Q.1 Who is a non-resident Indian (NRI)?

Ans: An Indian residing abroad is generally known as Non-Resident Indian (NRI). NRI is defined under the Foreign Exchange Management Act, 1999 (FEMA) and the Income Tax Act, 1961 and for the purpose of the respective laws.

NRI as per FEMA-

Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of Indian origin.

Person of Indian Origin (PIO) means a citizen of any country other than Bangladesh or Pakistan,

1. who at any time held Indian Passport, or

2. who or either of whose parents or any of the grandparents was a citizen of India under Constitution of India or under Indian Citizenship Act, 1955, or

3. who is spouse of an Indian citizen or spouse of person referred to in 1 and 2 above

Person resident outside India means a person who is not resident in India.

As per FEMA, a person resident in India means a person residing in India for more than one hundred and eighty-two days (182 days) during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period.

In other words, to be treated as ‘a person resident in India’, under FEMA a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose/intention of stay.”

FEMA excludes person moving out of India for employment or business from category of Resident. Similarly it also excludes a person coming as tourist / visitor from the category of Resident.

NRI under the Income Tax Act, 1961

For Income Tax purposes, a person would be a RESIDENT of India if-

  • He/ She is in India for 182 days or more during the financial year.

OR

  • If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.

If you do no satisfy the condition laid out above– you will be considered a NON RESIDENT INDIAN.

If you take up a job outside India, the 60 days minimum period will be increased to 182 days.

Difference in NRI definition as per FEMA and Income Tax Act

i. For being resident in India, Income Tax Act requires stay of 182 days in India while FEMA requires a stay of more than 182 days.

ii. Income Tax Act considers Current Financial year for determination of residential status. FEMA considers preceding financial year.

iii. Income Tax Act considers the number of stay in India and does not consider the reason of stay in India or visit abroad but, FEMA does consider the reason of stay or visit outside India for the purpose of determining the residential status.

iv. For Income Tax Purpose, you are either resident or non-resident for the entire financial year but in case of FEMA, the person (leaving India for employment abroad), can be resident for one part of the year and non-resident for another part of the year.

Q.2 Who is a person of Indian Origin?

 Ans: For the purposes of investments in shares/securities in India, person of Indian origin means a citizen of any country other than Pakistan or Bangladesh, if-

a) he at any time, held an Indian passport; or

b) he or either of his parents or any of his grand parents was a citizen of India by virtue of the constitution of India or Citizenship Act, 1955 (57 of 1995); or

c) the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b)

Q.4 Who is an overseas citizen of India (OCI)?

Ans: OCI Scheme was introduced on 2nd December, 2005 by the Government of India, under which overseas citizenship of India (OCI) are granted dual citizenship.

A foreign national, who was eligible to become a citizen of India on 26.01.1950 or was a citizen of India on or at any time after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grandchildren, provided his/her country of citizenship allows dual citizenship in some form or other under the local laws, is eligible for registration as an Overseas Citizen of India (OCI). Minor children of such person are also eligible for OCI.

If the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.

Q.4 Can NRI open and maintain Bank accounts in India?

Ans: Yes, NRIs can open and maintain bank accounts in India. There are mainly three types of Bank Accounts available for NRIs- Non- Resident External Account (NRE), Non-Resident Rupee Account (NRO) and Foreign Currency Non Resident Account (FCNR).

Q.5 What is NRE account?

Ans: Non-Resident External Account (NRE)

NRE Accounts are maintained in INR. When you deposit the money in the NRE Account, the foreign currency is converted to Indian rupees at the prevailing foreign exchange rates.

You can save here your income earned abroad. The principal and the interest amount accrued on it, are fully repatriable, ie you can take out the amount out of India any time.

The Interest income earned in this account is tax free.

NRE account may be maintained in any form, e.g. savings, current, recurring or fixed deposit account etc.

Joint accounts can be opened by two or more NRIs and/or PIOs or by an NRI/PIO with a resident relative(s) on ‘former or survivor’ basis. However, during the life time of the NRI/PIO account holder, the resident relative can operate the account only as a Power of Attorney holder.

