NRI Demat Account Rules are well established and followed strictly by most of the prominent stockbrokers in India. These rules are laid out and revisited on a regular basis by FEMA i.e. Foreign Exchange Management Act.
As far as RBI (Reserve Bank of India) is concerned, there are a couple of ways an NRI can invest in the Indian stock market.
First, an NRI can invest in the primary stock market through Initial Public offerings or IPOs. This can be done on a repatriable basis where you use the funds in your NRE bank account and use the NRE Demat account for holding the shares post IPO shares allocation. NRE here stands for Non-Resident External.
This investment can be done on a non-repatriable basis, however, in that case, NRO bank and NRO Demat account must be used. NRO here stands for Non-Resident Ordinary.
Secondly, if you are someone who had a Demat account during your stay in India and has moved to a foreign country in the recent past and gained the NRI status, then you need to convert it into the NRO category. This can be done from a foreign country and your physical presence in India is not required.
Irrespective of the methodology chosen, the shares that the client owned previously need to be transferred to the NRO holding account.
NRI Demat Account Rules Details
Now, let’s quickly look at some of the NRI Demat Account rules you must be aware of before and while you are trading using an NRI Demat account:
If you are an NRI Demat account holder, you cannot hold more than 5% of the overall paid-up capital in a stock listed in the Indian stock indices.
Trading in Currency or Commodity segment is not allowed.
An NRI trader can invest in Cash delivery, Mutual funds, Government securities, PSU bonds, ETFs.
You must make sure that the NRI Demat account checklist is well-taken care of including the formalities and documentation process.
Short-selling of stocks is not allowed for NRI Demat account holders.
If an NRI is looking to hold both repatriable and non-repatriable products, then both kinds of investments must be kept in separate demat accounts.
If you are looking to invest under PIS (Portfolio Investment Scheme), then as an NRI demat account holder, it can be applied through a single authorized dealer only.
If an NRI moves back to India and becomes a resident, it the duty of the user to intimate the local branch as well as the stockbroker with whom the client opened his/her demat account. A new demat account needs to be opened, the shares are transferred to this new account and then the earlier NRI demat must be closed.
NRI Demat Account Rules Conclusion
An NRI Demat account comes with a set of rules and regulations simply for the reason that two different economies get involved. Furthermore, there are tax regulations and requirements that one needs to take care of.
Most of the times, you are supposed to pay tax once and if the country you are residing in, has a larger tax slab percentage than you might have been charged in India, you only need to pay the residual to the foreign government post paying the taxes in India.
As far as the NRI Demat account rules discussed above are concerned, these change at times depending on the policy changes or in case the government is able to regulate any specific condition that was earlier not allowed to NRI traders.
We update these rules on this blog in a timely manner so that you get to know the latest and most updated information on the subject.
If, you are someone, who is looking to get an idea about an NRI Demat account or probably even wants to open up for yourselves, let us assist you in taking the next steps ahead:
If you wish to learn more about NRI Trading, here are a few references: