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FAQs |
Who is a Non-Resident Indian [NRI]? |
Non- Resident Indian [NRI] means a 'person resident outside India' who is a citizen of India or is a 'person of Indian origin'.
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Who is a 'person resident outside India'? |
Under the Foreign Exchange Management Act, 1999 [FEMA], a person who is NOT a 'person resident in India', as defined under Section 2 (v) of the Act is considered as a 'person resident outside India'. The most important change in definition [since FERA 1973] is that the citizenship of a person no longer has a bearing in determination of residential status.
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Does an NRI need any RBI permission to open a demat account? |
No permission is required from RBI to open a demat account. However, credits and debits from demat account may require general or specific permissions as the case may be, from designated authorised dealers
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Where can an NRI/PIO open a demat account? |
NRI/PIO can open a demat account with any Depository Participant [DP] of NSDL. The NRI/PIO needs to mention the type ['NRI' as compared to 'Resident'] and the sub-type ['Repatriable' or 'Non-Repatriable'] in the account opening form collected from the DP.
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If NRI/PIO desires to make investments under different schemes, can he hold all such securities in a single demat account? |
No. Securities received against investments under 'Foreign Direct Investment scheme (FDI)', 'Portfolio Investment scheme (PIS)' and 'Scheme for Investment' on non - repatriation basis have to be credited into separate demat accounts. Investment under PIS could be on repatriation or non - repatriation basis. Investment under FDI scheme is on repatriation basis
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Does an NRI require RBI permission for dematerialiation / rematerialisation of securities? |
No special permission is required. Holding securities in demat only constitutes change in form and does not need any special permission. However, only those physical securities which already have the status as NR - Repatriable / NR- Non-Repatriable can be dematerialised in the corresponding Depository Accounts
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Can securities purchased under repatriable and non-repatriable category be held in a single demat account? |
No. An NRI must open separate demat accounts for holding 'repatriable' and 'non-repatriable' securities.
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In case a person who is resident in India 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, on a non-repatriable basis.
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In case a non-resident Indian becomes a resident in India, will he/she be required to change the status of his/her holding from Non-Resident to Resident? |
Yes. It is the responsibility of the NRI to inform the change of status to the designated authorised dealer branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account.
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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.
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Can an NRI purchase securities by subscribing to public issue? 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.
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Does an NRI require any permission to receive bonus/rights shares? |
No.
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What is Portfolio Investment Scheme? |
Under this scheme, NRIs are permitted to acquire shares/debentures of Indian companies or units of domestic Mutual Funds through the stock exchange(s) in India.
Investment can be made both on repatriation or non-repatriation basis. For making investment on repatriation basis, it will be necessary to make payments by way of inward remittance or by debit to the NRE / FCNR account of the NRI / PIO. Investment on non-repatriation basis can also be made by way of inward remittance or by debit to the NRE / FCNR / NRO accounts.
The sale proceeds of the repatriable investments can be credited to the NRE / NRO accounts of the NRI / PIO at the option of the investor, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
The sale of shares will be subject to payment of applicable taxes.
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| What is the procedure for making applications for Portfolio Investment Scheme? |
The application is to be submitted to a designated branch of an authorised dealer in India in the prescribed form. No permission is required from RBI. Reserve Authorised dealer issues general permission for a period of five years, which can be renewed further by designated branch, concerned for a period of five years at a time
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What is a designated branch? |
Reserve Bank has authorised a few branches of each authorised dealer to conduct the business under Portfolio Investment Scheme on behalf of NRIs. These branches are the main branches of major commercial banks. NRIs will have to route their applications through any of the designated authorised dealer branches who have authorisation from Reserve Bank.
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Whether NRI can apply through more than one designated branchauthorised ?dealer? |
No. NRI can select only one authorised dealer branch for the purpose of investment under Portfolio Investment Scheme and route the transactions through the branch designated by the authorised dealer
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Can an NRI purchase or sell shares or convertible debentures on a stock exchange in India on repatriation or non-repatriation basis under portfolio investment scheme?
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- NRIs / PIOs can purchase / sell shares / convertible debentures of Indian companies on Stock Exchanges under the Portfolio Investment Scheme. The rules relating to this scheme are as given below:
- Shares purchased under PIS on Stock Exchange shall be sold on stock exchanges only. Prior approval of RBI is required if such shares are proposed to be transferred either by way of gift or under private arrangement to a non-resident/ resident.
- These trades can be done only through a registered broker on a recognised stock exchange
- NRI shall designate a branch of an authorised dealer and route all his/her transactions through this branch of the authorised dealer
- NRI takes delivery of the shares purchased and gives delivery of shares sold.
- NRI shall abide by the directions given by RBI/SEBI or such authority if the transaction results in the breach of ceilings stipulated for NRI holding in the company/scheme.
- The sale of shares will be subject to payment of applicable taxes
- An NRI or a PIO can purchase shares up to 5% of the paid up capital of an Indian company. All NRIs / PIOs (also the OCBs who had purchased shares under the earlier scheme) taken together cannot purchase more than 10% of the paid up value of the company. (This limit can be increased by an Indian company to 24% by passing a General Body resolution)
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Can an NRI nominate or be nominated in depository account? Whether such nominee can be person resident in India?
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Yes.
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What are the tax obligations applicable to NRIs?
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Income on investments (capital gains) forming part of sales proceeds is subject to Capital Gains tax. The rate of tax depends upon the period of holding. Currently the tax rate applicable for short-term capital gains and long-term capital gains is 31.5% and 10.5% respectively. These tax rates are inclusive of 5% surcharge.
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What is "Tax Deduction at Source (TDS)" on capital gains arising out of sale of holdings by NRIs?
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As per Indian tax laws, all the capital gains arising out of sale transactions are subject to tax. In the case of NRIs, the capital gain arising out of sale transaction is subject to deduction of tax at source (TDS) i.e. at the time of crediting the sale proceeds to the respective NRE/NRO account by the concerned bank branch. Accordingly, the concerned bank shall determine the tax liability and tax will be deducted at source. The concerned bank, which has deducted tax at source, shall issue a certificate in this regard.
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Is TDS deductible if the sale proceeds are credited to NRO Bank account?
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No TDS is deductible if the sale proceeds are credited to NRO Bank account.
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What is 'Double Taxation Avoidance Treaty'?
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India has entered into Double Taxation Avoidance Treaties with certain countries under which NRIs who are residing in any of these countries, are liable to pay income tax at the rate applicable in India or in the country where they are residing, which ever is lower.
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How can NRIs, residing in any of these countries, take benefit of 'Double Tax Avoidance Treaty'?
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To avail benefit of lower rates of tax as per double taxation avoidance treaty entered in by India, NRIs need to submit the Residency Certificate issued by Tax Authorities of the country of his residence. These documents should be submitted to the designated bank branch at the time of opening the bank account or subsequently. New TDS rate shall be applied only after the acceptance of the Residency Certificate by the designated bank.
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