NRI EDGE
Read time: 12 mins
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Investment options in Indian stock markets for NRIs
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Know the process, eligibility and documentation requirements
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Repatriation of funds and associated tax implications
The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of February 15, 2024.
Non-Resident Indians (NRIs) can invest in listed securities traded on recognised stock exchanges in India like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
To do so, NRIs need to open a Non-Resident External (NRE) account under the Portfolio Investment NRI Scheme (PINS) or use their Non-Resident Ordinary (NRO) account for routing their investments. To do so, NRIs need to approach designated branches of any authorised dealer (bank) such as ICICI Bank who are authorised by the Reserve Bank of India (RBI) to administer the PINS. Please note, once you designate your NRE bank account as a PINS account, you cannot use that account for other banking related transactions. While previously, NRIs also needed an NRO PINS account, according to the recent RBI guidelines, this is no longer needed.
What is PINS?
PINS account is an RBI approved bank account that NRIs can use for transacting in the secondary markets. NRI can opt for only one authorised bank to invest in India under PINS route and can have only one PINS account at any given time.
Bank accounts for different investments
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Asset classes | Account required |
|---|---|
Equity | NRO account/NRE PINS account |
Derivatives (F&O) | NRO account |
Mutual Fund* (except USA/Canada) | NRO/NRE accounts |
Initial Public Offerings (IPOs) | NRO/NRE/NRE PINS accounts |
*NRIs from USA and Canada may face restrictions on investing in Indian mutual funds with a few AMCs which may not be FATCA or CRS compliant
Investing in Indian stock market:
NRIs can invest and trade in equity shares, Mutual Funds (MFs), Exchange-Traded Funds (ETFs), equity derivatives and bonds, with some restrictions as compared to a Resident Indian. However, NRIs are restricted from trading in currency and commodity derivatives.
Equity shares
As an NRI, you are allowed to invest in Indian equities under the PINS. However, only delivery-based trades (where you take delivery of securities in your demat account and keep them for more than one day) are permitted for Indian equities.
As per RBI regulations, you are not permitted to engage in:
- Trading of securities without taking delivery in your demat account such as:
- Intraday trading in equity shares i.e., when you buy and sell the securities within the same day
- Sell-Today-Buy-Tomorrow (STBT) trading
- Buy-Today-Sell-Tomorrow (BTST) trading
- Invest in certain industries of the Indian stock market such as atomic energy, railways, etc.
- Gambling and chit funds.
Additionally, when investing in listed entities, NRIs are subject to specific upper limits on their holdings. To ensure compliance, trading platforms automatically block any attempts exceeding these pre-defined thresholds.
NRIs can subscribe to Initial Public Offerings (IPOs) if they have an NRE/NRO account. You do not need a PINS account to invest in IPOs.
Please note, the overall investment by NRIs is limited to 10% of the paid-up capital of an Indian company. This can be increased to 24%* if the company’s general body approves it through a special resolution.
You should get in touch with your bank or broker for more details.
*As per Reserve Bank of India Master Direction – Foreign Investment in India, 2022
Mutual Funds (MFs)
Several Indian Asset Management Companies (AMCs) offer different mutual fund schemes to NRIs which include equity, debt and hybrid funds. You can invest in a mutual fund online or through an appointed Power of Attorney (PoA) in India.
You can start investing in mutual funds with your NRE/NRO accounts either through your bank, broker or AMC. As an NRI, you can either make a lump sum investment in MFs or make regular contributions over a period through Systematic Investment Plans (SIPs).
Did you know?
NRIs from the United States and Canada may face restrictions on investing in Indian mutual funds with a few AMCs which may not be Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) compliant. Fund houses must comply with the FATCA and CRS guidelines, which require them to report the financial accounts and investments of their foreign clients. As a result, few leading AMCs, banks and brokers do not allow NRIs from the United States and Canada to invest in mutual funds through their digital platforms.
Exchange-Traded Funds (ETFs)
These are investment funds that trade on exchanges and usually track an index or an investment asset. As an NRI, you can invest in index, gold or debt ETFs such as Nifty 50, NIFTY Bank or Sensex. However, you are not allowed to invest in currency and commodity based ETFs in India. You should get in touch with your bank/AMC or broker for more details. USA and Canada based NRIs should consult their tax advisors before investing in ETFs or index funds in India.
Futures and Options (F&Os)
As an NRI, you can trade in the F&O segment but only for equity or index related derivatives. You are allowed only delivery-based trades or can continue to hold the positions till the expiry of the derivative contract. You cannot take intraday positions. Further, you are also not allowed to trade in currency and commodity derivative contracts.
You can trade in the F&O segment only through your NRO bank account, out of the Rupee funds held in India, on a non-repatriable basis (subject to the limits prescribed by the Securities and Exchange Board of India (SEBI)). You cannot use your NRE account to trade in the F&O segment.
Pre-requisites for investing in the Indian stock market
To start investing in the Indian stock market, amongst other considerations which your investment advisor shares with you, you should
- Be classified as an NRI and have a Permanent Account Number (PAN) card.
- Set up your NRE bank accounts under PINS to invest in equity shares.
- Have a demat and trading account with a registered broker or bank.
You can also appoint a mandate holder or grant a PoA to have someone invest in the Indian stock market on your behalf.
How can NRIs make payments for shares purchased on the stock exchange?
NRIs purchasing shares or debentures on a repatriation basis must use either:
- Inward remittance of foreign currency through normal banking channels
- Funds held in NRE/FCNR(B) accounts in India
For non-repatriable purchases, NRIs can utilise their NRO accounts.
