This is yet another way to buy stock in unlisted Indian companies. ESOPs may also be bought by NRIs (Employee Stock Ownership Plans). Some Indian investment brokers can connect you with employees of different firms who are looking to sell their shares for a set price.

There is a sudden flood of money from the Indian diaspora living abroad since the Indian government periodically invites NRI investment in India. In India, a sizable amount of NRI investment is observed to be concentrated in fixed deposits, real estate, or stock markets. What steps should an NRI take to invest in Indian stock markets?

We shall discuss how NRIs can invest in India, specifically in the stock markets, in this article. Starting off, let's define NRI.

Who is an NRI?

An NRI is a resident of another country who is either an Indian citizen or a person of Indian origin (PIO).

An NRI, in terms of taxation, is someone who doesn't meet the following requirements:

• He or she has spent at least 182 days in India during the fiscal year.
• He or she has spent a minimum of 60 days in India this year and at least 365 days total over the previous four years.

What are the typical methods used by NRIs to invest in Indian stocks?

NRIs may invest in Indian stock markets or stocks of Indian companies in accordance with RBI regulations. These Indians must contact an Authorized Dealer or a Bank that has been approved by the Reserve Bank of India to handle and channel the investments thoroughly because they are not Resident Indians:

• Portfolio Investment Scheme (PIS) or 
• NRE (Non-Resident External) account or 
• NRO (Non-Resident Ordinary) account

There are three main ways for a Non-Resident Indian, or NRI, to manage these accounts for additional stock market investments in India.

1. Appointing a mandate holder
    

In order to manage their NRE or NRO accounts in India, NRIs can designate a mandate holder. An NRI person must submit an "Appointment of Mandate Holder" application to the bank together with the necessary paperwork and a sample of the mandate holder's signature for this.

2. Power of attorney
    

A power of attorney (POA) may be appointed in India by an NRI person to carry out and redeem any investments made there. A POA agreement must be made, signed, and notarized on the stamp paper before being submitted as a requirement for investing.

3. Broker services
    

Brokers in India can now provide online trading services to NRI clients thanks to the growth of internet trading, provided they follow all necessary KYC regulations.

List of documents required to open an NRI stock trading account
 

Below is mentioned some of the commonly used documents to open a stock trading account for an NRI in India:

• A copy of the PAN Card
• A copy of passport, Visa, and place of birth should be India as the prove entity status
• Requested a letter of authorization from a particular bank for the Portfolio Investment Scheme.
• Any one of the following: a driving licence, a foreign passport, a bank statement, or utility bills can serve as proof of an overseas residence address.
• Photograph of an investor.
• Bank account and depository account documentation.
• NRI's signature appears on a power of attorney in the Bank's favour. To complete specified formalities, such as applying for RBI clearances, this may be considered:
  • Application for RBI approvals
  • Renunciation of right entitlement
  • Buy and sell shares or debentures
  • New share or debenture issue subscription
  • Dividend and interest collection 
  • Safe custody of shares and debentures 
  • Repatriation of an investment 

When transacting in equities, an NRI person is required to take delivery of the shares they have bought and to deliver the shares they have sold. As a result, they are restricted from engaging in the speculative, margin, or short-selling activities on the stock market.

What is the maximum NRI investment in the stock market in India?
 

NRIs have two options for investing in the Indian stock markets; these are:

• Repatriation and 
• Non-repatriation basis 

There are several ways for NRIs to invest in an Indian company:

• NRE accounts are external accounts that can be repatriated
• NRO accounts are resident accounts that cannot be repatriated after a ceiling of $1 million per year.

An NRI must obtain RBI PINS permission after setting up the necessary bank account.

Another option is to invest in listed Indian firms through the PIS Route, which allows you to fund up to 5% of the paid-up capital or paid-up value of each share or debenture.

Only 10% of the net paid-up value of shares or convertible debentures may be purchased by an NRI. If the Indian organisation passes a special resolution to that effect, the 10% cap could be increased to 24%.

Conclusion
 

One can use the trading account credit for both purchasing and selling shares once an NRI person credits money to a broker through the NRE or NRO account. NRIs have the same options for final stock purchases and sales that Indian residents have. NRIs are unable to invest in equities, nevertheless. They must therefore consult their broker before starting any trades. Penalties are applicable for any infraction.

Frequently Asked Questions
 

1. What kind of bank account is required for an NRI to invest in the Indian stock market?

To invest in the stock markets in India through a designated broker or through mutual funds, an NRI may open a Non-resident external rupee (NRE), Non-resident ordinary rupee (NRO), or foreign currency non-resident (FCNR) account.

2. Do NRIs have to pay income tax who receive income from investments made in India?

Yes, if sold within a year of purchase, short-term capital gains on equities investments are subject to a 15% tax rate. No taxes are applied to long-term capital gains. Debt investment returns are taxed according to a person's income tax bracket.

3. What encourages NRIs to make investments in India?

India is one of the economies in the world with the quickest growth rates. NRIs are looking to the Indian stock markets to diversify their portfolios and increase capital growth as global economies encounter a plateau in the growth of capital through investments.
 

4. Without PIS, can an NRI invest in the Indian stock market?

For NRI investment in Indian stock markets, they must complete the PIS, or Portfolio Investment Scheme. They are still permitted to invest in IPO shares, shares received as gifts, and shares purchased as resident Indians even without PIS.

5. What is the need for a PIS account for NRIs?

Since it stores the investment funds and is connected to the NRIs' Demat and Trading accounts, a PIS account, or portfolio investment scheme account, is essential for NRIs. Before the Demat Account is credited with shares, the price of any shares purchased using a trading account will be deducted from the PIS Account.