In this article, know everything about NRI Trading requirements.
Are you an NRI looking to invest in the Indian stock market but are not sure about how the entire procedure will play out?
Well, you are at the right spot as this article will cover all the relevant details about NRI trading requirements. Learn the basics and then follow through with the different accounts required to make trading possible.
Who is an NRI?
There is no specific law in India that addresses the visa status of an Indian national who is a non-resident.
However, this status is generally accorded to anyone who resides outside of India. The NRI status is provided to those who are not Indian residents rather than having a specific categorization.
Accordingly, an Indian citizen is considered to be a resident of India under the Income Tax Act of 1961, Section 6, if they have lived in India for at least 60 days in the current year and at least 365 days over the previous four years, or for at least 182 days during the preceding fiscal year.
Anyone who fails to meet at least two of the three aforementioned requirements is assigned the classification of NRI for the previous fiscal year.
In a nutshell, an Indian citizen is regarded as a non-resident Indian if they spend a total of 183 days living abroad in a particular fiscal year.
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NRI Trading Requirements
Now as to answer the main question, what are the requirements for an NRI to trade in India? The answer is in opening three accounts:
- NRI Savings Bank Account
- NRI Trading Account
- NRI Demat Account
Let’s understand each of them in detail.
About NRI Account
To register an NRI account in India, a person should be an NRI, meaning they should not fall into the category of Indian citizenship or, as per the Income Tax Act of 1961, must reside abroad for at least 120 days within a given year and less than 365 days over the previous four years.
You can also be classified as an NRI, in case you leave the country to work in a foreign country. They then instantly get NRI status.
There are three basic kinds of NRI accounts, and each one differs in certain ways. It is best to have complete knowledge about the three before opting for them.
You can deposit either the amount you make in India or the amount earned in the country in which you are currently residing.
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Three Types of NRI account
The three NRI accounts are NRE, NRO, and FCNR. All the accounts are explained in detail below:
NRE is an abbreviation for Non-Residential External. Earnings from the NRI’s current home country may be deposited into the account. However, there is only one requirement: the earnings must be expressed in Indian Rupee.
For instance, X must support their father who lives in India while working in Europe. Every month, they make a deposit of, say, 3000 Euro, however in Indian rupee.
The Euro will be exchanged into Indian Rupees based on the current exchange rate. Therefore, if 1 EUR = 88.69 INR, the account would have Rs. 2,66,070 after conversion (3000×88.69).
- Allows transfers in foreign currencies; but the balance will be denominated in Indian Rupee.
- The sum that has been deposited is tax-free and remittable.
- The ability to earn an interest rate on NRE deposits of up to 4.35% annually.
A Non-Residential Ordinary Account receives income from India and is denominated in Indian rupees. Rent, a dividend, a pension, a return on equity, etc. can all be considered sources of income.
Y, for example, is an NRI that invests in Indian financial products. The dividends and profits can be deposited into their NRO account as and when received.
There is no requirement for currency conversion because the deposits are denominated in Indian rupees.
- The withdrawals from the account can only be done in Indian Rupee.
- NRO account is proficient in handling all types of income received from Indian sources.
- The foreign currency, if deposited in this account, will get converted to Indian currency based on the current exchange rate.
- The repatriation restriction is one million USD each fiscal year.
- NRO deposits can earn up to 5.5 percent interest per year.
Foreign Currency Non-Residential Account allows the NRIs to deposit any foreign currency into the account but it must be in one of the currencies the Reserve Bank of India has listed.
The accepted currencies include the Canadian Dollar (CAD), Swiss Franc (CHF), Great Britain Pound (GBP), US Dollar (USD), Euro (EUR), Hong Kong Dollar (HKD), Singapore Dollar (SGD), Australian Dollar (AUD) and Yen (JPY) (Japanese Yen).
Therefore, if you receive income in one of these currencies, there won’t be any conversion; nevertheless, if you receive income in any other currency, it will be converted into one of the designated RBI currencies.
- Both the initial deposit and any interest accrued are returnable.
- The deposits range in tenure from one to five years.
- The deposits are not subject to taxation in India.
- An FCNR account’s ability to handle currency in many currencies is a benefit.
- Additionally, the account renews itself when the deposits reach maturity.
These bank accounts are further divided into PIS and Non-PIS categories. The Portfolio Investment Scheme (PIS) of the RBI enables NRIs and PIOs to trade in Indian stocks.
NRI Demat Account
Just like for any type of trading even for Indian citizens, a Demat account is a must, similarly, it is necessary for NRIs as well.
This account will help you to hold the securities in the online form and makes the transaction easy. These accounts are opened with a stockbroker and in the case where they are not providing such services, you can opt to open the Demat account with a depository participant.
As you are required to choose to form an NRI bank account, you will also have to choose from a Demat account, whether to opt for NRO or NRE.
According to your NRI Demat account type selection, the stockbroker or depository participant will ask for the required documents and after some time of processing, your Demat account will become active.
NRI Trading Account
By this time, you will have access to two of your accounts, however for the entire trading process to function properly, you will be required to open another account, that is, a trading account.
This account acts as an interface between the bank account and the Demat account. This account will be used to place trading orders in the securities market.
Similar to the previous two accounts, the trading account will also be open based on NRE or NRO account. This account will also be opened through a stockbroker.
Now as you might have noticed that each of these accounts can be opened through a stockbroker or depository participant, thus to make the process easier, many financial institutions bundle up these accounts together. The facilities are as follows:
2-in-1 accounts: Most brokers offer this service, where they are offering to open trading and Demat accounts while recommending the banks they have ties to for bank accounts.
3-in-1 accounts: This service enables the opening of a bank, trading, and Demat account and is typically provided by large banks. Additionally, some banks refer to it as a 4-in-1 account with two bank accounts (PIS and Non-PIS).
India is one of the world’s fastest-growing economies. With an average annual GDP growth rate of 6-7% during the last five years, India has the potential to become a superpower in the ensuing decades.
Thus, there are no issues if even as an NRI, you want to actively trade in this economy. Just simply follow the steps and requirements mentioned for opening all the necessary accounts and then you are free to trade in the securities.
Stay updated with all the details of NRI Trading Requirements in this article.
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