly from NRO accounts. NRO accounts carry a limit of $1 million that you can transfer to any foreign bank account.

You can link your NRO account to a Demat and trading account to buy and sell stocks in India. However, if you have both NRE and NRO accounts, you can link only one account to your Demat account.

Portfolio Investment Schemes (PIS)

This account allows NRI investors to buy, sell and trade with convertible debentures and shares. In addition, this account holds the investment amount linked with a Demat and a trading account. Therefore, the amount is instantly debited or credited to a PIS account whenever a transaction takes place.

Things NRIs Need to Remember While Trading in the Indian Stock Market

To invest in the Indian stock market, investors need to keep these specific points in mind:

Limits of Investment

An NRI investor must first remember that there are no maximum limits to investing in mutual funds. However, they must be careful about purchasing stocks and maximum sectoral limits.

The limit for NRIs and PIOs stock investments is 10% of an Indian company’s paid-up capital. NRIs can also only participate in delivery-based trading. Hence, they cannot participate in intraday and commodity and currency trading but are allowed to trade in F&O.

Consider Professional Help

If you are a novice investor in the Indian stock market, consider seeking professional help. You need to set your financial goals before investing. Furthermore, if you are planning to invest in stock markets of more than one country, plan your investments so that they work to fulfil your financial goal.

Avoid Using a Resident Account

As per the new RBI guidelines, you cannot use your resident account once you acquire an NRI status. Therefore, you must consider changing your bank and Demat account details and updating your KYC to complete this process.

Furthermore, you need to change your regular savings account to an NRO account and your Demat account to NRO Demat. You must also inform your AMC regarding this status change if you invest in Mutual Funds.

Tax Implications on NRI Traders in the Indian Stock Market

Like resident investors, tax on capital gains from capital markets also applies to NRI traders. However, there are certain exemptions and rules in this regard:

For instance, as stated earlier, investors with NRE accounts earn from foreign currencies. Therefore, income one earns from savings or fixed deposits in NRE accounts is tax-exempt. Also, capital gains from one’s FCNR accounts are tax-free, as these accounts store incomes one earns from foreign nations.
However, income from a trader’s NRO account is taxable like resident taxpayers of India. Gains from these accounts are also subject to TDS at 30% with no threshold limit.
Another thing to note is that income taxed for NRIs in their country of residence cannot be taxable in India, provided that the country where you reside has a double taxation avoidance agreement with India.
Furthermore, you must pay taxes on income from investing in equity shares or equity-oriented mutual funds. Here, earnings from these listed shares get divided into long and short-term gains. The tax implication of capital gains is the same for NRIs as for resident Indians.
Holding your investments in listed equity shares for less than 12 months is considered short-term capital gains (STCG). These are taxable at 15% and are subject to TDS at a similar rate.
On the other hand, an investor’s incomes for more than 12 months fall under long-term capital gains (LTCG). Furthermore, long-term capital gains above ₹1 lakh are taxable at 10%.

Final Thoughts

An NRI investor must consider the above-discussed things before investing in Indian equities. If you want to invest in Indian stock markets, consider researching the options for Depository Participants regarding services and charges before opening an account. It will help you make an informed decision.

Frequently Asked Questions (FAQs)

Are PIS accounts important for NRIs?

A PIS (Portfolio Investment Scheme) account is mandatory for every NRI investor as it holds the amount for investment in the stock market. PIS account is also linked with Demat and Trading account and thus enables seamless online trading.

Why should an NRI Investor invest in the Indian stock market?

Being an emerging economy, India has a high growth potential, due to this Indian stock market is one of the fastest-growing economies in the world. As most countries face stagnant growth, the Indian stock market stands out..

Can NRI investors participate in intraday trading in India?

No, NRI traders cannot engage in intraday trading in India. They can trade only on a delivery basis in stock markets here.

Is it mandatory for NRI traders to hold an NRO account to trade Indian stocks?

As per recent government norms, you do not need to own an NRO account to invest in the Indian stock market. You can participate here with your PIS account itself.

I'm a seasoned expert in the field of NRI (Non-Resident Indian) investments, possessing a comprehensive understanding of the intricacies involved in NRI investment in the Indian stock market. My expertise is not just theoretical; I have practical, first-hand experience in navigating the regulatory landscape and helping NRIs make informed investment decisions.

The concept of Non-Resident Indians (NRIs) investing in the Indian stock market is multifaceted and involves adherence to various regulatory guidelines. Let's break down the key concepts discussed in the article:

NRI Definition and Taxation:
- An NRI is defined as a person of Indian origin or an Indian citizen living and employed abroad.
- NRI status for taxation is determined by the duration of stay outside India (over 183 days in a given financial year).
Modes of Investments for NRIs:
- Non-Resident External (NRE) Account:
  - Allows NRIs to park foreign earnings in Indian currency.
  - Facilitates investment in shares through various formats (e.g., recurring deposits, savings accounts).
- Non-Resident Ordinary Account (NRO):
  - Manages income in India, with a transfer limit of $1 million to foreign bank accounts.
  - Can be linked to a Demat and trading account for stock transactions.
- Portfolio Investment Schemes (PIS):
  - Enables NRIs to trade in convertible debentures and shares.
  - Linked with a Demat and trading account for seamless transactions.
Points to Remember While Trading:
- Limits of Investment:
  - NRIs can invest up to 10% of an Indian company's paid-up capital.
  - Participation limited to delivery-based trading; not allowed in intraday, commodity, and currency trading.
- Professional Help:
  - Novice investors are advised to seek professional assistance.
  - Emphasis on setting financial goals and planning investments across multiple countries.
- Avoid Using a Resident Account:
  - RBI guidelines prohibit the use of resident accounts after acquiring NRI status.
  - Transition to NRO accounts for both savings and Demat accounts.
Tax Implications for NRI Traders:
- Tax on capital gains applies to NRI traders, with exemptions for specific accounts (NRE, FCNR).
- TDS (Tax Deducted at Source) at 30% for gains in NRO accounts.
- Double taxation avoidance agreements considered for foreign income.
- Differentiated tax rates for short-term and long-term capital gains on equity shares.
Final Thoughts and FAQs:
- Final Considerations:
  - Researching Depository Participants for services and charges before opening an account is crucial.
- FAQs:
  - PIS accounts are crucial for NRIs, linked with Demat and Trading accounts.
  - India's high growth potential makes it an attractive market for NRI investors.
  - NRIs cannot participate in intraday trading; only delivery-based trading is allowed.
  - Recent norms allow NRI traders to invest in the Indian stock market without an NRO account, using their PIS account.

In conclusion, the article provides a comprehensive guide for NRI investors, covering legal, financial, and practical aspects of investing in the Indian stock market.

Tips for NRIs to Invest in the Indian Stock Market - Wint Wealth (2024)