Non-Resident Indians (NRIs) are allowed to open a demat account in India. But, they must adhere to specific regulations and procedures outlined by the Foreign Exchange Management Act (FEMA) and the Securities and Exchange Board of India (SEBI). Read on to understand the different types of demat account for NRIs, the documents needed to open one, and other considerations that need to be kept in mind.
Types of Demat Accounts for NRIs
NRIs can open two main types of demat accounts:
- Repatriable Demat Account: Linked to a Non-Resident External (NRE) account, allowing the transfer of funds abroad.
- Non-Repatriable Demat Account: Linked to a Non-Resident Ordinary (NRO) account, where funds cannot be transferred outside India.
Tabulating the differences between the two
| Feature | Repatriable Demat Account | Non-Repatriable Demat Account |
| Linked Bank Account | Must be linked to a Non-Resident External (NRE) account, which allows funds to be transferred abroad. | Must be linked to a Non-Resident Ordinary (NRO) account, restricting international fund transfers. |
| Fund Transfer | Allows free transfer of funds abroad, including sale proceeds and dividends. | Funds cannot be transferred outside India; only the principal amount can be repatriated after taxes. |
| Investment Flexibility | Investments can be converted into foreign currency and remitted internationally. | Investments cannot be converted into foreign currency for overseas transfers. |
| Tax Implications | Subject to Indian tax laws, but repatriation is generally straightforward. | Proceeds from sales are subject to tax deductions at source (TDS) before any repatriation of the principal amount. |
| Annual Remittance Limit | No specific limit on remittances as long as they comply with FEMA regulations. | Up to $1 million can be transferred per financial year after tax deductions. |
Opening a Demat Account
NRIs can open a demat account through two primary methods:
- Offline Process:
- NRIs must be in India to visit a Depository Participant (DP) office.
- They need to fill out an account opening form and submit various documents for verification.
- Online Process:
- NRIs residing abroad can initiate the process online through their broker’s website.
- They must submit required documents, which need to be attested by a local bank or the Indian Embassy.
Required Documents
- Passport: A notarized copy of the passport, including the personal information page and visa page.
- Visa Documentation: A copy of a valid visa (work, employment, student, etc.) that allows the individual to reside outside India.
- Proof of Overseas Address: This can include:
- Utility bills (electricity, water, etc.) not older than three months.
- Bank statements.
- Rental agreements or any official document validating the overseas address
- PAN Card: A copy of the Permanent Account Number (PAN) card is mandatory for tax purposes.
- PIS Approval Letter: A Portfolio Investment Scheme (PIS) approval letter from an authorized dealer is required for investing in Indian securities.
- Bank Account Proof: Proof of NRE/NRO bank accounts, which may include a cancelled cheque and bank statement.
- Photographs: Passport-sized photographs as per the specifications of the broker.
- FCD Form: A Foreign Currency Declaration form may be required to clarify the source of funds being invested.
- Additional Forms: Some brokers may require specific forms related to Know Your Customer (KYC) compliance or declarations related to foreign tax compliance.
These documents must be submitted along with the demat account application form to initiate the account opening process. But, just submitting these documents isn’t enough. NRIs should ensure that all the documents are correctly filled and authenticated to avoid delays in processing their applications.
Restrictions for NRIs
There are specific restrictions on the types of securities that Non-Resident Indians (NRIs) can hold in their demat accounts in India. Here are the main points regarding these restrictions:
Allowed Securities
NRIs can invest in a variety of securities, including:
- Equity Shares: NRIs can invest in shares of listed Indian companies, subject to certain limits.
- Mutual Funds: NRIs can invest in domestic mutual funds that primarily invest in equity.
- Bonds: Investments in bonds issued by Public Sector Undertakings (PSUs) and Infrastructure Debt Funds are permitted.
- Debentures: NRIs can hold listed non-convertible and redeemable debentures.
Investment Limits
- Equity Investment: NRIs are allowed to invest up to 5% of the paid-up capital of a listed Indian company. The aggregate investment by all NRIs in a single company cannot exceed 10%, although this limit can be raised to 24% if approved by a special resolution from the company.
- Debentures: Similar to equity, the limit for debentures is also capped at 5% of the paid-up value for each series.
Prohibited Investments
NRIs face restrictions on investing in certain sectors and instruments, including:
- Short Selling: NRIs are not permitted to engage in short selling or intra-day trading.
- Prohibited Sectors: Investments in sectors such as lotteries, gambling, real estate businesses, and companies involved in tobacco manufacturing are not allowed.
- Transferable Development Rights (TDRs): NRIs cannot trade in TDRs.
- Certain Companies: NRIs cannot invest in companies involved in atomic energy or railway operations, or those with foreign technology collaborations.
Specific Conditions
- NRIs must conduct transactions on a delivery basis and cannot engage in intra-day trading.
- For trading in derivatives, NRIs require a custodial participant code and must use rupee funds held in India.
These regulations ensure that NRI investments align with Indian financial laws while allowing participation in the Indian securities market.
Conclusion
To sum it up, NRIs can indeed open demat account in India by following the specified procedures and providing the necessary documentation. This enables them to invest in Indian securities while complying with regulatory requirements. Staying updated on the market and regularly monitoring stocks such as Reliance Share Price can help you make informed and ethical trading decisions. But, they need to bear in mind the restrictions that are applicable to them.
