Reserve Bank of India (RBI) permits an NRI to invest in Indian Share Market through Portfolio Investment Scheme (PIS) Account. The NRI investor must obtain permission from the RBI before investing in Indian capital market. Normally this permission is obtained through a designated schedule commercial bank where the NRI investor has the NRE/NRO account. This permission allows NRIs to invest in shares of Indian companies, in secondary market, under repatriation or non-repatriation basis in respect of shares or convertible debentures sold or purchased through a registered stock broker on a recognized stock exchange. Any other modes of acquiring shares are not covered under this scheme ie, shares purchased through IPOs, as resident individuals, bonus shares etc.
NRIs have to designate a branch of an Authorized Dealer (Bank) for routing the transactions relating to purchase and sale of shares/ convertible debentures under PIS, and route all such transactions only through the branch so designated. The NRI has to sign an agreement with an approved share broker to open the share trading account/depository account. The share broker will buy/sell shares on behalf of the NRIs as per the agreed terms and all the reports related to the buy/sell of shares and securities will be provided to the investor either manually or electronically, the mode opted by the NRIs. In case the investor opted for online trading, the investors are given a login ID and password to access their web site to do the buy/sell transactions, cash transfer, verify the portfolio positions, transactions details etc.
In short the following accounts are opened on behalf of the NRI investor
1) NRE/NRO Account with any branches of a commercial Bank
2) PIS account with the designated braches of the same bank
3) Depository account with Share broker
4) Share Trading account with a Share Broker
The investor has to open a NRE account if he requires his investments to be repatriated and an NRO account if he does not want the repatriation facility. The broker will help the investor to open the NRE/NRO/PIS account.
Capital Gains (profits)
Capital gains realized from shares that are held for more than one year is treated as long term capital gains and are tax free. Gains realized within a period of less than one year will attract short term capital gains at the applicable rate (presently @ 15% Plus Surcharge) which will be deducted at source by Bank. Tax is calculated and deducted for each transaction separately. In other words, the gains made in one transaction cannot be set off against the loss made in another. In case you are not liable to pay tax in a particular financial year, you can file your tax return and get the tax refund from the Income Tax Authorities.
Dividend Income
As per the present Income Tax rules, the dividend received from equity shares are exempted from income tax, so its fully tax-free in the hands of the investor.
NRIs needs to complete the following applications for opening the PIS and Share Trading Accounts
1. Agreement with Broker
2. Trading Account application
3. Depository Account opening form
4. KYC Application
5. PAN Application (if not already held by the investor)
6. PIS Application form
Documents required:
1. Six passport size colour photograph of the NRI
2. Copy of PAN card
3. Copy of passport with Visa page
4. Overseas Address proof
5. Indian Address proof
6. Bank Statement
7. One Canceled Cheque Leaf
Please mail your suggestions/feedback to Prakash@yourownadviser.com
Best Regards
Prakash Nair
