Transactions covered under PIS:

1. Fresh purchase from the secondary market as an NRI.
2. Sale of shares, which were bought under PIS.
PIS does not allow transactions in IPOs, Mutual Funds, Derivatives and sale of shares acquired on residential basis.

As per Indian Income Tax Act, 1961, any Indian person staying outside India more than 182 days is considered as NRI (Non-Resident Indian).

Categories of NRIs:

I.    Indian citizens who stay abroad for employment or for carrying on a business or vocation or for any other purpose in circumstances indicating an indefinite period of stay outside India.

II.    Indian citizens working abroad on assignments with foreign Governments/government agencies or International/Regional Agencies like the UNO,IMF,World Bank, etc.

III.    Officials of the Central and State Governments and Public Sector Undertakings deputed abroad on temporary assignments or posted to their offices (including Indian Diplomatic Missions) abroad.

A citizen of any country (other than a citizen of Bangladesh or Pakistan) is deemed to be a Person Of Indian Origin (PIO), if,

I.    He, at any time, held an Indian passport, or

II.    He or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955, or

III.    A spouse (not being a citizen of Bangladesh or Pakistan or Sri Lanka) of an Indian citizen or of a person of Indian origin is also deemed to be PIO.

Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) (defined in Schedule 3 of Foreign Exchange Management Act 2000) through which NRIs and PIOs can purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch.

As per regulatory guidelines, Tax (if applicable) has to be deducted at source for all the profits done in the equity market transactions. Before crediting sales proceeds it is the responsibility of the Banker to determine the appropriate Tax and deduct it at source.

A NRE bank account is Non-Resident External Account. Since it is an external Account, any monies lying in NRE account can be taken outside the country or in other words, the monies lying in NRE account are fully repatriable. This money can be converted into any foreign currency at the behest of the account holder and can be remitted outside the country. Money can be freely transferred from NRE account to NRO account.

A NRO bank account is Non-Resident Ordinary Account. Monies lying in NRO account cannot be taken outside the country or in other words, it is non repatriable. This money cannot be converted into foreign currency and hence cannot be remitted outside the country. Money cannot be transferred from NRO account to NRE account. Erroneously transferred money from NRE account to NRO account, cannot be transferred back to NRE account.

•    An NRI should open a new bank account with designated bank branch, which is approved by RBI (Reserve Bank of India) for this purpose.

•    He should apply for a general approval for investment in Indian Stock Market through his designated bank branch.

•    He should open a Demat Account with a Depository Participant to hold his shares.

•    He needs to register with a broker to execute his buy/sell orders on the stock exchange(s).

NRI/PIO can open a demat account with any Depository Participant [DP] of NSDL. The NRI/PIO needs to mention the type [‘ NRI’ as compared to ‘ Resident’] and the sub-type [‘Repatriable’ or ‘Non-Repatriable’] in the account opening form collected from the DP.

No permission is required from RBI to open a demat account. However, credits and debits from demat account may require general or specific permissions as the case may be, from designated banks.

No special permission is required. Holding securities in demat only constitutes change in form and does not need any special permission. However, only those physical securities which already have the status as NR – Repatriable / NR- Non-Repatriable can be dematerialized in the corresponding Depository Accounts.

No. An NRI must open separate demat accounts for holding –repatriable’ and 'non–repatriable’ securities.

As per section 6(5) of FEMA, NRI can continue to hold the securities, which he/she had purchased as a resident Indian, even after he/she has become a non-resident Indian, on a non-repatriable basis.

Yes. It is the responsibility of the NRI to inform the change of status to the designated bank branch, through which the investor had made the investments in Portfolio Investment Scheme and the DP with whom he/she has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, securities should be transferred from the NRI demat account to resident account and then close the NRI demat account.

NRIs are permitted to make direct investments in shares/ debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e. purchase of share / debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis.

Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission.

No.

Reserve Bank has authorized a few branches of few banks to conduct the business under Portfolio Investment Scheme on behalf of NRIs. These branches are the main branches of major commercial banks. NRIs will have to route their applications through any of the designated bank branches that have authorization from Reserve Bank.

No. Each NRI has to select one branch for the purpose of investment under Portfolio Investment Scheme.