Permissible credits– Credits permitted to this account as inward remittance are interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds if such investments were made from this account or through inward remittance. Current income like rent, dividend, pension, interest etc. will be construed as a permissible credit.

Permissible debits– The debits allowed from this account are local disbursements, transfer to other NRE/ FCNR (B) and investments in India.

Q.6 What is NRO account?

Ans: Non-Resident Ordinary Account (NRO) – This account type is generally used by NRI’s to save their Indian income. Rent income, dividends from investments, or pension funds can be paid into these accounts. It is used to deposit your income earned from India or abroad.

The accounts may be maintained in any form, e.g. savings, current, recurring or fixed deposit account.

The accounts may be held jointly with residents on ‘former of survivor’ basis. NRIs and PIOs may hold an NRO account jointly with other NRIs and PIOs.

Permissible credit- Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts are permitted. Rupee gift/ loan made by a resident to a NRI/PIO relative within the limits prescribed under the Liberalised Remittance Scheme may be credited to the latter’s NRO account.

Permissible debits- Local payments, transfers to other NRO accounts or remittance of current income abroad. Apart from these, balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million. Funds can be transferred to NRE account within this USD 1 Million facility.

The interest earned on an NRO fixed deposit is taxed at a rate of 30%.

Q.7 What is FCNR account?

Ans: Foreign Currency Non-Resident (FCNR)

NRIs and PIOs are permitted to open and maintain these accounts. Deposits may be accepted in any permissible foreign currency.

Foreign currencies are stored in these accounts. It helps to avoid the currency fluctuations that take place in financial markets.

FCNR Accounts can be maintained only in the form of fixed deposit.

You can take money from this account at any time and it is not taxed by the Indian government. The principal and the interest from this account are fully repatriable.

Q.8 How by citizen of Bangladesh or Pakistan belonging to Minority communities can open bank account in India?

Ans: A citizen of Bangladesh or Pakistan, belonging to minority communities in those countries, namely Hindus, Sikhs, Buddhists, Jains, Parsis and Christians, residing in India and who has been granted a Long Term Visa (LTV) by the Central Government may open one NRO account in India with an Authorised Dealer Bank.

The account will be converted to a resident account once such a person becomes a citizen of India.

This account can also be opened if such person has applied for LTV which is under consideration of the Central Government, in which case the account will be opened for a period of six months and may be renewed at six monthly intervals subject to the condition that the individual holds a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned.

The concerned Authorised bank shall report the opening of such account with the Ministry of Home Affairs (MHA) on a quarterly basis.

The report shall contain details of (i) name/s of the individual/s; (ii) date of arrival in India; (iii) Passport No. and place/country of issue; (iv) Residential Permit/Long Term Visa reference and date & place of issue; (v) name of the FRO/FRRO concerned; (vi) complete address and contact number of the branch where the bank account is being maintained.

Q.9 What is Special Non-Resident Rupee Account (SNRR)?

Ans: The persons resident outside India and having a business interest in India, may open a Special Non-Resident Rupee Account (SNRR account) with an authorised dealer. This account can be opened for putting through bona fide transactions in rupees.

The SNRR account shall carry the nomenclature of the specific business for which it is opened and shall not earn any interest.

The debits/ credits and the balances in the account shall be incidental and commensurate with the business operations of the account holder.

The tenure of the SNRR account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and in no case should exceed seven years.

The account can be renewed on approval by the Reserve Bank.

The operations in the SNRR account should not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner.

The balances in the SNRR account shall be eligible for repatriation and transfers from any NRO account to the SNRR account are prohibited.

All transactions in the SNRR account will be subject to payment of applicable taxes in India.

SNRR account may be designated as resident rupee account on the account holder becoming a resident.

The amount due/ payable to non-resident nominee from the account of a deceased account holder, will be credited to NRO account of the nominee with an authorised dealer/ authorised bank in India.

Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior approval of Reserve Bank.

Q.10 Can NRI invest in India on repatriation basis?

