When you are a resident of India, then you can participate actively in the share market. To participate in this business, you simply need Demat and a trading account. As the world faces an outbreak of pandemic in recent times, many countries are not up to their mark, but the Indian economy appears as a silver lining. As India is a fast developing country, many investors choose to invest here. But what if you are not a resident of India? What accounts do NRI’s need to invest in India? Can they invest directly in the share market? What are the terms and conditions set by RBI to NRIs? So let’s get started about Portfolio Investment Scheme (PIS) Account For NRI.
Scenario When Are You A NRI?
When you migrate from India or you are a foreigner, then you have to create accounts like NRE/NRO in the bank. NRIs can use them as their saving accounts. For example, in the NRE account, money can be debited in either Indian or foreign currencies. So this type of account is well known as a “repatriable account” because you can use it in both countries. But if you have only an NRO account, then you can use money only in India. You can only deposit money that you have earned in India.
You can save the money from inheritors and some other transactions in this NRO account and use it later when you revisit India. These are only for credits and debits of your money. But what if you want to invest in the stocks? According to schedule 3 of the foreign exchange management act 2000, RBI set a rule for NRIs that “those who wish to invest in stocks should open a Portfolio Investment Scheme (PIS) account along with NRE/NRO, Demat and trading accounts. PIS (Portfolio Investment Scheme) is nothing but permission from banks for NRIs to buy and sell shares and stocks in India.
Many NRIs think that only Demat and trading accounts are required to invest in shares, but it applies only to the Residence of India. NRIs’ transactions with trading accounts itself are considered illegal and may end up with severe punishments. So it is better to open up a PIS account and attach them to the NRE/NRO account.
How To Open The Portfolio Investment Scheme (PIS) Account?
1. Go to banks that have globally designated, which deals with portfolio investment schemes and follow the steps.
2. Open an NRO/NRE account. It’s ok if you have them already.
3. Fill the application form with all the information asked and submit it to the bank representative. Nowadays, as many are being digitalized, you can apply for PIS through online mode. The same procedure has to be followed here also.
4. Once you submit your application form, this is sent for approval by RBI.
5. Your NRE/NRO account is treated as a PIS account after RBI approves your application. Trading and Demat accounts have to link with this PIS account.
Now you can start investing in the shares.
What Are NRE And NRO Accounts?
The transactions that are made in both foreign and Indian currency are saved in the NRE account. In this account, deposits from another NRI can be made in foreign currency and can use them in India and transactions. This account is the so-called repatriable account. But this NRO account is only used only in India. The money he earned while he was a resident in India is deposited in this account. NRE/NRO accounts are just Saving accounts. When a person becomes an NRI, his/her savings account is converted into NRE/NRO account. To save foreign incomes, he can use the NRE account and save shares, and money earned in India is saved in the NRO account. Both accounts are joint, and you have to open both these in the same bank.
Point To Be Noted:
Even though you have NRE/NRO account, it is treated as a non-PIS account, and you cannot sell or purchase shares in the market. Only the money that comes from inheritance and selling the properties are deposited in this non-PIS account, and any transactions are treated as illegal. Once you come back to India, your NRO account can no longer be used, and you have to open a new Demat account.
Why Has The Government Taken This Decision?
India is known for its safe economic development. Many foreigners and Indian’s look for an opportunity to invest in the Indian market to turn games into their side. It is better to know that the tax on the NRIs is less than Indian residents when they hold shares. So it is better to opt for investing in India. So it becomes difficult for the government to cross-check every detail of investors. Many people choose to invest from one or more accounts, and it becomes burdensome to the government. Hence the government decided to set some rules for foreigners, and RBI will manage them. Some of the RBI rules for NRIs are:
i. Only one Portfolio Investment Scheme (PIS) account is opened for NRIs. When he/she wants to open another account, then close the previous account. This is to ensure several investors from the foreign side.
ii. RBI crosschecks every PIS account, and illegal actions will have severe punishments.
iii. There can be any number of Non-PIS accounts. These accounts include only NRE/NRO account, and these accounts are not crosschecked regularly by RBI. But it is your responsibility to link your accounts to the PIS account.
iv. Any NRI or foreigner can invest only 5% to 10% of the company’s total paid-up value. No foreigner can invest more than that without the permission of RBI. With RBI’s permission, the value can go up to 24%.
v. If NRI wishes to invest more, then he has to set a trustworthy candidate who is a resident of India as an investor. He cannot directly invest in the market if he wishes to buy more shares.
vi. Intraday trading is not done with a Portfolio Investment Scheme (PIS) account. Only the shares he buys can be sold out.
vii. PIS account is not a joint account, whereas NRE/NRO accounts can be a joint account.
