USA NRI Trading Account in India - Requirement, Rule, Charge (2024)

Published on Tuesday, November 12, 2019 by Chittorgarh.com Team | Modified on Thursday, May 13, 2021

All NRIs including US-based NRIs are permitted by the Government of India to invest and trade in India. However, if you are an NRI residing in the USA, it might not be as straightforward for you because of FATCA and US SEC regulations.

Financial service providers serving US-based NRIs have to comply with strict FATCA reporting requirements which makes investment/trading difficult for NRIs and expensive for the company offering these services.

This article takes a look at the various FATCA regulations and SEC guidelines, its impact on US NRI traders and different NRI Trading services available to them.

The article covers the following topics:

• US NRI Investment Options India
• Prerequisites for US NRI Trading in the Stock Market
• US NRI Trading Taxes
• Top Stock Brokers for US NRIs
• FAQs

US NRI Trading Rules & Regulations

Indian regulations by RBI and FEMA permit trading and investment by NRIs based in the USA. However, the United States has certain regulations under FATCA as well as restrictions on the solicitation of US citizens for investment in the Indian securities market.

1. Restriction on Solicitation

As per the U.S. Securities and Exchange Commission (SEC) website,

It is generally against the law for a broker, foreign or domestic, to contact a U.S. investor and solicit an investment unless the broker is registered with the SEC. If U.S. investors directly contact and work with a foreign broker not registered with the SEC, they may not have the same protections as they would if the broker were registered with the SEC and subject to the laws of the United States.

For US-based NRIs, it means that stock brokers or asset management companies (AMCs) of India not registered with the SEC cannot directly or indirectly contact US residents for selling their products and services. The law also advises US residents including NRIs to not to do business with foreign brokers not registered with the SEC as they might lose the investor's protection as provided under US law.

Interpretation of SEC Rule

The restrictive act, while makes solicitation by brokers unlawful, is a mere advisory for investors. You can open a trading and demat account with a stock broker in India, at your discretion. SEBI regulations (the regulator for the securities market in India) protect the interest of all investors, both residents and non-residents, who trade with SEBI registered financial service providers.

2. FATCA

FATCA (Foreign Account Tax Compliance Act) is an Act enacted by the United States government to get information from foreign countries about the investment made by US citizens in their countries. The goal is to detect and prevent offshore tax evasion by U.S. persons.

Under the Act, it is mandatory for all financial institutions like banks, stock brokers, AMCs and Insurance companies, etc., to share the investment details involving US citizens, including NRIs based in the US. The stock broker or AMC where you are investing must comply with FATCA regulations and report about your investments as per the process outlined.

US-based NRIs investing in stocks, mutual funds, and other securities are expected to provide details such as their country of tax residence, tax identification number, country of birth and country of citizenship at the time of account opening to the stock broker.

As per FATCA, U.S. citizens who hold certain foreign financial assets with an aggregate value of more than the threshold to report information about it on Form 8938. The form must be attached to the annual income tax return of the taxpayer. The reporting threshold varies based on your marital status and whether you file a joint income tax return. The reporting threshold in various scenarios for NRIs living in the United States is:

Note:

1. In case you are married and you and your spouse file a joint income tax return, you would need to file only one combined Form 8938 for the tax year. The value of the asset jointly owned with your spouse should be included only once to determine the total value of all of the specified foreign financial assets owned by you and your spouse.
2. In case you are married and you and your spouse file a separate income tax return, you need to consider one-half of the value of the asset jointly owned with your spouse to determine the total value of your specified foreign financial asset. Only if the value owned by you when combined with other assets owned by you exceeds the thresholds, you are liable to fill Form 8938. However, if the thresholds exceed the set limits, you are obliged to fill Form 8938 and are required to report the entire value of the asset on the form.
3. Non-Compliance with Form 8938 may cause penalties of $10,000 for failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on any understatement of tax attributable to non-disclosed assets.

Interpretation of FATCA Rule

You have to fill Form 8938 and attach it with your income tax returns if you cross the reporting thresholds and financial institutions must report your transactions to US authorities.

US-based NRIs are allowed by US regulations to trade and invest in Indian stock markets along with other countries. Indian regulations allow NRIs to trade and invest in specific securities with some regulatory restrictions. So, US NRIs can trade and invest in Indian stock markets.

Indian Government Rules & Regulations for NRIs

The following are the key rules set up by RBI for NRIs to invest in or trade in India.

• To trade on a repatriation basis, NRIs can trade in equities only through PIS enabled NRE bank account. To trade on a non-repatriation basis, an NRI can invest either via PIS enabled NRO account or normal NRO bank account. However, not many brokers are yet offering to trade without PIS. The Bank reports all the transactions done through PIS accounts to RBI daily.
• IPOs/Mutual fund investments can be done through Non-PIS using NRE/NRO savings bank account.
• Futures & Options trading can be done through only Non-PIS NRO savings bank account.
• NRIs are not permitted to do intraday trading in either equity or derivatives. They can trade only in delivery-based equity transactions.
• NRI cannot invest more than 5% of the paid-up capital of a company.
• NRIs are not allowed to trade in certain scrips that reach the threshold limit and enter the ban list. The list of ban scrips is available on the RBI website.
• NRIs are not allowed to trade using margin or exposure funding through the PIS route. The total trade value has to be paid at the time of buying. For NRO Non-PIS mode, few brokers like Tradeplus may allow NRIs to avail margin trading facility.
• Short selling is not allowed for NRIs. They need to hold 100% of the securities in their demat account while selling.