Ans: A company incorporated in India including NBFC registered with the Reserve Bank cannot accept deposits on repatriation basis. It can, however, renew the deposits it had accepted in accordance with Schedule 6 of Foreign Exchange Management (Deposit) Regulations), 2016, as amended from time to time. Here, the NRI can take out the money out of India any time through the normal banking channel.

Q.11 Can NRI invest in India on non-repatriation basis?

Ans: Yes, an Indian proprietorship concern/ firm or a company (including Non-Banking Finance Company) can accept deposits from NRIs or PIOs on non-repatriation basis subject to the terms and conditions specified in Schedule 7 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. Funds can be taken out of India subject to limit prescribed.

Q.12 Where can NRIs invest in India?

Ans: Some of the investment avenues in India available to NRIs are as under:

  • Fixed Deposit bank accounts
  • Mutual Funds
  • Real Estates
  • Direct Equity
  • Bonds and non-convertible Debentures
  • Government Securities
  • Certificate of Deposits
  • National Pension Schemes

Q.13 How can NRI invest in Fixed Deposits?

Ans: Investment in the Fixed Deposits is the most common form of investment by NRI in India.

NRI can deposit their funds in fixed deposit and the fund can be kept safe for a predetermined time earning interest at the same time.

The Investment can be done in NRO, NRE and FCNR accounts, details of the accounts have been mentioned earlier in this article.

Q.14 Can NRI invest in Mutual Funds?

Ans: Yes, NRIs are allowed to invest in Mutual Funds in India- subject to adherence of Foreign Exchange Management Act (FEMA). Indian Mutual Funds market has a diverse products to offer, you may choose from Equity, Debt or Hybrid funds or even go for SIP. Indian Debt funds have higher rate of interest.

Q.15 How can NRI invest in Mutual Funds in India?

Ans: Mutual funds are large pools of investors’ money which is managed by qualified and certified professional fund managers. Mutual Funds currently operate under strict regulations of the Securities Exchange Board of India (SEBI). Mutual funds are a bit riskier than fixed deposits, but the returns of mutual funds are more than that of fixed deposit accounts.

Mutual funds are not allowed to accept foreign currencies, as such an NRI must have an NRE, NRO, or FCNR account in India to invest in an Indian mutual fund. These accounts are used for making the investment and pay out process.

Q.16 What are the mode of investments by NRI in Mutual Funds?

Ans: a. Self / Direct

NRI can do the transactions through normal banking channels by himself. The application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents include the latest photograph, attested copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification, which you can comply by visiting the Indian Embassy in your resident country or do so when you are in India.

b. Via Power of Attorney

Another mode is that you can authorised someone in India to invest on your behalf. Mutual fund companies allow Power of Attorney (PoA) holders to invest on your behalf and make decisions about your investments. However, signatures of both the NRI investor and PoA should be present on the KYC documents to invest.

Q.17 What are the categories of Mutual Funds?

Ans: There are two main categories of Mutual Funds.

Equity Funds – An equity fund is a mutual fund that invests principally in stocks (Shares). Equity funds are also known as stock funds. To be categorised as Equity funds, more than 65% of the funds must been invested in Equity Funds.

Tax rate is 15% tax if the investment is sold within the first year. The investment is tax-free after owning it for more than one year, if the gains are less than INR 100,000/-

Debt Funds – Debt funds is the mutual funds that invest in Debt funds. NRI’s pay 30% tax after selling it within 3 years of owning it. You will only pay 20% tax when you sell it after owning it for more than 3 years.

Long-term capital gains on debt fund are taxable at the rate of 20% after indexation. Indexation is a method which involves factoring the rise in inflation from the time of purchase to sale of the units.

The short term capital gains tax (SCGT) is taxable as per the income tax slab, the investor fall under.

Balanced Funds-

Balanced funds are equity-oriented hybrid funds if at least 65% of the funds is invested in equities.

Balanced funds attract equity tax only if it has more than 65% of equity exposure. If the equity exposure is less than 65% or is equally exposed to equity and debt instruments i.e., 50% equity and 50% debt, it will still fall under Debt taxation.

