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Q.1. Who is an NRI?
ANS: "Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of Indian origin".
Non Resident Indian (NRI) - These are Indian Citizens
- Those who stay abroad for any reasons.
- Those who work abroad under Indian governmental organizations, representing India, abroad.
- Those who work abroad with foreign governments.
Q.2. Who is a PIO?
ANS: Persons of Indian Origin (PIO) - is usually a person of Indian originwho is not a citizen of India
- Those who held an Indian Passport during their life time.
- Those who or whose parents or grand parents are citizen of India.
- Those whose spouse is person of Indian Origin.
Q.3. What is an OCB?
ANS: Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. Such ownership interest should be actually held by them and not in the capacity as nominees.
Q.4. How an NRI can make investments?
ANS: Investment can be made through:
a) . NRE (Non Resident Repatriation) account
b) . NRO (non-repatriation) account.
NRE account :
To be funded with remittance from overseas or transferred from other NRE / FCNR accounts. Local credits are not permitted. Both principle and interest are fully repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI.
NRE account :
Can be funded by remittance from overseas or through local sources. Interest accrued on Fixed Deposits is repatriable after tax deduction at source. Principal is not repatriable. Interest income, from NRO accounts is taxable. Interest income, net of taxes is reportable.
Income/interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held by NRIs with non-repatriation benefits will be eligible for repatriation as under:
(a) Up to U.S. $ 1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95;
(b) Up to U.S. $ 1,000 or its equivalent in full and two-third of the balance income earned during the financial year 1995-96;
(c) The entire income earned during the financial year 1996-97 and onwards.
Q.5. What type of bank account an NRI can open?
ANS: There are five types of NRI accounts:-
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1. Non-Resident (External) Rupee Accounts (NRE Accounts)
NRIs, PIOs, OCBs are eligible to open NRE Accounts, the rupee denominated accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Joint operation with other NRIs/PIOs is permitted.
Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI. Funds held in NRE accounts may be freely transferred to FCNR accounts of the same account holder.
2. Ordinary Non-Resident Rupee Accounts (NRO Accounts)
These are Rupee denominated non-reportable accounts and can be in the form of savings, current recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National/PIO resident in India leaves for taking up employment, etc. outside the country, his bank account in India gets designated as NRO account.
The deposits can be used to make all legitimate payments in rupees. Interest income, from NRO accounts is taxable. Interest income, net of taxes is repatriable.
3. Non-resident (Non-reportable) Rupee Deposit Accounts (NRNR Accounts)
NRIs/PIOs/OCBs, other non-resident Individuals/entities are permitted to open these accounts. Accounts can be opened by transfer of freely convertible foreign currency funds from abroad, or from NRE/FCNR accounts. Deposits can be held jointly with a resident. Deposits can be for period from 6 months to 3 years, and can be renewed further. The principal is non-repatriable; interest can be repatriated and is not taxable.
4. Non-Resident (Special) Rupee Accounts with banks in India
NRIs/PIOs can now open Non-Resident (Special) Rupee Accounts with banks in India which will have the same facilities and restrictions as are applicable to rupee accounts maintained in India by residents relating to repatriation of funds held in these accounts and/or income/interest earned on them. The scheme, which has become effective from April 15, 1999, provides that the procedure for opening such accounts is the same as that of domestic accounts of resident individuals.
4. Non-Resident (Special) Rupee Accounts with banks in India
Held in foreign currency only. Can be funded with remittance from overseas or through transfers from NRE accounts. Both principle and interest are fully repatriable.
NRIs/PIOs/OCBs are permitted to open such accounts in US Dollars, Sterling Pounds, Deutsche Marks, Japanese Yen and Euro. The account may be opened only in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less than two years (ii) two years and above but less than three years and (iii) three years only.
Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws.
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Q.6. What are investment opportunities in India for NRIs, FIIs available?
