Monday, December 7, 2020

Can NRI Open A Demat Account In India?

 Can NRI Open A Demat Account In India?

Non-Resident Indian (NRI)

A person who is a citizen of India or is a person of Indian origin (PIO) residing outside India is called NRI. When a person of Indian origin stays outside India and earns in foreign currency, he needs to open an NRE/NRO account to remit his foreign earnings to India. All leading banks of India provide the Facility to open these accounts.

NRI Demat Account in India

NRIs/PIOs are allowed to open Demat Accounts in India. They can open a Demat account with any registered Depository Participant (DP) of national depositories i.e. NSDL or CDSL. All leading banks of India are providing the Facility to open NRI Demat accounts. 

To invest in India, NRIs need to open one of these three accounts - NRE (Non-Resident External) Rupee account, NRO (Non-Resident Ordinary) Rupee Account or Foreign Currency Non-resident Account (FCNR) for repatriable and non-repatriable transactions. 

A demat account meaning is an account that holds investments of an investor in the electronic form. At the time of opening a Demat account, the NRI/PIO needs to mention the status (NRE/NRO) and the sub-status (Repatriable or Non-Repatriable). NRIs need to follow rules laid by the Foreign Exchange Management Act (FEMA) to trade in the Indian stock market. They have to invest in the Indian currency i.e. rupee only.

If an investor has a Demat account before getting the status of NRI, the account can be converted into the NRO category or he can open a new Demat account. Shares previously owned by an investor will be transferred to NRO accounts. NRIs do not require the permission of RBI/SEBI to open a Demat account. 

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Different Demat Accounts for Different Investment 

NRI/PIO who want to make investments under different schemes need separate Demat accounts to hold different investments. Investments under the Foreign Direct Investment (FDI) scheme, Portfolio Investment Scheme (PIS), or other schemes on a non-repatriation basis require separate Demats. Investment under PIS can be based on repatriation or non-repatriation. 

Reserve Bank of India (RBI) allows an NRI to hold up to 5% of paid-up capital in an Indian business. NRIs can apply for Initial Public Offers (IPOs) using Non-Resident External (NRE) accounts on a repatriable basis. For non-repatriable based investment, then the Non-Resident Ordinary (NRO) account will be used.

NRI to Indian Resident

If an NRI gets the status of a resident of India, he has to inform and submit appropriate documents to the designated authorized dealer and the DP to change the status of his holding from Non-Resident to Resident. However, investors are not permitted to change the status/sub-status from Resident Individual and NRI-non Repatriable to NRI Repatriable.

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Documents required to open Demat account

An NRI needs to submit the following documents duly attested to open a Demat account along with the application form: 

  • Passport
  • PAN card
  • Visa
  • Overseas address proof
  • Passport size photograph
  • FEMA declaration
  • Canceled cheque of NRE/NRO account 

NRE/NRO Account Rules

As per FEMA regulations, the following are the rules related to NRE/NRO accounts:

  • RBI prior approval is required for the residents of Pakistan and Bangladesh to open this account.
  • Money deposited in this account can be used to make direct investments in stocks or mutual funds in India.
  • NRI can appoint a nominee/Power of Attorney to operate this account.
  • This account will be maintained in INR only. It is an Indian rupee-denominated account only.
  • As per Foreign Exchange Management (FEMA) Act, 1999, no tax is applicable on interest income earned from this account.
  • Income from rent, dividend, salary, pension, interest, or other sources is permitted to remit to this account.
  • You cannot deposit income earned in India into this account.
  • You can transfer funds from other NRE to NRE accounts and NRO to NRO accounts.

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