Q.18 How Mutual Funds are taxed?

Ans: 

Holding Period/ Fund category

 

Less than 1 year 1-3 years More than 3 years
Equity/Balance-equity oriented

 

15% 10% tax if the gains are more than INR 100,000/-
Debt

 

As per income tax slab you fall in 20% (with benefit of indexation)

For SIP, tax would be applicable as per the above table. Each instalment in SIP is considered as an independent investment.

Q.19 Is there any tax relief available in the country of residence of the NRIs?

Ans: NRI investors are often concerned that there would be double tax on their gains on investment in India as well as in their country of residence. In case India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country, you can claim tax relief in your country of residence, if you have already paid taxes in India.

Q.20 What is SIP?

Ans: A SIP or a systematic investment plan is offered by AMCs (Asset Management Companies). Under SIP, the investors are able to Invest even a small amount of money in various mutual funds across fund houses. Investors can invest a fixed amount on a daily, weekly, fortnightly, monthly, or quarterly basis.

As detailed above, gains from SIPs are taxable as per the type of mutual fund you invest in and its holding period. Each SIP, treated as a new investment, attracts taxes on its gains separately.

Q.21 What are the regulations NRIs need to follow for investing in mutual funds?

Ans: The following are applicable for investment in mutual funds by NRIs:

a. KYC documents for NRIs

The NRIs need to complete their KYC documents. The documents required are – copy of your passport – relevant pages with name, date of birth, photo, and address. The current residential proof is a must, whether temporary or permanent. Some fund houses may insist on in-person verification.

b. FIRC (Remittance Certificate)

If the payment has been made via a cheque or a draft, then you must attach a Foreign Inward Remittance Certificate (FIRC) with it. In case that is not possible, then a letter from the bank would also be fine. This confirms the source of funds.

c. Redemption

The AMC will credit the corpus (investment + gains) you get after fund redemption to your account after deducting taxes. They can also write a cheque for the same. Some banks allow crediting the redemption amount directly to the NRO/NRE account. If you have opted for non-repatriable investment, then they can credit the proceeds only to an NRO account.

Q.22 What is FATCA requirement?

Ans: The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-U.S. foreign financial institutions (FFIs) to search their records for customers with a connection to the U.S., including indications in records of birth or prior residency in the U. S., or the like, and to report the assets and identities of such persons to the U.S. Department of the Treasury.

The compliance requirement is the US and Canada are more stringent as compared to other nations. According to FATCA guidelines, all financial institutions must share the details of financial transactions involving a US person with the US Government.

For the NRIs, staying in the US or Canada, there are some limitations due to strict FATCA rules. These rules mandate all financial institutions in any part of the world to report all transactions by US citizens and taxpayers to the government there.

As such, not all fund houses comply with these strict regulations and hence many won’t accept any investments from these countries.

Eight Fund Houses that accept mutual fund investments from US and Canada are as under:

1. SBI Mutual Fund

2. Birla Sun Life Mutual Fund

3. ICICI Prudential Mutual Fund

4. UTI Mutual Fund

5. L&T Mutual Fund

6. PPFAS Mutual Fund

7. Sundaram Mutual Fund

8. DHFL Pramerica Mutual Fund

Q.23 How can an NRI invest in Direct Equity in India?

NRI can invest their money into stocks on the National Stock Exchange of India Ltd. (NSE) directly. He needs to be part of the Portfolio Investment Scheme (PINS) of the Reserve Bank of India (RBI). This will allow him to trade stocks on the NSE.

Requirement for trading in Direct Equity:

1. An NRE/NRO savings account dedicated only for PIS purposes.

2. A dematerialized account that holds shares in an electronic form.

3. A SEBI trading account with a registered broker.

Other conditions:

  • NRIs can’t trade in all Indian stocks. RBI publishes the list of stocks that are eligible for NRI investments.
  • He can’t own more than 10% of the paid-up capital.
  • Further, NRIs are not allowed to do any intra-day trading or short-selling. They can only trade on a delivery basis.
  • Taxes are deducted at source (TDS) by the brokerage.