US NRI Investment Options India

NRIs are permitted to invest in Bank Deposits, Real Estate, Bonds, Equities, NPS and Mutual Funds. An NRI can invest/trade in the following securities:

1. Equity shares
2. Equity Derivatives
3. Convertible debenture of Indian Companies
4. Exchange-Traded Funds (ETFs)
5. Mutual Funds
6. IPOs
7. Bonds issued by a public sector undertaking (PSU) in India
8. Government Securities
9. Government Treasury Bills
10. Currency Derivatives

Prerequisites for US NRI Trading in the Stock Market

The prerequisites for a US NRI to trade in the Indian Stock Market are the same as those for other NRIs. To trade in Indian Stock Exchanges, BSE & NSE, a US-based NRI needs:

1. NRI Bank Account
2. PIS or PINS Permission (mandatory for trading on a repatriation basis)
3. NRI Trading Account
4. NRI Demat Account
5. NRI Custodial Account

Note:

• US NRIs need to open 2 bank accounts; NRE and NRO Saving Bank Account. NRE (Non-Resident External Account) is used for managing and holding income earned abroad. NRO (Non-Resident Ordinary) is used for managing income earned in India in the form of rent, dividends, etc. Read NRE vs NRO accounts to know the difference and features of both the accounts.
• The PIS permission is a must for trading via the NRE account. RBI has recently relaxed the PIS requirement to trade via the NRO account. However, not many brokers are yet offering to trade without PIS.
• NRI Demat Account is a must for trading in India. Demat account is to hold securities in electronic format for secure online transactions. An NRI needs to open 2 demat accounts and link it separately with NRE and NRO accounts.
• NRI Trading Account provides you access to Indian stock exchanges. You have the choice to open a 3-in-1 account combing PIS, trading & demat account or a 2-in-1 account combining trading & demat account.
• Custodial Account is an optional account for derivatives traders. It has to be opened with a SEBI registered clearing member if your broker doesn't offer clearing services. Popular discount brokers like ProStocks are also a clearing member and thus don't require Custodial Account. This saves significant trading costs.

NRI Trading Charges & Fees

NRI Trading charges are higher than those for residents because of additional compliance costs associated with NRI accounts. NRIs have to pay various charges & fees including:

1. NRI PIS Charges: Account Opening (One Time) & Maintenance (Yearly)
2. NRI Bank Account Charges: Account Opening (One Time) and various other fees for banking services like debit card fees, remittance fees, etc.
3. NRI Trading Account Charges: Account Opening (One Time), Brokerage Fee, Platform charges and Transaction fees.
4. NRI Demat Charges: Account Opening (One Time), Maintenance (Yearly) and other charges for debit/credit securities, statements, pledging of securities, etc.
5. NRI Custodial Charges: Account Opening Fee (One Time) and Custodial Fees.

Read NRI Trading Charges Explained to understand in detail about various charges & fees on trading.

US NRI Trading Taxes

1. Capital Gains taxation

Capital gains from stocks, derivatives and mutual funds attract capital gain taxes. An NRI has to pay the Capital Gain Tax on the stock market investments in India. This tax depends on the tenure or the period for which these investments are held by an investor.

The Capital Gain Tax is classified into:

Long-term capital gain (LTCG)

If the period of holding of the securities is more than a year. For debt oriented mutual funds the definition of long term is more than 3 years. The long-term capital gain applies to earnings from the sale of stocks, mutual funds, debentures, property, FD interest, etc.

Short-term capital gain (STCG)

If the period of holding of the securities is less than a year. For debt oriented mutual funds the definition of short term is less than 3 years. The short-term capital gain applies to earnings from the sale of stocks, mutual funds, debentures, property, FD interest, etc.

Note: The above tax rates are as of 31-Mar-2019 and are subject to change.

2. DTAA (Double Taxation Avoidance Agreement)

To ensure that US-based NRIs do not end up paying taxes in the USA and India, both countries entered into a mutual agreement through The Double Taxation Avoidance Agreement (DTAA).

The DTAA applies to any individual with taxable income in both countries. As per DTAA, on capital gains from trading & investments, the taxes that you pay in India are then deducted from your total income from earned both the countries and you need to pay taxes only on the remaining amount.

1. 1. Can US-based NRIs invest in Mutual Funds (MFs)?

   Yes, NRIs based in the United States are eligible to invest in Mutual Funds in India. They can invest in a repatriable as well as on a non-repatriable basis. However, they can only invest in Indian Rupee. Also, NRIs from the US and Canada have additional compliance requirements under the FATCA act.

