Who is a non-resident Indian (NRI)?
Non-Resident Indian (NRI) means a "person resident outside India" who is a citizen of India or is a person of Indian origin as per FEMA regulations.
Who is a 'person resident outside India'?
Under the Foreign Exchange Management Act, 1999 (FEMA), a person who is NOT a 'person resident in India', as defined under Section 2 (v) of the Act is considered as a 'person resident outside India'.
The most important change in definition (since FERA 1973) is that the citizenship of a person no longer has a bearing in determination of residential status.
Who is a 'person of Indian origin'?
'Person of Indian Origin' (PIO) means a citizen of any country other than Bangladesh or Pakistan,
a ) if he at any time held Indian passport;
b ) or he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955;
c )or the person is a spouse of an Indian citizen or a person referred to in sub-clause [a] or [b].
Investment by PIO in Indian Securities is treated the same as the investment by non-resident Indians and requires same approvals and enjoys the same exemptions.
What is Portfolio Investment Scheme?
Portfolio Investment Scheme (PIS) is a scheme of Reserve Bank of India defined in Schedule 3 of Foreign Exchange Management Act 2000. As per the scheme the NRIs and OCBs can purchase and sell shares and convertible debentures of Indian Companies on a recognised stock exchange by routing such purchase/sale transactions through their account with a Designated Bank Branch. (With effect from 29/11/2001 RBI has restricted OCBs from making fresh purchases. They can however continue their existing holdings or sell off the same).
Can an investment made under PIS be repatriated?
The repatriation of the sale proceeds are allowed if the original purchase was made on repatriation basis and the sources of investment were from NRE/FCNR account or by means of remittance from abroad. If the original purchase was made from NRO a/c then the sale proceeds are not repatriable.
Can an investor under PIS make an investment on repatriation basis as well as non-repatriation basis?
Yes. Investment can be made on repatriation as well as non-repatriation basis. However, the investor will have to open NRE account as well as NRO account with the Designated Bank. The sale proceeds of non-repatriable investment can be collected in NRO A/c only
Do NRIs who already have an account need to open another NRE/NRO account? Can the account be a joint account?
As per recent RBI guidelines, NRI should have a separate bank account exclusively for PIS purposes. Transactions relating to their personal banking as well as on account of transactions relating to shares acquired other than under PIS including IPOs should be routed in a separate bank account not linked to PIS. Account/s cannot be a joint account.
What is a Designated Bank branch?
Reserve bank of India has authorized few branches of each authorized dealer bank to conduct the business under portfolio investment scheme on behalf of NRIs.
NRI can select only one authorized dealer bank for the purpose of investments under portfolio investment scheme and route the transactions through the branch designated by the authorized dealer bank..
How many Designated Banks can an NRI appoint?
NRI can appoint only one Designated Bank for the purpose of routing the transactions under PIS.
Does an NRI require PIS permission to purchase shares in the primary market (IPOs) on repatriable/non repatriable basis?
No, as an NRI you can purchase shares in the primary market on repatriable/non repatriable basis and application money can be paid through regular NRE SB /NRO SB Account or through inward remittance.
If an NRI has existing portfolio purchased under IPO in the primary market both on repatriation and non-repatriation basis, does he still have to route the sales of such holding through the Designated Bank?
The shares/ acquired under IPO need not be routed through Designated Bank as this does not come under PIS. Such transactions, if routed through designated bank, should be done in a separate bank account not linked to PIS.
Is there any limit for purchase/sale of shares by an NRI in the secondary market?
Yes. NRI can purchase upto a maximum of five percent of the paid up capital of a company. For the purpose of this ceiling investment in repatriable and non-repatriable will be clubbed. In addition to above NRIs collectively can hold upto a maximum of 10% of such holding or any higher percentage so permitted in respect of any particular company. Shares acquired through primary market are excluded for the purpose of above limits.
How does an NRI know whether a particular company is open for NRI investment? Is there any tax obligation?
RBI notifies a list of companies where the ceiling limit has reached and where no fresh purchases can be made. This list is called watch list.
RBI also notifies a list called caution list notifying the names of companies whose NRI holdings has reached 2% below the ceiling limit. Any further purchases are allowed only by obtaining prior approval from RBI. Such approvals are issued by the RBI on first come first serve basis.
The Watch and Caution list is available on the RBI Website. Please click here to refer the same.
Is it mandatory to place the orders for purchase/sale of shares through the Designated Bank?
The orders need not be placed through the Designated Bank.It has to be placed with stock broker Further, the reporting of the transaction shall be done to the designated Bank on the same day of transaction along with original contract note by the stock broker. The stock broker needs to needs to ensure that the payment and receipt of funds in settlement of such trade has to be routed through the Designated Bank account only.
Can an NRI sell the shares purchased within the same settlement cycle?
No. NRI cannot sell without taking delivery of the shares/ purchased. Short selling is not permitted under PIS.
How does an NRI correct his / her position if the purchased shares are in excess of the prescribed limit, if any?
NRI will have to off load such portion of the holding, which is in excess of the prescribed limit.
At what frequency does an NRI need to report his transactions to the Designated Bank?
The contract note of NRI transaction details needs to submit to the Authorized Dealer Bank on daily basis to enable designated dealer banks to report the same to Reserve Bank of India
Is it mandatory to route the secondary market transactions through PIS designated account only?
Yes, It is mandatory for a NRI to route all secondary market transactions through his PIS designated account i.e. For all purchase / sell of stocks in secondary market only the PIS designated account should be debited / credited.
Can an NRI transfer shares purchased under PIS to others under private arrangement?
Shares purchased under PIS on stock exchange shall be sold on stock exchange only. Such Shares cannot be transferred by way of sale under private arrangement or by way of gift (except by NRIs to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India) to a person resident in India or outside India without prior approval of the Reserve Bank of India.
Can NRI trade in futures & options segment of the Exchange?
Yes, NRIs are allowed to invest in futures & options segment of the exchange out of Rupee funds held in India on non repatriation basis, subject to the limits prescribed by SEBI.
Can NRI trade in Currency derivative segment of the Exchange?
Yes, SEBI Vide Circular No.: SEBI / HO / MRD / DP / CIR / P / 2017 / 63, dated June 28, 2017 has permitted NRIs to participate in the exchange traded currency derivatives market to hedge the currency risk arising out of their investments in India under FEMA, 1999
Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?
Yes, NRIs are allowed to Invest in Exchange Traded Funds (ETFs). NRIs can invest in ETFs both on repatriation as well as non repatriation basis
Can two separate trading accounts namely (NRE & NRO) can be opened by NRI?
Yes, clients can have two separate trading accounts based on NRE & NRO.
In case a person who is resident in India becomes a non-resident, will he / she be required to change the status of his/her holding from Resident to Non-Resident?
As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non resident Indian, on a non-repatriable basis.
In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from NonResident to Resident?
Yes. It is the responsibility of the NRI to inform the change of status to the designated authorized dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account.