Q.24 Is NRI permitted to invest in Real Estate?

Ans: NRI can invest in immovable properties. It serves as a good long term investment with steady growth.

NRIs can purchase both residential and commercial properties but is not allowed to buy agricultural lands, farm houses or plantations. However, this rule doesn’t apply if he get ownership of agricultural land through inheritance or as a gift.

Payment for acquisition of immovable property has to be made in INR and can be made out of:

a. Funds received in India through normal banking channels by way of inward remittance from any place outside India or by debit to the NRE / FCNR(B) / NRO account.

b. Such payments cannot be made either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned above.

Q.25 How NRI can repatriate outside India the sale proceeds of immovable property?

Ans: In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by NRI, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:

(i) the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;

(ii) the amount to be repatriated does not exceed:

  • the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or
  • the amount paid out of funds held in Foreign Currency Non-Resident Account, or
  • the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property; and
  • If the payment was made through an NRO account, he can repatriate the full amount subject to the overall limit of $1 million per year.

(iii) in the case of residential property, the repatriation of sale proceeds is restricted to maximum two such properties.

Q.26 How can NRI invest in Bonds and Non-Convertible Debentures (NCDs)?

Ans: Bonds and NCDs have risk involved, but it can also serve as a good investment option.

There are three main bond categories:

1. PSU Bonds – Public Sector Undertakings Bonds (PSU) are contracts with a maturity date. You in effect loan money to a company and they promise to repay it with interest on a specific date (called the maturity date). The interest rate on a PSU will be determined by the creditworthiness of the company who issues it. These investments are taxed at 20% if you sell it after owning it for more than 3 years.

2. Non-Convertible Debentures (NCD) – This debt is normally secured by the company’s assets. The interest rate will, therefore, be a bit lower as secured debt has less risk involved. But, the interest rate on NCDs will still be very competitive.

3. Perpetual Bonds – These bonds don’t have a maturity date so there is no date by which it pays out. The issuing company, however, promises to pay the holder a set amount of returns per year. The holders of perpetual bonds trade it on the open market. Market conditions and your willingness to sell will determine if you make a profit with the selling of this investment.

Q.27 Can NRI invest in Government Securities?

Ans: Government of India issues bills for investments. Government security is a tradable instrument issued by the Government of India to raise funds for development or for special projects.

These funds can be short term (with maturities of less than a year) or long term (with maturities of one year or more).

These investments are considered to be extremely safe as they have a sovereign guarantee backing them. These securities are tradable on money market and hence are highly liquid. T-bills don’t pay any interest, but are issued with a discount to the face value so at redemption, a profit is made.

For longer-term investment strategies, NRI’s can look at the following types of dated government securities:

  • Fixed rate government bonds – The interest rate on this bond is fixed.
  • Floating rate government bonds – The interest rate on this bond will change according to the market-related changes.
  • Capital index bonds (CPI bonds) – These bonds have a coupon payment rate that is adjusted according to the inflation rates of the Indian market.
  • National Savings Certificates (NSC)

NRIs are not allowed to invest in National Saving Certificates but they can invest in T-bills or other dated government securities quite easily.

T-bills can be purchased by participating in RBI auctions and they can be purchased in multiples of INR 25,000.

NRI will need to transfer the desired investment amount to his NRE, NRO or FCNR account. Once this amount is deposited, the Indian bank can purchase (or sell) these securities on his behalf. The interest from these securities will also come directly to his NRI account.

The interest earned from these instruments is taxable if it’s credited to NRO account and tax-free if it is the NRE account.

However, if the bond has been marked as tax-free during the issue, the interest becomes tax-free in India.

Q.28 What is Certificate of Deposits?

Certificate of Deposits (CDs) is a negotiable money market instrument and is usually used as a short termed investment. It almost works like a fixed deposit, however, the holder of a CD may sell it. You need a dematerialized account to buy and sell CDs. A CD has a maturity date by which it promises to repay a certain amount.

29. National Pension Scheme (NPS)

Ans: This pension scheme allows Indian citizens to save for retirement.

