Dear fellow NRI Investor/Trader,
The below article is our effort to simplify what goes into opening a NRI trading and demat account for investing in the Indian Stock Exchanges through the PIS route.
Open an NRE/NRO savings bank account in India
Non-resident External Account (NRE) is a bank account where both the principal and the interest earned can be repatriated. You can transfer dollars from your foreign bank account which gets converted to rupees when it hits your NRE account. Funds kept in the NRE account can be converted back into dollars and can be transferred back to your foreign account along with the interest earned. This ability of an asset to be moved from a foreign country to the investor’s home country is called repatriability.
Non-resident Ordinary Account (NRO) is a bank account where principal and interest only upto $1million per year can be repatriated.
Get an RBI approval to start investing on the stock exchanges (PIS)
You need to get a PIS (Portfolio Investment Scheme) permission letter from RBI (Reserve Bank of India) before you can open a trading or demat account with a brokerage in India.
How to get the PIS letter?
The bank where you opened the NRE/NRO account will take care of this. Make sure to submit all the requisite documents.
Open a Trading and Demat account
You can now open a trading and demat account with a brokerage firm (like Zerodha). Along with all the other documents, you have to also give a copy of the PIS letter that the bank would have given you. Here is the application form to open a Zerodha Trading & Demat Account.
Note that you can open both NRE and NRO bank account simultaneously with a bank. In this case, you have to specify which one of these two you want to be mapped to your trading account. You can map only one of these accounts to your trading account.By mapping your NRE account, you can only trade in the Equity segment whereas through an NRO account, you could trade in both Equity & Derivative segment. If you wish to map both these accounts for the sake of Equity trading, you’ll have to obtain 2 client codes from your brokerage firm.
Documents required to open a trading and demat account
- Copy of PIS permission letter
- Copy of FEMA declaration
- Copy of PAN card
- Overseas address proof – Copy of Driving License/Foreign Passport/Utility Bills/Bank Statement (not more than 2 months)/Notarized copy of rent agreement/Leave & License agreement/ Sale Deed
- Indian address proof, if any
- Passport size photograph
- In case of an Indian Passport: Copy of valid passport with place of birth as India, Copy of Valid Visa
- In case of Foreign Passport: Copy of Valid passport, Copy of PIO/OCI card.
- Proof of Bank account (a cancelled cheque leaf of your NRE or NRO savings bank account)
- Note: Copy of PAN card, Passport and Foreign address proof to be notarized by Indian Embassy or any other competent authority like Consulate General / Notary Public / Any Court / Magistrate / Judge / Local Banker in the country where the NRI resides. The attesting authority should affix a “verified with original” stamp, name, designation, signature and date on the said documents
- Declaration of P.O. Box in your residing country
- FATCA Declaration Form
- Allocate funds from your NRE/NRO bank account to your PIS.
- The bank now informs the brokerage firm on how much funds you have allocated. This is then updated on your trading account.
- When you make a stock purchase, the brokerage firm sends the buy contract note at the end of the day to the bank. The bank in turn debits your PIS account to that extent and credits the brokerage firm.
- Similarly when you sell some stocks from your demat, the brokerage firm sends a sell contract note at the end of the day to the bank and also credits your PIS bank account with the proceeds from the sale.
- Note that two separate contract notes are sent for all your buy transactions and sell transactions at the end of every day. The net amount credited/debited to your PIS will be including all charges that appear on the contract note.
- Financial year ending in India: March 31st
- Last date for filing IT returns: July 31st
- Long term capital gains: Zero or exempt. Any gain made on stocks held for more than 1 year is exempt from any taxes.
- Short term capital gains: 15% on any gain made on stocks sold before 1 year.
- Trading income from F&O: Considered as business income, and taxed according to the Income tax (IT) slabs in India.
Trading on Futures and Options?
Yes you can trade in F&O segment of the exchange out of the rupee funds held in India on a non-repatriate basis. It is a little complex to get started as trading on F&O requires a NRI to get a Custodial Participant (CP) code. We at Zerodha have tied up with IL&FS for custodial business, and hence this CP code is assigned by IL&FS. Once you have the CP code, all the funds for trading F&O will sit with the custodian, similar to how all your funds for trading stocks sit with your bank. A typical starting portfolio size for a custodial account is Rs 50lacs.
Other things to keep in mind
- Stock holding of an NRI can’t exceed 10% in any Indian listed company.
- NRI can trade only delivery based. No intraday trading on equity/stocks allowed.
- NRI can trade only equity and equity F&O. No currency or commodity trading allowed.
NRI at Zerodha
- Currently we are servicing only such clients who have their PIS account with Axis, HDFC or Yes bank. We are in the process of tying up with more banks.
- As you can see that there is an incremental effort involved in servicing NRI clients as compared to a resident client, the brokerage is Rs.200/executed order for Equity (0.1% or Rs 200 whichever is lower) & Equity F&O is charged at Rs.100 per order.
Update (11th January 2018)
We have some good news for investors whose residential status has changed from being a resident to a non resident. Recent changes in depository regulations have now made it possible for one to convert an existing demat from residential status to NRI status without the need of closing the demat account. Here’s the procedure listed out to convert your existing resident account to a non resident account.
P.S: There have been no changes made by the Exchanges, in this regards you cannot continue to retain the resident trading ccount. The resident trading account will have to be closed and a new non resident trading account will have to be opened.
Documents required to convert the existing resident trading and demat account to NRI Account:
- Account Modification Form – To update the Bank details and Overseas address in the CDSL.
- Copy of FEMA declaration
- FATCA Declaration Form
- Trading Closure Form for closing the resident trading account.
- New Trading Application Form.
- Notarized copies of self- attested PAN card, Indian Address Proof, Foreign address proof.
- Copy of passport: In case of an Indian Passport: Notarised Copy of valid passport*with place of birth as India, Copy of Valid Visa; In case of Foreign Passport: Notarised Copy of Valid passport*, Copy of PIO/OCI card.
- Proof of Bank account ( a cancelled cheque leaf of your NRO savings bank account).( Either Axis, Yes or HDFC Bank
- Copy of PIS account / NRO-Investment account letter to map to the trading account(Axis, Yes or HDFC Bank)
For more help, email email@example.com.
Happy Trading and Investing,
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