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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, they need to open a Non-Resident External (NRE) account under the Portfolio Investment NRI Scheme (PINS) or use their Non-Resident Ordinary (NRO) account to route their investments. They must approach designated branches of any authorised dealer (bank) such as ICICI Bank. These dealers must be authorised by the Reserve Bank of India (RBI) to administer  PINS. Please note, once you designate your NRE bank account as a PINS account, you cannot use it for other banking related transactions. Moreover, according to the RBI guidelines, NRIs no longer need an NRO PINS account to trade in the Indian stock market.

What is PINS?

A PINS account is an RBI-approved bank account that NRIs can use to transact in the secondary markets. NRIs can opt for only one authorised bank to invest in India under PINS and 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 (Futures & Options (F&O))

NRO account

Mutual Funds* 

NRO/NRE accounts

Initial Public Offerings (IPOs)

NRO/NRE/NRE PINS accounts

*NRIs from the United States and Canada may face restrictions on investing in Indian MFS with a few Asset Management Companies(AMCs) that may not be FATCA or Common Reporting Standard (CRS) compliant.

 

Investing in the Indian stock market 

NRIs can invest and trade in equity shares, MFs, Exchange-Traded Funds (ETFs), equity derivatives and bonds, but with some restrictions compared to a resident Indian. However, they are restricted from trading in currency and commodity derivatives.

Open an NRI account
 

Equity shares

As an NRI, you are allowed to invest in Indian equities under PINS. However, only delivery-based trades are permitted for Indian equities. It refers to taking delivery of securities in your demat account and keeping them for more than one day.

As per the RBI regulations, you are not permitted to:

  1. 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;
  2. Invest in certain industries in the Indian stock market, such as atomic energy, railways, etc.
  3. Engage in gambling and chit fund.

 

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.

As an NRI you can also subscribe to IPOs if you 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
 

MFs

Several Indian Asset Management Companies (AMCs) offer different MF schemes to NRIs, which include equity, debt and hybrid funds. You can invest in an MF online or through an appointed Power of Attorney (PoA) in India.

You can start investing in MFs with your NRE/NRO accounts through your bank, broker or AMC. You can either make a lump sum investment or regular contributions over a period through Systematic Investment Plans (SIPs).

Did you know?

NRIs from the United States (US) and Canada may face restrictions on investing in Indian MFs with a few AMCs that 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, some leading AMCs, banks and brokers do not allow NRIs from the US and Canada to invest in MFs through their digital platforms.

 

 (ETFs)

These investment funds 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. If you are an NRI from the US or Canada you should consult your tax advisor before investing in ETFs or index funds in India.  

 

(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?

To purchase shares or debentures on a repatriation basis, you must use either:

  • Inward remittance of foreign currency through normal banking channels
  • Funds held in NRE//Foreign Currency Non-Resident (FCNR)(B) accounts in India

For non-repatriable purchases, you can utilise your 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 all 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
(Short-term capital gain)

 

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
(Short-term capital gain)

20% + applicable surcharge and cess with indexation

As per your income tax slab*

Specified MFs 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 TDS will be applicable on the investment income as mentioned above.

If you are filing taxes in a foreign country, check for the Double Taxation 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*  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 to ensure compliance with the latest slab rates or any changes in regulations.

*Income-tax Act, 1961, Chapter XII (A)

Conclusion

As an NRI you can invest in the Indian stock market 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. The 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 Know Your Customer KYC details.

It is important to note that the underlying securities themselves remain unchanged. The transformation only affects the associated accounts as follows:

  • Bank accounts will be redesignated as NRO accounts.
  • Demat accounts will become non-repatriable, meaning dividends and proceeds from sales cannot be freely transferred back to the NRI’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.

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.