ANS: The NRI’s can invest in India through the following routes:
- Equity,
- Mutual funds,
- Portfolio investment scheme,
- Real estate,
- Debentures
Q.7. What are the different investment routes available for NRI’s?
ANS: NRI can invest in India in possibly three ways:
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Direct Investment
- NRIs can make direct investment in India on repatriation or non-repatriation basis, by subscribing to shares and debentures of Indian Companies.
Portfolio Investment
- NRIs can take a prior permission of RBI to acquire shares of Indian companies on both repatriation and non-repatriation basis through stock exchange in India.
Investment in new issues of Indian companies under the Forty (40) percent Scheme - NRIs/ OCBs are permitted to subscribe to new issues of shares (equity & preference) or convertible debentures of any new or existing company with the right of repatriation of the capital invested and income earned thereon, provided the aggregate issue to non-residents qualifying for the facility of repatriation does not exceed 40 percent of the face
value of the new issue. Investment under this scheme can be made in new or existing companies engaged in the following areas of activity:
- Hospitals ( including diagnostic centers)
- Hotels with 3,4 and 5 start rating
- Shipping
- Development of computer software
- Oil exploration services
- Private or public limited companies raising capital for setting up new industrial/ manufacturing activities
Application for permission for investment under the 40% scheme should be made by the Indian Companies seeking non-resident capital, in form ISD to the Chief General Manager, Exchange Control Department, Foreign Exchange Division II, NRI Cell, RBI, Bombay.
Government Securities:
NRIs can freely purchase Central and State Government securities (other than bearer securities) and National Plan/ Savings Certificates by effecting remittances from abroad through normal banking channels or by withdrawing funds from their non-resident accounts with banks in India. Such investments should be made through the banks maintaining their non-resident accounts.
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Q.8. What is the procedure for making applications for Portfolio Investment Scheme?
ANS: 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.
Designated Branch: Reserve Bank has authorized a few branches of each authorized 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 authorized dealer branches who have authorization from Reserve Bank.
Q.9. What are the salient features of PIS?
* PIS account is applicable only for NRIs and not for resident Indians.
* It is only for trading in Indian stock markets and not in any other foreign markets
* It is applicable only for secondary market equity trades and not for MF investments or IPO deals.
Q.10. What is the procedure for making investments under this scheme?
- An NRI should open a PIS account with a designated bank branch, which is approved by the Reserve Bank of India, for this purpose. It is also advisable to maintain a NRE/ NRO bank account with the same designated branch for administrative convenience.
- He should apply for RBI approval through his designated bank branch, for investment in Indian Stock Markets, by completing the prescribed forms. Reserve Bank issues general permission for a period of 5 years that can be renewed further.
- He should open Demat Account/s with a Depository Participant to hold his shares. Separate Demat accounts have to be opened for maintaining repatriable and non-repatriable investments.
- Payment for purchase of shares and /or debentures has to be made out of inward remittances/ funds held in NRE/FCNR account maintained in India, if the shares have to be purchased on repatriation basis. The share can also be purchased on non-repatriation basis for which the investments can be made from inward remittances or out of funds held in NRE/FCNR/NRO account maintained in India.
- The net sale proceeds (after payment of taxes) of shares and/or debentures can be remitted abroad or credited to his NRE/FCNR/NRO account if the shares and or/debentures were purchased on repatriation basis. Where the shares and /or debentures were purchased on non-repatriation basis, the sale proceeds can only be credited to the NRO account of the NRI.
Q.11. What is a non-PIS account?
ANS: PIS account is very specialized account wherein activities relating to PIS transactions only are allowed. Other banking related facilities like cheque deposit, fund transfer, cheque issuances etc. are provided to the customer through normal banking base account which is a non-PIS account. This account can be NRE (repatriable) or NRO (Non-repatriable) account. PIS account would be a mirror account of this base account.
Q.12. What are the advantages of having either a PIS or non PIS account?