Non-PIS account can include:
- Mutual funds and IPOs
- Shares received from ancestral property
- Shares received in bonus
- Shares brought when you are a resident of Indian.
Documents Required For Opening Portfolio Investment Scheme PIS Account
The documents that are asked to submit while you apply for a Portfolio Investment Scheme (PIS) account are PAN card, Identity Proof Document, valid visa, overseas address proof ( if it is not in English, then it has to get converted by the local translators and get signed by them), passport size photos, permission letter, a form of opening account. Some banks require some cash to open a PIS account for maintenance and approval for your account. All the photocopies of KYC documents certified by any lawyer or court are also to be submitted while opening your account.
How Is The Portfolio Investment Scheme (PIS) Account Used?
When you have linked your Portfolio Investment Scheme (PIS) account with NRE/NRO accounts along with Demat and trading accounts, then you can start buying, selling, debentures, the shares. Payments can be made through NRE/NRO accounts. If payments are in foreign currency, you can use the NRE account, and when you sell your shares, money gets deposited in this NRE account. You can use this account in both countries. If payments are made in Indian currency, you can use the NRO account, and this account is used only in India itself. NRIs can transfer money from one NRI to another through these NRE accounts, and India’s authorized dealers maintain this account. NRIs can invest in the company’s future stocks, and it is based on some regulations set by RBI.
Note: PIS account is not used for mutual funds and for selling the shares he got when he/she is an Indian resident. PIS account cannot be used to invest in chit cards, agriculture businesses like a plantation, real estate in agriculture and construction of farmhouses, etc.
1. Can NRI do intraday trading?
The answer is no. He/she can only sell shares when he/she acquires them completely, i.e., only when the shares are transferred completely into their NRE/NRO accounts.
2. Can PIS be a joint account?
According to RBI’s rules, no NRI can jointly open the PIS account because it becomes burdensome for the government to cross-check who has done trading.
3. Do NRIs need a PIS account to sell shares that were purchased in primary markets (IPOs) on a repatriable/non-repatriable basis?
The shares you acquired when you are a resident of India can be sold out without any PIS account. So the answer is no.
4. Can investors under PIS make an investment on a repatriable basis as well as a non-repatriable basis?
The answer is Yes. Repatriable and non-repatriable means whether one can use accounts in both countries or not. So link PIS account with NRE/NRO account and start investing. NRIs cannot approach different banks to open NRE/NRO accounts. This has to be done in only one designated bank.
5. How will the resident status shares be settled by an NRI?
The shares brought in the primary or secondary market when you are a resident of India are transferred to the NRO account. This means you can use them only on a non-repatriable basis. You can sell these shares without a PIS account, and can be done within the country.
6. What is the maximum limit for an NRI to purchase the shares?
NRI can purchase up to a maximum limit of 10% of the company’s total paid-up value. But with permission from RBI, this can raise to 24%.
7. Do NRIs have an exemption of Long term capital gains?
According to a new section 112A, tax on long term capital gains is applied, and 10% is deducted when gains exceed ₹ 1 lakh. This comes into the picture from April 1, 2018.
8. How much tax does NRI has to pay?
20% is taxed when an NRI invest in Indian assets. But during this financial year, if he has only special investment money and no other income, he is not required to file an income tax return form.
9. Can losses on NRO PIS transactions be set-off against profits in NRE PIS transactions?
Yes, there is a facility named Enhanced set-off facility. When there are losses in transactions in the NRO account, there is a chance to set-off against transactions in the NRO account and vice versa. This facility is only for future profits and not for earlier profits.
It is the responsibility of an individual NRI to change his status when he/she is no longer a resident of India. Later, to invest in shares or debentures, the company has to open an account and link it with NRE/NRO account along with Demat and trading accounts. It is the responsibility of an individual to help the government. Happy investing!!