The NRIs are eligible to invest in the NPS scheme as long as they are citizens of India. The additional tax benefit on NPS is also available to NRIs. To invest in the NPS, the NRI will have to go through the basic KYC process. The age limit to invest in the scheme is between the ages of 18 and 60.

There are two accounts for NPS.

Tier 1 Account – NPS Tier 1 is the primary account and Tier 2 can be opened only if you have opened Tier 1 Account. This account can be opened under the NPS (Central Govt), NPS (State Govt), NPS (Corporate) and NPS (All Citizens Models).

The account matures at the age of 60 and can be extended to the age of 70. The minimum contribution is INR 1,000 per annum and no upper limit.

All payments and funds in this account are locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash. You are obliged to invest the rest into an annuity (an investment that pays you a fixed yearly amount). Retiring after 60 will allow you to take 40% as cash and the rest must be invested into an annuity.

Tier 2 Account – The persons holding tier 1 account are allowed to open tier 2 accounts. Tier 2 account is an unrestricted account and you can deposit and withdraw money as you wish. You can also decide how the portfolio of your tier 2 account is structured. There are many types of investments that you can choose from to help you to create a diversified investment strategy.

An NPS is not exempt from tax. The capital gains aren’t taxed, but all pay outs are taxed according to your tax slab (the tax bracket under which your Indian income is classified).

Q.30 How can NRI set up and invest in Companies/ LLPs?

Ans: Investment in a limited Company: NRIs may invest in shares/Compulsorily Convertible Preference Shares (CCPS)/ Compulsorily Convertible Debentures (CCDs)/warrants/ partly paid up shares of an Indian company under Foreign Direct Investment (FDI) Scheme, subject to the terms and conditions specified in the Guidelines.

The amount can be transferred from the banking channel from an account of NRI overseas or from NRE account of the NRI in India.

The investment under the FDI guidelines is on repatriable basis and the sale proceeds of the shares can be taken out of India.

The NRI can also invest from their NRO account in India. The investment would be non- repatriable basis.

Investment in LLP:  Likewise, NRI can now also invest in the capital contribution of LLP subject to the sectoral guidelines. The investment can be made from an account of the NRI overseas or from the NRE account in India. The investment is repatriable.

Q.31 Can NRI set up Partnership firm and invest in it?

Ans: Investment in a Partnership firm: The NRI can become a partner in a Partnership firm and may invest into the partnership firm on non-repatriation basis. The investment can be made from the NRO account of the NRI maintained in India.

Q.32 Can NRI set up and run a Sole Proprietorship firm?

Ans: Investment in Sole Proprietorship firm: An NRI can set up a Sole Proprietorship firm and contribute for its expenses. The investment will be on non-repatriable. The investment to be made from the NRO account of the NRI.

Q.33 Are NRIs allowed to invest in Exchange Traded Funds (ETFs)?

Ans: 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.

Q.34 What are the documents required to be collected from Investor to open a NRI/PIO/OCI trading account?

Ans: List of documents to be taken while registering NRI/PIO/OCI Clients-

  • Document ensuring status of entity– In case of Indian passport – Valid passport, Place of birth as India, Valid Visa – Work/Student/employment/resident permit etc.

In case of foreign passport, valid passport and any of the following:

  • Place of Birth as India in foreign passport
  • Copy of PIO / OCI Card as applicable in case of PIO/OCI
  • PIS Permission Letter from the respective designated bank
  • PAN Card • Overseas Address Driving License/ Foreign passport /Utility Bills/ Bank statement (not more than 2 months old)/ Notarized copy of rent agreement/ leave & license agreement/ Sale deed.
  • Photograph of Investor.
  • Proof of respective bank accounts & depository accounts.

Q.35 Can two separate trading accounts namely (NRE & NRO) can be opened by NRI?

Ans: Yes, clients can have two separate trading accounts based on NRE & NRO.

Q.37 Is there any ceiling on the Investments under the Portfolio Investment Scheme?

Ans: NRIs are allowed to invest in shares of listed Indian companies in recognized Stock Exchanges under the PIS.

