Non‑Resident Indians (NRIs) love to invest in their home country. Many NRIs want to take part in India’s growth story by buying shares of Indian companies. The Reserve Bank of India (RBI) has made special rules that allow NRIs to invest in the Indian stock marketwhile still protecting the economy. This article will explain those rules in simple, easy‑to‑understand language. We will look at who is an NRI, what accounts you need, how to buy and sell shares, the rules on how much you can invest, and the taxes you have to pay. The tone is like a fifth‑grade story, so it’s friendly and clear.

Kickstart Investing through an NRI Demat Account

Who Is an NRI?

The Foreign Exchange Management Act (FEMA) sets the rules for who is an NRI. An NRI is a person of Indian origin who lives outside India for work, studies, business or any other reason. To be treated as an NRI for investment purposes, you generally need to meet one of these conditions:

• You stay abroad for more than 183 days in the previous financial year.

• You stay in India for less than 60 days in a financial year and less than 365 days in the previous four years

If you fit these rules, you are considered an NRI and can use special accounts to invest in India.

What Is the Portfolio Investment Scheme (PIS)?

To invest in Indian shares, most NRIs use the Portfolio Investment Scheme (PIS). The PIS is like a bridge between India and you. It lets you buy and sell shares of Indian companies on a stock exchange. Here is how it works:

• You open a PIS bank account with a bank approved by RBI. The account can be a Non‑Resident External (NRE) account if you want to send the money abroad after you sell your shares, or a Non‑Resident Ordinary (NRO) account if you will keep the money in India.

• The PIS account is linked to your demat account and trading account. The demat account safely stores your shares in electronic form, and the trading account is used to place buy and sell orders.

• Every time you buy or sell shares, the bank reports the details to RBI. This helps RBI monitor how much foreign money is coming into and going out of the stock market.

Choosing Between NRE and NRO Accounts

An NRI can have two types of bank accounts in India:

1. NRE Account (Non‑Resident External) – This account is used to deposit money that you earn overseas. Any money that you put in this account is repatriable, which means you can transfer it back to the country you live in whenever you want. When you invest through an NRE account under PIS, both your principal (the money you invest) and the returns (profits) can be freely sent abroad

2. NRO Account (Non‑Resident Ordinary) – This account is for money that you earn in India, like rent, dividends, pension or other income. When you invest through an NRO account, the money is non‑repatriable. That means you can’t freely take it out of India. However, you can send some of it abroad, up to a limited amount each year, after paying taxes and following rules

If you want to buy and sell shares and then move your money back overseas, you should use an NRE PIS account. If you plan to keep your money in India or invest your Indian income, you can use an NRO account without PIS approval for non‑repatriable investments.

Opening the Right Accounts

To invest in Indian shares, an NRI must open:

1. An NRE or NRO bank account – This is where your money will come from and go back to. For repatriable investments, open an NRE PIS account. For non‑repatriable investments, you can use an NRO account without PIS.

2. A PIS account – This is a special facility that tracks your stock transactions and makes sure you follow RBI rules. You need this only for repatriable investments through an NRE account.

3. A Demat account – This electronic account holds the shares you own. Think of it as a digital locker for your stocks.

4. A Trading account – This account lets you place orders on the stock exchange. You link it to your bank and demat accounts

You must provide documents like your passport, visa, PAN card (a tax ID), proof of overseas address and photographs. Your bank or broker will help you fill out the forms.

Investment Limits for NRIs

RBI doesn’t let NRIs buy unlimited shares of Indian companies. There are two main limits:

• Overall limit: NRIs and Persons of Indian Origin (PIOs) together can own up to 10% of the paid‑up capital (total shares) of any Indian company This means all NRIs combined can own no more than one‑tenth of a company’s shares.

• Individual limit: One NRI cannot own more than 5% of the paid‑up capital of an Indian company

These limits ensure foreign investors don’t control too much of a company. If the company’s board and shareholders allow it, the overall limit can be increased to 24%, but they must tell RBI in advance.

What NRIs Can and Cannot Do

Allowed Investments

Under RBI guidelines, NRIs may invest in:

• Equity shares and convertible preference shares of Indian companies through stock exchanges.

• Convertible debentures (a type of bond that can turn into shares).

• Units of domestic mutual funds and exchange‑traded funds (ETFs) (provided the fund house accepts NRI investors and there are no country‑specific restrictions).

• Government securities, Treasury Bills and Bonds.

• Initial Public Offers (IPOs) and Rights issues (new shares offered to existing shareholders).

• Employee Stock Ownership Plans (ESOPs) for employees of Indian companies

Restricted or Prohibited Investments

There are some restrictions:

• No intraday trading: NRIs are not allowed to buy and sell shares on the same day. They can only do delivery‑based trading, which means they must take delivery of shares and cannot profit from daily price movements. In short, no day trading!

• No short selling or margin trading: NRIs cannot borrow shares to sell them first and buy later, nor can they buy shares using money borrowed from a broker.

• Company‑specific bans: Certain companies or sectors may be closed to NRI investment due to government policy. RBI and SEBI publish a list of such companies, and your broker will warn you if a company is on that list

• Investment through more than one PIS: You can only have one PIS account at a time. Having multiple accounts with different banks is not allowed.

Trading Process

Trading for NRIs is similar to trading for residents, but you have to follow a few extra steps:

1. Funding your PIS account: Deposit money in your NRE or NRO account. When you buy shares, the bank will debit your account and inform RBI.