   The RBI has granted general permission and therefore no special permission is required by a US NRI or of other countries' to invest in Mutual Funds in India.

   Note:

   1. An NRI must complete the Mutual Fund KYC process.
   2. A rupee-denominated NRE/NRO Savings Bank Account should be opened.
   3. NRIs can invest in MFs directly or through a Power of Attorney (PoA) holder.

   Read NRI Mutual Fund Investment Online in India to know in detail about the MF investment process, rules, and taxation.

   Discuss this question

2. 2. Can trading ac be opened for US NRI who has been allotted ESOP shares?

   Listed Indian companies are allowed to issue ESOP shares to employees of its joint venture or a wholly-owned subsidiary abroad who are working outside India.

   An NRI Trading Account and an NRI Demat Account can be opened for the sole objective of selling of the ESOP shares with any registered broker in India.

   Discuss this question

3. 3. What options do NRIs living in the USA have to invest in the Indian stock market without visiting India?

   NRIs living in the United States can invest online in Indian Stock Exchanges. They can invest in equities, equity derivatives, currency derivatives, mutual funds, bonds, and IPOs.

   Note: Intraday trading in stocks and commodity trading in India is not permitted for NRIs.

   To invest in BSE and NSE, an NRI needs the following accounts:

   1. NRI Bank Account (NRE PIS for investment on repatriation basis/NRO Non-PIS Account for investment on non-repatriation basis)
   2. NRI Trading Account
   3. NRI Demat Account

   To invest in Equity F & O, an NRI needs to open a custodial account and get a CP code from a Clearing Member. The CP code is not required if the stock broker itself is an SCM (Self Clearing Member) to settle the trades made for the broker in equity derivatives.

   US-based NRIs are required to comply with the FATCA compliance process to invest in Indian Stock Exchanges.

   Discuss this question

4. 4. Can a US-based NRI invest in the SIP in India?

   Yes, most stock brokers in India offer a Systematic Investment Plan (SIP) Mutual Fund facility to NRIs. The Asset Management Companies (AMCs) that offer Mutual Funds allow NRIs to invest in both, lump sum and SIP ways. You can invest directly or through a Power of Attorney (PoA) holder based in India.

   However, all NRIs are required to invest only in Indian Rupee and after completion of the KYC process.

   Discuss this question

5. 5. Which brokers in India allow US NRIs to open ac to trade in BSE/NSE?

   Most stock brokers barring a few exceptions allow the US NRIs to open NRI trading account and NRI demat account.

   NRIs can open an account with either a full-service stock broker or an online discount stock broker in India. They have the choice to open the NRI 2-in-1 account and NRI 3-in-1 accounts.

   All the brokers offer an online trading platform for self-investing to NRIs. They also provide add-on facilities like Call & Trade, After Market Orders (AMOs) and dedicated relationship managers to enable convenient trading to NRIs.

   Discuss this question

6. 6. Are US-based NRIs allowed to do online trading in India?

   Stock brokers in India have different views on the regulations by the USA government for the online trading facility to NRI.

   1. Banks offering an NRI trading account (3-in-1 NRI Account) doesn't offer online trading to US-based NRIs (or counties follow FATCA). This is because they provide trading tips and research on their trading platform which is against the US SEC regulations.

      Banks like ICICI, SBI, and HDFC doesn't offer online trading to NRI customers in India.

      Note that US-based NRI customers can still open an NRI trading account with these banks but they have to trade offline by calling the broker us through a relationship manager.

   2. Online Discount Brokers who don't offer trading tips and research services usually offer online trading to US-based NRIs. This includes brokers like Zerodha and ProStocks.

      There US-based NRI customers can use the online trading software to place buy/sell requests in equities, equity derivatives, currency derivatives, MFs and IPOs in BSE and NSE.

   Discuss this question

7. 7. Can NRI buy shares in India?

   An NRI can buy shares in India from the stock exchange on repatriation as well as a non-repatriation basis. To buy the shares on a repatriation basis, an NRI requires PIS approval from RBI. The PIS approval is not mandatory in case of purchases without repatriation benefits.

   An NRI requires an NRE PIS or NRO PIS/Non-PIS bank account to be linked with NRE/NRO Demat account and NRE/NRO trading account to buy the shares on repatriation or non-repatriation benefits.

   It is important to note that an NRI has to take the delivery of the security bought before placing a sell order as NRI is permitted to do only delivery-based trading in India.

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8. 8. Does US NRI having a Demat and Trading account need to open a PIS account?

   Yes, US-based NRIs are required to open a PIS-enabled NRI bank account, if they want to invest in shares on a repatriation basis. To trade on a repatriation basis, you would need an NRE Trading, Demat, and Bank Account with PIS approval from RBI linked to it.

   The RBI PIS approval is not needed to trade on a non-repatriation basis.

   The PIS approval is also not needed edit to invest in Mutual Fund and Derivatives (stock and currency).

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