Repatriation of your investments
As an NRI, you can choose to invest in India either on a repatriable, or non-repatriable basis. You can repatriate the income earned through the investment, or opt for non-repatriable investments, where the gains are retained in India.
- If you invest through an NRE account, then the entire proceeds from investments are fully repatriable.
- However, if you invest from your NRO account, then the proceeds are repatriable only up to USD 1 million cumulatively for all NRO accounts held in India per Financial Year (April–March) subject to necessary documentation and tax compliances.
Tax implications on capital gains
Any income earned from stock market investments by NRIs is subject to taxation in India. In terms of capital gains taxation, NRI tax treatment aligns with that of Resident Indians.
It is important to know that AMCs will deduct Tax Deducted at Source (TDS) on redemption of mutual funds/dividend pay-out.
Please note, tables are best viewed on desktops and in landscape mode on mobile phones.
| Investment gains from asset | Holding period | Rate of tax |
|---|---|---|
Equity shares listed on NSE/BSE and subject to Securities Transaction Tax (STT) Equity-oriented mutual funds (equity allocation is 65% or more). | > 12 months (Long-term capital gain) Up to 12 months | Any gain above ₹1 lakh is taxed at 10% + applicable surcharge and cess 15% + applicable surcharge and cess |
Debt-oriented mutual fund (equity allocation is less than 65%) purchased before April 1, 2023. | > 36 months (Long-term capital gain) Up to 36 months | 20% + applicable surcharge and cess with indexation As per your income tax slab* |
Specified Mutual funds purchased on or after April 1, 2023. (Equity allocation is up to 35%). | Short-term capital gain (irrespective of its holding period) | As per your income tax slab* |
Interest and Dividends | Not applicable | As per your income tax slab* |
*These tax slabs are defined as per the Finance Act, 2023.
It is important to note that Tax Deducted at Source (TDS) will be applicable on the investment income as mentioned above.
If you are filing tax in foreign country, check for the Double Tax Avoidance Agreement (DTAA) between India and your country of residence.
You are exempted from taxes on any long-term capital gains from the sale or transfer of specified foreign exchange assets* which are acquired in India through inward remittance in foreign currency. However, this is possible only if the net consideration (proceeds) is re-invested into other specified assets, such as:
- Shares and debentures of an Indian company,
- Deposits with banks and Indian public companies,
- National Savings Certificate, etc.
Long-term capital loss cannot be set off against any income other than income from long-term capital gain. However, short-term capital loss can be set off against long-term or short-term capital gain.
You should get in touch with your financial advisor/tax expert for the latest slab rates or any changes in regulations to ensure compliance.
*Income-tax Act, 1961, Chapter XII (A)
Conclusion
NRIs can invest in the Indian stock market through the purchase of equity shares, mutual funds, ETFs and derivatives. You can only conduct delivery-based trades, and there are restrictions on intraday trading or trading in currency derivatives and commodities. You can repatriate your investments and gains under the applicable regulations through your NRE/NRO accounts. The income gained from investments in stock markets is taxable subject to the duration and nature of the instrument held. You should get in touch with your bank or an investment advisor for more details.
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Frequently Asked Questions
Can I use my resident demat account to trade stocks on the Indian market as an NRI?
As an NRI, you are not permitted to use your resident demat account for trading in the Indian stock market. Instead, you will need to convert your account to an NRI demat account linked to your NRO account to facilitate your trading activities.
What will happen to my existing stocks after my status changes to an NRI?
When your status changes to an NRI, your existing stocks will remain intact. However, your demat account needs to transition to an NRI demat account. This is because holding resident accounts (both savings and demat) in India is not permissible for NRIs.
Can a Person of Indian Origin (PIO) or Overseas Citizen of India (OCI) invest in shares of companies listed on the Indian stock market?
Yes, PIOs and OCIs have the same rights and limitations as NRIs in terms of investment opportunities in the Indian stock market.
Can an NRI sell 100 shares in a single order, 75 purchased from an IPO and the remaining 25 using their NRE PINS account on the secondary market?
No. You have to sell these shares separately as they were purchased in different markets in two different orders. 75 shares acquired through the IPO must be sold from your non-PINS account, while the 25 shares purchased on the secondary market should be sold from your NRE-PINS account.
If an individual currently residing in India transitions to non-resident status, should they reclassify their existing investment holdings from "Resident" to "Non-Resident"?
Under Section 6(5) of the Foreign Exchange Management Act (FEMA), NRIs retain the right to hold securities purchased while they were a resident, even after transitioning to non-resident status. However, maintaining this status requires updating their residency information and KYC details.
It is important to note that the underlying securities themselves remain unchanged. The transformation only affects the associated accounts:
- Bank accounts will be redesignated as Non-Resident Ordinary (NRO) accounts.
- Demat accounts will become non-repatriable, meaning dividends and proceeds from sales cannot be freely transferred back toNRI’s current country of residence
What will happen to my demat account when my status changes from an NRI to a resident Indian?
Once your residency status changes to a resident Indian, the securities held in your NRI demat account will be transferred to the resident demat account and your NRI demat account will be closed.
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Disclaimer:
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision. Terms and conditions of ICICI Bank and third parties apply. ICICI Bank is not responsible for third party services. Nothing contained herein shall constitute or be deemed to constitute an advice, invitation or solicitation to avail any products/ services of third parties.