NRIs / PIOs can purchase / sell shares / convertible debentures of Indian companies on Stock Exchanges under the Portfolio Investment Scheme. The rules relating to this scheme are as given below:

(i)    These trades can be done only through a registered broker on a recognized stock exchange.

(ii)    NRI shall designate a branch of an authorized dealer and route all his/her transactions through this branch of the authorized dealer.

(iii)    NRI takes delivery of the shares purchased and gives delivery of shares sold.

(iv)    NRI shall abide by the directions given by RBI/SEBI or such authority if the transaction results in the breach of ceilings stipulated for NRI holding in the company/scheme.

The sale of shares will be subject to payment of applicable taxes.

The table given below summarizes the permissions required for the off-market transfer:

* Provided that the person to whom the shares are being transferred has obtained prior permission of Central Government to acquire the shares, if he has previous venture or tie up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied filed in which the Indian company whose shares are being transferred is engaged.

Yes.

Yes. Reserve Bank permits NRIs, on application in form FNC 7, to purchase shares / debentures of existing Indian companies on non-repatriation basis. An undertaking about non-repatriation is to be given in form NRU.

Yes. Authorised dealer have been permitted to grant loans/overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares/debentures of Indian companies held by them, provided the concerned shares/debentures were acquired on repatriation basis.

Step by step investing procedure for Online trading NRIs:(HDFC Bank)

1.     Please log into Sharekhan Trading Account with your User ID and Trading Password. Click on Equity option.( NRE/NRO as per your account category)

2.    Check your limits before placing purchase order- Path to follow - Equity- View Hold funds

3.    In order to transfer funds, Pls go to Reports - Accounts - NRI cash transfer - Select Transaction type as Hold - Put the Amount- submit. It will take you to HDFC web site. Put your Internet Banking Password and confirm the hold amount.

4.    You can now click on Trade option to place Equity orders.

Step by step investing procedure for Online trading NRIs:(Axis Bank):

1.    Please log into Sharekhan Trading Account with your User ID and Trading Password.

2.    Check your limits before placing purchase order- Path to follow - Reports - Limit statement

3.    Everyday we update your limit on the basis of your bank balance statement received from Axis Bank.

4.    For any discrepancy please write mail to nridesk@sharekhan.com

1.    Derivative Trading for NRIs is possible only through NRO Account i.e. on Non Repatriable basis.

2.    If the NRI has already obtained unique code through some other broker, it should be used. In other words the code will be unique across exchange.

3.    Up front Margin has to be collected from the client for M- TO –M.

4.    When entering the orders broker have to use the code allotted by the Exchange.

5.    NRI/broker has to ensure that the trades don’t exceed the overall limits for NRIs as specified by the Exchange. Investment limits in derivative segment are also monitored at Exchange level. Penalty is charged by exchange in case of violations.

1.    MF can be applied through HDFC NRE NON PIS and NRO NON PIS Acounts. MF Investments are done through NRE/NRO Savings account and not through PIS account.

2.    Please log into Sharekhan Trading Account with your User ID and Trading Password. Click on Mutual Fund option.

3.    Check your limits before placing purchase order- Path to follow - MF- View Hold funds.

4.    In order to transfer funds, Pls go to Move Funds- Click on NRE MF/NRO MF as per your account category- Select Transaction type as Hold - Put the Amount- submit. It will take you to HDFC web site. Put your Internet Banking Password and confirm the hold amount. The amount will reflect in View Hold funds option now.

5.    You can now click on Trade option to place MF orders. Under Place order option you will be able to select desired scheme.

1.    1. MF can be applied through HDFC NRE NON PIS and NRO NON PIS Acounts. MF Investments are done through NRE/NRO Savings account and not through PIS account.

2.    Please log into Sharekhan Trading Account with your User ID and Trading Password. Click on IPO option.

3.    Check your limits before placing purchase order- Path to follow - IPO- View hold funds.

4.    In order to transfer funds, Pls go Move funds- click on NRE IPO/NRO IPO as available on the site and on the basis fo your account category- Select Transaction type as Hold - Put the Amount- submit. It will take you to HDFC web site. Put your Internet Banking Password and confirm the hold amount. The amount will reflect in View Hold funds option now.