  1. NRIs can invest through designated ADs, on repatriation and non-repatriation basis under PIS route up to 5 per cent of the paid- up capital / paid-up value of each series of debentures of listed Indian companies.
  1. The aggregate paid-up value of shares / convertible debentures purchased by all NRIs cannot exceed 10 per cent of the paid-up capital of the company / paid-up value of each series of debentures of the company.
  2. The aggregate ceiling of 10 per cent can be raised to 24 per cent, if the General Body of the Indian company passes a special resolution to that effect.

Q.38 How payments could be made by NRIs for shares purchased on stock exchange?

Ans: Payment for purchase of shares and/or debentures on repatriation basis has to be made by way of inward remittance of foreign exchange through normal banking channels or out of funds held in NRE/FCNR(B) account maintained in India. If the shares are purchased on non-repatriation basis, the NRIs can also utilize their funds in NRO account in addition to the above.

Q.39 How NRIs/PIO can remit Sale proceeds?

Ans: In case of NRI/PIO, if the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE /FCNR(B)/NRO accounts of the NRI/PIO, whereas sale proceeds of non repatriable investment can be credited only to NRO accounts

Q.40 Can an NRI transfer shares purchased under PIS to others under private arrangement?

Ans: 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.

Q.41 Can an NRI purchase securities by subscribing to public issue? What are the permissions/approvals required? How can those shares be sold?

Ans: The issuing company may issue shares to NRI on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission. While seeking the credit of sale proceeds to NRE/NRO account, the designated bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.

Q.41 Can NRI do Intra-day transactions in cash segment?

Ans: No, NRI Investor has to take delivery of shares purchased and give delivery of shares sold. Short Selling is not permitted.

Q.42 Can NRI trade in futures & options segment of the Exchange?

Ans: 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.

Q.43 Can NRI trade in Currency derivative segment of the Exchange?

Ans: No, Only “a person resident in India” as defined in section 2(v) of FEMA Act 1999 are allowed to participate in currency derivative segment of the Exchange.

Q.44 Can trading account be opened for person’s resident outside India who had been allotted shares under ESOP scheme?

Ans: Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. Trading account can be opened for person’s resident outside India only for the sole objective of selling of shares acquired under ESOP Scheme.

Q.45 Can rights/bonus shares be issued to NRI?

Ans: FEMA provisions allow Indian companies to issue Rights / Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap as may be applicable

Q.46 What needs to be done by NRIs for trading in Futures & Options segment of the Exchange?

Ans: An NRI, who wishes to trade on the F&O segment of the exchange, is required to approach the exchange through a clearing member, through whom the NRI would like to clear his trades for allotment of custodial participant (CP) code. Clearing corporation would assign a CP code to each NRI, based on the application received from the clearing member of the NRI. Trading members should ensure that at the time of order entry CP Code of the NRI is placed in the CP Code field of the trading system. The NRI client shall have only one clearing member at any given point of time

Q.47 What are the Prohibited area of investment by NRI in India.

Ans: Acquisition of agricultural land, farm houses, plantation activities.

Q.48 What Points to kept in mind by NRI when investing in India

Ans: 

  • Your investment carries the right of repatriation of the amount invested and amount earned, only until you remain an NRI.
  • Residential address in the resident country is a mandatory field. Hence, you must also attach an attested proof along with the application.
  • Are you a resident of any of the 90 countries that have signed Common Reporting Standard? CRS is a global reporting system to combat tax evasion.

In short, NRIs can choose to invest in his/her home country. The process may have some initial hassles. However, in the long run, the return on investment would be worth it. Currently, only eight fund houses accept mutual fund investment from NRIs residing in the US and Canada. So, there is certainly no reason for you to be left out of investing in one of the fastest-growing economies.

Disclaimer: This article has been prepared in good faith on the basis of information available on the date of publication without any independent verification. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.

(Author – Sonika Bharati, FCS, LLB, is a Company Secretary in Practice from Delhi and can be contacted at sonika@akgadvisory.com)

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Qualification: CS
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Location: Delhi, New Delhi, IN
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