According to a report by the World Bank, the projected economic growth in India for the fiscal year 2019-2020 is 7.5%. This makes India the fastest growing economy among other emerging economies in the world. This level of stability is one of the reasons why NRIs are now considering investing in the Indian equity market. They can invest in equity markets directly as well as through mutual funds. The Indian Government has taken steps to simplify the process of investing in equities. Stricter norms for trading and holding ensure a steady flow of funds from the NRIs to India. If you are an NRI who wants to invest in the Indian equity market, then there are few things that you need to know before you start investing.
How can NRIs Invest Directly in Indian Equity Markets?
For NRIs to invest directly in Indian equity markets, they need to enroll in the Portfolio Investment Scheme or PIS. This scheme has been introduced by Reserve Bank of India for NRIs to trade in recognized stock exchanges in India. This is mandatory as it complies with the Foreign Exchange Management Act. This helps the authorities to monitor that the set list for NRI investment is not crossed.
A Savings Bank account is needed to park the funds that can be used for investment purpose.
A Trading account is needed to do all the transactions done on the stock exchange. This account has to be opened through a brokerage firm. The firm should be a member of the stock exchange.
A demat account is where all the share certificates are held in a digital format. A demat account needs to be opened through a bank or a firm which is registered with a depository participant from either the National Securities Depository Limited (NSDL) or Central Securities Depository Limited (CSDL).
Is Repatriation Allowed For NRI Investors?
An NRI is allowed to buy shares on both repatriations as well as non-repatriation basis. Though it is important to note that an NRI can maintain only one repatriable and non-repatriable account linked to PIS.
If an NRI buys shares on repatriable basis using the funds from the NRE account, then the sales proceeds will be credited to the NRE account.
If an NRI buys shares on a non-repatriable basis using the funds from the NRO account, then the sales proceeds will be credited to the NRO account. NRIs can use the funds from NRE account too. However, the sales proceeds will still be credited to the NRO account.
Any income earned from the investments can be repatriated after deducting taxes. Only capital gains on the selling stocks or debentures are subject to repatriation rules and norms.
Can NRIs Invest in Primary Markets or IPOs?
NRIs can invest in primary markets through IPOs.
Rules and Regulations for NRI Investors for Direct Investment in Indian Stock Market
Under the PIS scheme, an NRI can open only one trading, demat and savings account. You can open a repatriable and non-repatriable account and link them both to the PIS.
NRIs cannot do intra-day trading. No speculative and only delivery based trading is allowed.
The brokerage house does not make any adjustments of purchase against the sale transaction. You need to have 100% funds at the time of purchase.
An NRI can get ownership of only 10% of the paid-up value of an Indian company. This is for both repatriable and non-repatriable basis. If you can get special approval from RBI then the cap can be increased from 10% to 24%. They can get only 10% ownership of each value of the convertible debenture.
NRIs can invest only in derivatives approved by SEBI. If they choose to invest on the non-repatriable basis, then it should only be done out of rupees held in India.
Invest through borrowed funds is not allowed.
Taxes Applicable on Capital Gains from Equity Investments
The tax rate on capital gains is the same for both, residents as well as NRIs. Dividends are tax-free.
If an NRI has earned short term capital gains of which the holding period is of less than or equal to a year, then he/she is subject to a 15% tax. On long-term gains that are more than a lakh per year, he/she is subject to 10%tax. A TDS is applicable at 10% for long-term and 15% for short-term gains.
The Indian Stock Market is attractive for the NRIs when it comes to equity investments. As it charted on a scale of growth for at least two more years, NRIs can consider investing in the market and gain good returns.