2. Placing a trade: Use your trading account to place an order. The broker checks if your PIS account has enough funds. If yes, they buy the shares and deposit them in your demat account.

3. Selling shares: When you sell shares, the proceeds go back into your NRE or NRO account. If it’s an NRE PIS account, the money can be freely repatriated. If it’s an NRO account, you can repatriate within limits.

4. Reporting to RBI: Your PIS bank sends a daily report of your trades to RBI. This ensures you don’t cross the overall or individual investment limits.

Non‑Repatriable Investments (NRO)

If you don’t need to send money abroad, you can invest in shares through an NRO account without obtaining PIS permission. These investments are non‑repatriable, meaning you cannot freely move the money abroad. In this route:

• You open an NRO savings account with an RBI‑approved bank and link it to a demat and trading account

• You can buy shares, bonds, IPOs and ESOPs, just like resident Indians. But the money must stay in India unless you apply for permission to repatriate a limited amount each year

• For mutual funds, you simply use your NRE or NRO accountand complete a Know Your Customer (KYC) verification

NRIs may choose non‑repatriable investments if they plan to retire in India or if they want to use the income there (like rental income or dividends).

Understanding Charges and Costs

Investing in shares involves fees. NRIs may pay slightly higher charges than resident investors. Common charges include:

• Account opening fees: Some brokers charge a one‑time fee to open a trading and demat account.

• Brokerage charges: This is the fee you pay each time you buy or sell shares. It might be a percentage of the trade amount or a flat fee per trade.

• Platform or software fees: Some brokers charge for access to their trading platforms.

• Call and trade fees: If you place an order over the phone, an extra fee may be charged.

• Exchange transaction charges: These are small fees collected by the stock exchange.

• Government levies: Stamp duty, Securities Transaction Tax (STT), Goods and Services Tax (GST) and SEBI charges apply to all trades

Check with your broker for a schedule of charges so you know what to expect before you start trading.

Taxes NRIs Need to Pay

Taxes are an important part of investing. Here’s what NRIs should know:

1. Capital Gains Tax: When you sell shares for a profit, you have to pay tax. There are two types of capital gains:

   • Short‑Term Capital Gains (STCG): If you hold shares for less than 12 months, your profits are taxed at 15% plus applicable surcharge and cess.

   • Long‑Term Capital Gains (LTCG): If you hold shares for 12 months or more, gains up to ₹1 lakh in a financial year are tax‑free. Gains above ₹1 lakh are taxed at 10% without indexation

2. Dividend Tax: Dividends are no longer tax‑free in the hands of investors. Instead, companies deduct Tax Deducted at Source (TDS) on dividends at about 20% for NRIs, subject to any Double Taxation Avoidance Agreement (DTAA) between India and your country of residence

3. Tax on Non‑Repatriable Investments: If you invest through an NRO account, you also pay taxes on the interest earned in that account. These rates depend on your total income in India.

After paying taxes, the remaining amount will be credited to your NRE or NRO account. You can claim a refund or pay extra when you file your income tax return.

Key Points to Remember

• No day trading: NRIs must follow a delivery‑based trading approach. You can’t buy and sell the same day

• Investment caps: The total stake of all NRIs in a company cannot exceed 10% (or 24% if the company allows), and one NRI cannot own more than 5%

• Only one PIS account: You can only have one PIS account for repatriable transactions. You cannot spread your trades across multiple banks.

• Follow company restrictions: Some companies are off‑limits to NRIs. Always check with your broker or bank before buying.

• Keep good records: Save all transaction reports, as you will need them to file taxes and answer any questions from tax authorities.

A Step‑by‑Step Guide for NRIs to Start Investing

Here is a simple checklist to start your investment journey:

1. Check your residency status. Make sure you are classified correctly (NRI, resident Indian or Resident but Not Ordinarily Resident). This affects which accounts you can use.

2. Choose a bank. Open an NRE or NRO account with an authorised bank in India. If you want to remit money back home, choose an NRE PIS account.

3. Apply for a PIS account. This is done through your bank. Provide all necessary documents such as passport, visa, overseas address proof, Indian address proof (if any), PAN card and photographs.

4. Open a trading and demat account. Approach a SEBI‑registered broker (like Motilal Oswal, Zerodha, ICICI Direct or others). Link your PIS account, demat account and trading account.

5. Deposit funds. Transfer money from your foreign bank to your NRE/NRO account. Convert it into Indian rupees if necessary.

6. Start trading. Buy and sell shares through your broker’s platform. Remember to follow the rules on investment limits and no intraday trading.

7. Track your investments. Keep an eye on your investments and compliance. If you move back to India, you must convert your NRI account to a resident account and update all your bank and demat details.

Conclusion

The RBI guidelines ensure that NRIs can participate in India’s stock market while keeping the country’s financial system stable. As an NRI, you can invest in shares of Indian companies, mutual funds and other securities by opening the correct bank accounts, applying for PIS permission (if needed) and linking your demat and trading accounts.

Remember the key rules: no intraday trading, follow investment limits, choose the right account for repatriation or non‑repatriation, and pay the required taxes.

With a good understanding of these guidelines and help from a trustworthy broker, NRIs can confidently take part in the Indian stock market. Simple planning, proper documentation and awareness of the rules will make your investment journey smooth and rewarding.

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