ANS: If customer wants to invest in secondary market in India, he must maintain PIS account with any of the banks in India. Non-PIS account i.e. normal banking account is to route/meet all his banking needs.
Q.13. Can an investor has multiple PIS account
with different banks? What are the regulations and requirements
for it?
ANS: Customer can have only one PIS
a/c with any of the banks in India. It is an exclusive
account maintained specifically for secondary market
transactions, no other transactions are allowed in this
account. Debit and credit to this account can happen
only against a contract note. Under PIS scheme, short
selling is not allowed, only delivery based transactions
should be done. Customers need to adhere to over all
foreign investment limit set in different companies.
If this ceiling is already exhausted then they can not
purchase that scrip. Link to the RBI notification page
is provided below. http://rbi.org.in/scripts/BS_FiiUSer.aspx
Q.14. Can an investor has multiple non-PIS account with different brokers?
ANS: Customer can not have multiple PIS accounts, but they can have multiple broking accounts.
Q.15.What is the tax liability for an investor under PIS and non-PIS account?
ANS: On PIS there is short term capital gain tax @ 15% + surcharge + education
cess. On long term capital gain there is no tax. On normal NRE account, no tax
liabilities. On NRO account, tax applicable on interest earned. Tax rates depend on the country of residence of the customer.
Bank is calculating taxes according to FIFO method irrespective of the broker from whom he has purchased or sold the shares. NRE / NRO clients have to compulsorily trade on delivery basis only. Day trading is not allowed as of now.
Q.16. Does an NRI require any permission to receive bonus/rights shares?
ANS: No.
Q.17. Who monitors the NRI trades?
ANS: The Reserve Bank of India (RBI) monitors the maximum
limits on FII, NRI or PIO investment in Indian companies
on a daily basis. Transfer of shares/debentures of Indian
companies by NRIs to other non-residents does not require
permission of Reserve Bank.
Q.18. Who regulates the investment of NRIs?
ANS: Foreign Exchange Management Act (FEMA) regulates NRI investments in India.
Q.19. What is the maximum limit for investing?
ANS: The maximum overall investments one FII, NRI or
PIO can have are as follows:
1. FIIs is 24%, of the paid
up capital of the Indian company,
2. 10% for NRIs and
PIOs.
The limit is 20% of the paid up capital in case
of public sector banks, including the State Bank of
India.
Q.20. Can the maximum limit for investment is raised?
ANS: Yes. The upper limit of 24% for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the maximum limit of 10 % can be raised to 24% subject to the approval of the general body of the company passing a resolution, to that effect.
Q.21. What are the tax exemptions available
for NRI’s?
ANS: For the NRIs tax exemptions
are available on:
1) Income from interest on National
Saving Certificate VI/VII issue purchased in
2) Income
from interest on funds held in NRE/FCNR accounts.
3)
Income from NRNR deposit
4) Interest on notified securities
or bonds and premium on redemption of such securities
5) Income from units of UTI acquired in foreign exchange
by Indian citizen/person of Indian origin.
6) Interest
from notified bonds (7 year dollar bonds issued by the
SBI notified) purchased in foreign exchange, exemption
continues even after person becomes resident.
7) Interest
paid by scheduled banks on RBI approved foreign currency
deposits, to a NRE or NRO
Q.22. How can an NRI transfer shares held in
account?
ANS: No permission of Reserve Bank required for sale/transfer
of Government securities/units. Authorized dealers have
been permitted to undertake sale of Government securities/units
on behalf of NRIs without prior approval of Reserve
Bank. In the case of shares/debentures/bonds acquired
by NRIs through stock exchanges under the Portfolio
Investment Scheme, general exemption has been granted
for transfer through stock exchanges provided the sale
is arranged through the same designated branch through
whom they were purchased.
Transfer of shares/debentures
of Indian companies by NRIs to other non-residents does
not require permission of Reserve Bank.
Reserve Bank
has granted general permission to NRIs to transfer,
by way of gift, shares, bonds and debentures of Indian
companies held by them with Reserve Bank's permission
to their resident close relative/s.