5.    You can now click on Trade option to place IPO orders. Apply online option will be seen under this option.

When customer will sell the shares received in IPO, the following documents need to be submitted by Client:
1.    Copy of IPO application

2.    Copy of NRE cheque issued at the time of subscription.

3.    Copy of allotment letter

1.    Fresh purchase from the secondary market as an NRI

2.    Sale of shares, which were bought under PIS

1.    Sale of shares, which were not bought under PIS, like Gifts, subscription to IPOs or shares bought as resident Indian, or received in bonus.

2.    Fresh subscription for IPOs as an NRI

3.    Investment in Mutual Funds.

These transactions need to be routed through NON PIS account.

PIS can be obtained only through one banker at a time.

Yes. If the NRI is already having a PIS account with some other bank, he has to close that account and provide the following documents to the new bank along with the application form:
1. NOC: No objection certificate is required from the previous bank stating that the client does not have any dues with them and the bank does not have any problem in his transferring the relationship to other bank. (It is not required for fresh PIS approval)

2. Previous approval letter: Bank X would have issued a PIS approval letter. This letter is required.

3. Details of the existing investments in the form on Annexure II and Annexure III.

For any transaction to be reported to PIS, contract note of the broker should reach PIS department within one working day following the day of transaction.

For any transaction to be reported to PIS, contract note of the broker should reach PIS department within one working day following the day of transaction.

Although these shares were purchased under PIS, but for B still these shares are received as gift, so B cannot sell these shares under PIS.

Investment can be made on repatriation as well as non-repatriation basis. However, an NRI will have to open NRE account as well as NRO account with designated bank branch as the sale proceeds of non-repatriation investment can only be credited to NRO account. If the customer is having any previous holdings, he needs to open NRO bank account as the sale proceeds of these investments will go to NRO account only.

The repatriation of the sale proceeds, net of taxes, are allowed if the original purchase was made on repatriation basis and such investments were made out of funds from NRE/FCNR account or by means of remittance from abroad.

TDS rate is different as per the tenure of the investment. It can be classified into:
Long-term capital gain If the period of holding is more than 1 year i.e. the difference between the date of purchase and sell is more than 1 year, then the TDS rate applicable is 0 %.

Short-term capital gain - If the period of holding is less than 1 year i.e. the difference between the date of purchase and sell is less than 1 year, then the TDS rate applicable is 15%. (Excluding Service Tax and Education cess)

TDS is computed on the profit amount or the gain as per the applicable rate i.e. short term or long term. No TDS is charged on losses.

For any TDS to be deducted and money to be remitted to bank account, there are three things that have to be verified.

1. Amount of gain = Selling price – Purchase price

2. Duration of holding i.e. long term or short term = Selling date – Purchase date

3. Source of fund for purchase i.e. NRE or NRO

An NRI can purchase up to a maximum of 5% of the aggregate paid up capital of the company (equity as well as preference capital) or the aggregate paid up value of each series of convertible debentures as the case may be. For the purpose of this ceiling, investment under the Portfolio Investment Scheme on repatriation as well as non-repatriation basis will be clubbed together.

There is an overall ceiling of 10% of paid-up equity share capital of the company/paid-up value of each series of convertible debentures for purchase by all NRIs/OCBs put together. The overall ceiling can be raised if the company concerned passes a special resolution to that effect in its general body meeting.

While limits of individual holdings by NRIs/OCBs are monitored by the respective designated bank branch, RBI monitors the holding limits by NRIs/OCBs in aggregate. Once the aggregate holding of NRIs/OCBs builds up/ about to build up to the maximum prescribed ceiling, RBI puts the concerned stock under the Restrict List/Watch List which is published by RBI from time to time.

A Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least sixty percent by Non-Resident Indians and includes overseas trust in which not less than sixty percent beneficial interest is held by Non-Resident Indians directly or indirectly but irrevocably. OCBs were debarred from Portfolio Investment Scheme w.e.f November 29, 2001. OCBs have been banned as a class of investor w.e.f September 16, 2003. However, they have been permitted to continue to hold the securities acquired by them prior to these dates. Accordingly OCBs may open a demat account, however it can be only for the purpose of dematerializing the existing holdings.