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NRI Taxation & FAQ's

Here's investing in Mutual Funds could prove to be a good financial decision:
Who is an NRI?
  • An NRI is an Indian citizen who stays outside India.
    a. For purposes of carrying out employment or any business or vocation.
    b. Under circumstances indicating an intention to stay outside India for an uncertain duration.
  • Any Indian citizen deputed outside India for a temporary period in connection with employment.
Who is a PIO?
A citizen of a foreign country (other than a citizen of Bangladesh or Pakistan) is a PIO if:
  • He/She at any time held an Indian Passport OR
  • He/She or either of his parents or any of his/her grandparents was a citizen of India OR
  • Spouse (not being a citizen of Bangladesh or Pakistan) of an Indian citizen (a) or (b) above.
What are the products offered to NRI?
NRI can invest in the following products.
  • Equity trading on BSE and NSE
  • Derivatives trading on the NSE
  • IPO online
  • Portfolio Management
  • Investments in Mutual Funds
What steps an NRI needs to take to start investing in the Indian Stock Market?
  • An NRI should open a new bank account (NRE/NRO or both) with designated bank which is approved by RBI (Reserve Bank of India) for this purpose.
  • He should apply for a general approval for investment in Indian Stock Market through his designated bank branch.
  • He should open a Demat Account with an NBFC to hold his shares and register to execute his buy/sell orders on the stock exchange(s).
What type of saving bank account(s) can be opened by an NRI or PIO in India?
Any NRI/PIO can open two types of savings accounts with any bank in India. They are NRE and NRO bank accounts.
What is a NRE account?
A NRE bank account is an external saving bank account opened for Non resident Indians. This is why it is known as Non-Resident External account. Since it is an external account, any monies lying in NRE account can be taken outside the country or in other words, the monies lying in NRE account are fully repatriable. This money can be converted into any foreign currency at the behest of the account holder and can be remitted outside the country.
What is a NRO account?
A NRO bank account is an ordinary saving bank account opened for Non resident Indians. This is why it is known as Non-Resident Ordinary account. Since it is an ordinary account i.e. as good as a normal saving bank account, monies lying in NRO account cannot be taken outside the country or in other words, the monies lying in NRO account are not repatriable.
Can money be transferred from NRE account to NRO account?
Yes money can be freely transferred from NRE account to NRO account.
Can money be transferred from NRO account to NRE account?
No, money cannot be transferred from NRO account to NRE account.
What is the status of NRO/NRE accounts on the return of the account holder to India?
RBI has advised banks to re-designate such accounts as resident accounts on return of the account holder to India.
In case a resident Indian 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, but has to transfer the shares to his NRO (Non Resident Ordinary) account
Can NRIs invest in shares, debentures and units of Mutual Funds in India?
NRIs are permitted to make direct investments in shares/ debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e . purchase of share / debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis.
NRIs subscribe to public issues? What are the permissions/approvals required?
Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from GOI/RBI. Therefore, individual NRI need not obtain any permission.
Does an NRI require any permission to receive bonus/rights shares?
No
What is PIS?
Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) defined in Schedule 3 of Foreign Exchange Management Act 2000 under which the 'Non Resident Indians (NRIs)' and 'Person of Indian Origin (PIOs)' can purchase and sell shares and convertible debentures of Indian Companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch.
Any NRI or a PIO wanting to trade/make fresh investments in the Indian Equity Secondary Market needs and must have one PIS account with only one designated bank in India.
Notes:
  • PIS account is applicable only for NRIs and not for resident Indians.
  • It is only for trading in Indian markets and not any other foreign markets.
  • It is applicable only for equity trades and not MF investments.
What are the types of PIS account?
There are two types of PIS account:
  • NRE PIS account
  • NRO PIS account
What is meant by investment through direct subscription route?
As per the regulations NRIs are allowed to invest up to a certain percentage of the total paid up capital of the company by directly subscribing to the equity/convertible debentures of the company either though a public offering made by the company or through private placements on one to one basis. Regulations provide for different ceilings on such investments based on the industry to which the company belongs and also the nature of investments (repatriation / non-repatriation basis).
Do investments made through IPO's or Private placements come under PIS?
No. Investments made by NRIs though subscription to Initial Public Offerings (IPO's) or Private placements are not covered by Portfolio Investment Scheme. Such investments are covered by RBI's regulations with regard to Foreign Direct Investments.
Do NRIs need any permission of RBI to subscribe for IPO's or Private placements of equity shares/convertible debentures of existing or new companies?
No. NRIs do not require any permission to invest though Initial Public Offerings (IPO's) or Private placements. In such cases, the Issuing Company should comply with all necessary regulations for issuing securities to a person resident outside India.
Do NRIs need approvals from RBI for selling securities acquired through IPO's/Private Placement?
No. NRIs can sell such shares/debentures on the Exchange without any approval. However, while seeking the credit of sale proceeds to NRE/NRO account, the bank should be provided with the details regarding date of allotment and cost of acquisition to calculate the taxes, if any.
   
   
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