Q.23.What are the account opening requirements?
ANS:
The requirements for NRE accounts:
1. PAN card
copy
2. Valid Passport and Visa
3. Resident proof –Indian
& Foreign (electricity bill, phone bill in the address
currently residing at).
4. Bank proof (mentioning NRE
status on it)
5. DP Proof (mentioning NRE status on
it)
6. RBI permission (can be applied from only designated
bank).
(Note: Address proof of overseas and Passport and visa copy should be attested by Indian Embassy or Overseas Local Bankers.)
The requirements for NRO accounts:
1. PAN card
copy
2. Valid Passport and Visa
3. Resident proof –Indian
& Foreign (electricity bill, phone bill in the address
currently residing at).
4. Bank proof (mentioning NRO
status on it)
5. DP Proof (mentioning NRO status on
it)
6. RBI permission (can be applied from only designated
bank).
(Note: Address proof of overseas and Passport and visa copy should be attested by Indian Embassy or Overseas Local Bankers.)
Q.24. Does an NRI need any RBI permission to
open a demat account?
ANS: 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
authorized dealers.
Q.25. If NRI/PIO desires to make investments
under different schemes, can he hold all such securities
in a single demat account?
ANS: 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.
Q.26. Can securities purchased under repatriable
and non-repatriable category be held in a single demat
account?
ANS: No. An NRI must open separate
demat accounts for holding ‘repatriable’ and 'non-repatriable’
securities.
Q.27. Does an NRI require RBI permission for
dematerialization /rematerialization of securities?
Ans. 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 dematerialized in the corresponding
Depository Accounts
Q.28. 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?
Ans: 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.
Q.29. 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?
Ans: Yes. It is the responsibility of the NRI to inform
the change of status to the designated authorized 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.
Q.30 What is investment through Direct Subscription Route?
Ans: As per the regulations NRIs are allowed to invest up to a certain percentage
of the total paid up capital of the company by directly subscribing to the
equity/convertible debentures of the company either through a public offering made
by the company or private placements on one to one basis. Regulations provide for
different ceilings on such investments based on the industry to which the company
belongs and also the nature of investments (repatriation / non repatriation basis).
Q.31 Do investments made through subscription to Initial Public Offerings (IPOs)
or Private Placements also come under the preview of Portfolio Investment Scheme?
Ans: No. Investments made by NRIs though subscription to Initial Public Offerings (IPOs)
or Private placements are not covered by Portfolio Investment Scheme. Such investments
are covered by RBI’s regulations with regard to Foreign Direct Investments.
Q.32 Do NRIs need any permission of RBI to subscribe to Mutual Funds/Initial
Public Offerings (IPOs) or Private placements of equity shares/convertible debentures
of existing or new companies?
Ans: No. NRIs do not require any permission to invest though Initial Public Offerings
(IPOs) or Private placements.
Q.33 Do NRIs need any approval from Reserve Bank of India for selling of
the securities acquired through IPOs/Private Placement?
Ans: No. NRIs can sell such shares/debentures on the Exchange without any approval.
However, at the time of sale, the NRI will have to furnish copy of the allotment
letter to enable the bank to determine the cost of acquisition and for deducting tax on capital gains.
Q.34 Do NRIs need to route the sale of securities acquired through IPO/Private
Placement through the designated bank branch for Portfolio Investment Scheme, if any?
Ans: No. The shares/convertible debentures acquired under IPO cannot be routed through
designated bank account meant for Portfolio Investment Scheme.
Q.35 Can NRIs make investments in Mutual Funds and IPOs (Initial Public Offer)
from PIS Account?
Ans: No. NRIs are only permitted to make investments from their normal NRE and NRO A/c’s.
Q.36 Can NRIs make Investments in Derivative Instruments?
Ans: Yes. NRIs can make investments in Derivative Instruments out of their normal NRO savings bank account.
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