If you are an NRI then you must have also encountered the problem and confusion of how to invest in the Indian Equity Market, what are the important things NRI should need before investing? what are NRI investment rules in India? what is the difference between PIS vs Non PIS accounts?
If you are an NRI then you need to know a few important things and NRI investment rules of India, stick to this article and know about them one by one.
Important Things NRI Should Need Before Investing
If you are an NRI and want to invest in the Indian equity market, then you will require two important things:
- Demat Account
- Trading accounts
Also if you are an NRI, then being an NRI you should have two of these bank accounts which are as follows:
- Non-Resident Ordinary (NRO) Account and,
- Non-Resident (External) Account (NRE).
These are the bank accounts that are required. And you can trade in the Indian equity market through these two accounts.
Both accounts are open for you and we need to decide through which account we have to invest in the Indian equity market, and which option is better for you.
NRI Investment Options
We will see the two NRI investment options, they are through a Non-Resident Ordinary (NRO) account and a Non-Resident (External) Account (NRE) account.
We will also see a PIS account that is a Portfolio investment scheme (PIS) account and a non-PIS account. We need to decide which option to choose or what precautions should be taken while choosing options. We have two accounts for NRI, they are NRO and NRE, NRI have two investment options:
- Either to invest through a PIS
- Or a Non-PIS account Investment
PIS is an account but non-PIS means without opening the PIS account in short these are the two common types of accounts that are used by NRIs that are used to invest in the Indian market.
So you can invest through a PIS account and trade in an Indian equity market or you can invest without going through a PIS account.
Difference Between PIS vs Non-PIS Account
We will see the difference between PIS and Non-PIS accounts.
Account Linking & Legal Rules
In a PIS Account, this account can link both accounts to trade in the PIS account. A PIS account is a Non-Resident (External) Account (NRE) account. It is designated as a PIS account.
To open a PIS account we need an RBI approval letter, in the letter it is written that “Henceforth, this person is allowed to do equity investment on a repatriable basis.”
That means you can invest on a repatriable basis in the Indian equity market. The bank manages that letter itself this is an NRE bank account.
- We need to link this account to DEMAT or a trading account. After linking the account then you can invest through a PIS account and if you do not open this account, then it is a non-PIS investment.
- In PIS investment if you have to add money or wanted to link it you can do that from NRO or NRE accounts both of these accounts can be used to add money in this account. If we do not open this account, If you have a Non-PIS account then you can only trade through a NRO account.
Accounts Availability In The Banks
PIS account is available in limited banks, there are a few banks in India that deal with PIS account like YES Bank. A Non-PIS investment can be done through NRO account in any bank. Where bank is opening NRO account, non-PIS investment can be done.
Upon opening a PIS account, you can only invest in the Indian equity market. Through a Non-PIS account you can invest in both equity and derivative that is in Futures and Options (F&O) also. If you have non-PIS account, then you can deal in both.
Capping
If you have a PIS account, then sectorial cap is applicable government has given capping for different sectors like aviation, retail, hotelling, defence etc. That capping is applicable through PIS account if you are a PIS account holder, then you will have to follow that capping. Retail investors won’t have to worry about the capping as we don’t invest that hefty amount. Non-PIS account does not have any such capping for investment.
PIS account investment is freely repatriable. PIS account investment is freely repatriable after paying taxes, Non-PIS account investment is repatriable but with conditions. Those conditions or restrictions depends on that respective governments rules but by following those conditions, you can repatriate the investment. But as told, with PIS account investment is freely repatriable after paying taxes.
IPO Restrictions
If you have a PIS account, then you can’t invest in any IPO. Whereas in a Non-PIS account you can invest in IPO. That means there is only secondary market is open. Primary market is not open for PIS. Generally, PIS accounts have higher transaction charges.
Non-PIS accounts have similar charges as normal resident demat trading account. So we should consider this fact before choosing account.
Account Holder Limit
PIS accounts can only be opened by one person and allowed only one account in India. For Non-PIS accounts, there are no such restrictions. It can be opened in many number in India. These are the differentiating points for PIS and non-PIS accounts.
Difference In Taxation
Now we will talk about taxation, is there any difference in taxation with PIS & Non PIS accounts? Answer is No, Taxation for NRIs will be applicable in both accounts.
The taxation will be applicable according to the short-term and long-term. In both PIS, Non-PIS, NRO and NRE accounts, there is no difference in taxation. Because taxation is linked to non-resident status. So, for NRI, taxation is the same. So, there is no change in taxation.
NRI Investment In India Rules
If you are a NRI then being non-resident Indian, its important to know about the NRI Investment In India Rules, it is not recommended to do these things in Indian equity market:
- First thing, which is not allowed for NRIs is intra day trading
- The second thing is Short selling.
- The third thing is that IPO, Direct MF, Derivatives, and SGBs are not allowed in PIS but allowed in non-PIS being NRIs.
- Fourth thing, Investment in SGBs is also not allowed.
Recommendation for NRIs Generally, investment in Indian equity market should be done through NRO account. It is cost wise and compliance wise effective it is repatriable with some conditions. One million dollar scheme is open for all NRIs with some conditions.
From compliance & regulatory perspective it is recommended to invest though NRO or Non-PIS account.