The Government of India has removed most of the NRI trading restrictions. They can freely trade in the Indian equity market and enjoy their share of profits. This has been good news for the NRIs so far. Many of them have even earned tremendous profits enjoying the good economy of the market in their home country.
However, many NRIs (Non-Resident Indians) are still confused about NRI trading in India. Also, they aren’t really clear about the NRI trading restrictions that still remain.
This is why we will discuss NRI trading, NRI Demat Account and the NRI trading restrictions that every NRI should keep in mind.
NRI Trading Restrictions Basics
RBI has allowed a couple of routes for NRIs to trade in India. These routes include:
NRI Trading through PIS: NRI Trading through PIS requires an NRI to open a Portfolio Investment Scheme account in India. This account is paired with the NRE or NRO savings account of the NRI.
Every trade made by the NRI is notified to the PIS. If the NRI wants to shifts his funds outside of India, he can do so with the approval of the RBI. This system is a bit complex and has more NRI Trading restrictions.
NRI Trading without PIS: NRI trading without PIS can be accomplished by opening an NRO bank account with a major Indian bank. In an NRO bank account, the funds are held on a non-repatriatable basis. This means that the NRI cannot transfer these funds outside of India.
There is no requirement of a PIS account in this method. Therefore, transactions are faster. Also, every transaction isn’t notified to the RBI at every step.
Let’s have a quick look at these restrictions and the corresponding provisions:
NRI Trading Restrictions #1 – NRI Qualification
NRI is any person of India who is not a resident of India. In order to qualify as a resident, one must
Be in India for at least 182 days in the particular year
Be in India for a period of 365 days in 4 years before the particular year, and 60 days in the particular year.
To be an NRI, a person would need to disqualify these criteria.
NRI Trading Restrictions #2 – Trade Ceilings
These are various NRI Trading Restrictions that are imposed on an NRI for trading. These restrictions are as follows:
If an NRI is trading in shares of an Indian listed company, he cannot hold more than 10% of the total holdings of that company. If the company is a public bank, the maximum allowable share becomes 20%.
The holding percentage for an NRI in an Indian company can be raised to 24% in special circumstances. For these circumstances to occur, the General Executive Body of the company will have to pass a resolution for the same.
NRIs are not allowed trading in all types of shares. They can only trade shares on a non-delivery basis. This means that they are not allowed to do day trading. They are also denied short selling. If an NRI is buying a stock, he is allowed to sell it only after a minimum period of two days.
In case an NRI is trading through a PIS account, he is allowed only one PIS account for repatriable shares and one PIS account for non-repatriable shares.
If an NRI turns into an Indian resident, it is mandatory to notify the banks and update the KYC.
NRI Trading Restrictions #3 – Power of Attorney
An NRI has to provide a resident of India with his power of attorney. This is done so that the Indian resident can manage the assets on the behalf of the NRI.
When assigning the power of attorney, an NRI is allowed multiple options. He has the option to assign the power of attorney of all his assets to a person. Otherwise, he can assign the power attorney of a particular class of assets.
For example, an NRI can assign an individual with the power of attorney to manage his property. This person would not have access to the bank accounts of the NRI. However, if the NRI gives the general power of attorney to the individual, the individual can manage all assets of the NRI. This even includes his bank accounts.
NRI Trading Restrictions #4 – Taxation
NRIs are often confused on the subject of taxation. NRIs commonly ask if they will be subjected to double taxation, one in India and the other in the country of residence.
Well, this depends upon the country of residence. For the Indian part, the taxation occurs at the source.
However, India has taxation treaties with many countries where double taxation is avoided. In that case, the NRIs have to pay taxes only in India.
Therefore, you will need to check beforehand if your country of residence lies in such a category.
An NRI is required to maintain a minimum account balance in his bank account that is linked with trading.
While Indian residents also have to maintain minimum account balance in their accounts, this requirement is considerably higher in the case of NRIs.
Different banks require a different minimum balance to be maintained. Therefore, if you are an NRI, check the limit with your own bank.
NRI Trading Restrictions #6 – OCB
OCB stands for Overseas Corporate Body. OCB is a company or any type of corporate body where the NRIs own at least 60% of the total holdings. They can do it directly or indirectly.
While OCBs were earlier allowed to trade in the Indian market, they are no longer allowed to do so. However, the OCBs which had already invested in the Indian market through PIS are allowed holding their shares. This will be the case until their said shares are sold in the market.
NRI Trading Restrictions #7 – Currency Derivates
NRIs are not allowed to trade in currency derivates in India. Only residents of India can trade in such segments. Refer to restriction #1 to see what you need to do to qualify as a resident of India.
The reasons for NRI Trading in derivatives having restrictions are plenty including the volatility of this trading segment, international dependency, tough regulation for regulatory bodies such as NSE and BSE.
There are limits that are applied to an NRI for Exchange Traded Derivative Contracts. These limits are:
For Index-Based Contracts together own 15% or more of the open interest of all derivative contracts on a particular underlying Index.
For Stock option and single stock futures contracts –The gross open position across all the derivative contracts for security for each specific client should not be more than:
1% of the free-float market capitalization (in terms of number of shares)
5% of the open interest in all derivative contracts in the same underlying stock (in terms of number of shares)
We hope you, as an NRI, will always keep these NRI trading restrictions in mind. These restrictions are applicable to all NRIs regardless of their country of residence. In case of any other query, we are always there to help.
In case you need assistance in opening an NRI Demat Account or want to start investments in general, let us assist you in taking the next steps forward:
If you wish to learn more about NRI Trading, here are a few references: