Do you know NRIs have to pay a three times penalty if they are operating resident Savings A/c?
NRIs must convert their normal savings account into an NRO A/c otherwise they might have to pay a penalty. NRO A/c are rupee-denominated accounts used to keep income earned in India. The money in this account is not repatriable easily and comes with certain restrictions.
However, the rules and regulations extend beyond just your savings account. Your Demat Account must also adhere to compliance requirements. If you prefer not to repatriate your profits, you can link your Demat Account with an NRO bank account, which offers lower costs and reduced compliance.
Let’s discuss everything about the Non-repatriable Demat Account and when you should choose this type of account.
When the funds from India cannot be freely moved outside India to the country of residence, it is said to be non-repatriable. When Investments are made through NRO Account, they are non-repatriable.
Since a Demat Account is to be linked to a Bank Account, you have an option to either link it to an NRE (Non-Resident External) Account or an NRO (Non-Resident Ordinary) Account. NRE Account is used to keep foreign earnings in India so it is easily repatriable. The repatriability comes with restrictions when it comes to NRO A/c as transferring funds would mean moving income generated in India to a foreign land.
Your Demat account can either be a PIS account or a non-PIS account. For a PIS account, you must get permission from the RBI to trade in Indian stock market securities. Both NRE and NRO accounts can be converted into a PIS account. A non-PIS account does not require any such permission, but only an NRO account can be converted into a non-PIS account. An NRO non-PIS account comes with lower charges, fewer restrictions, and easier trading. However, the profits and original investment amount are non-repatriable after a threshold of up to 1 million USD in each financial year. The trading procedure from an NRO non-PIS account is very similar to that of an ordinary resident.
To link an NRO (Non-Resident Ordinary) account with your Demat account, you need to apply to your bank to convert your savings account into an NRO account. For a non-repatriable basis, no PIS application is necessary. An NRI can invest in equity shares on a delivery basis, Treasury bills, mutual funds, IPOs, money market funds, etc., through an NRO Non-PIS account. However, NRIs living in the US or Canada are not allowed to invest in mutual funds. NRIs can also trade in F&O, but they need to have a CP code.
Before applying for the NRI demat account, NRIs have to be sure that their residential status is updated as Non-Resident with the Income Tax Department. After this status update, you will require the following documents to open a Demat Account:
FATCA (Foreign Account Tax Compliance Act) Declaration
Postal Address of Country of Residence
FEMA Declaration
Passport-size photograph
Self-attested copy of Indian Passport, PAN Card and copy of address proof for both country of residence and in India.
Cancelled cheque of the NRO Bank Account.
Income Proof (Bank Statement/ITR Acknowledgement/Salary slip)
Here are the key differences between the Repatriable and Non-Repatriable Demat Accounts:
|
Basis of Difference |
Repatriable A/c |
Non-Repatriable Account |
|
RBI Approval |
Required |
Not required |
|
Source of Funds |
Investments can be from both NRO Bank A/c & NRE Bank A/c |
Investments can only be from NRO Bank A/c |
|
PIS Status |
Have to be a PIS A/c |
Can be a non-PIS A/c |
|
RBI Reporting |
All transactions reported |
Not all transactions are reported |
|
Restrictions |
Cap on Sectoral Investments |
No Cap on Sectoral Investments |
|
Account Charges |
Usually have to pay high brokerage and other charges |
Charges are at par with ordinary residents |
Here are some key facts that you need to know about the NRO Demat Account opened on a non-repatriable basis.
This could be a Non-PIS Account which means no additional approval is required from RBI.
There are sector-wise caps as well as restrictions on the shareholding of a foreign body and NRIs. If a company reaches any of these particular caps, the NRIs with PIS A/c cannot invest. No such cap is applicable on NRO non-PIS A/c which is non-repatriable.
The funds from this account can be repatriated with certain restrictions.
You can also apply for IPOs through NRO non-PIS A/c.
You can open multiple Non-PIS Demat Accounts.
Though the non-repatriable demat account enjoys benefits similar to those of an ordinary resident, NRIs still have certain restrictions. Being an NRI, you are allowed to do intraday trading, Short Selling and investing in Sovereign Gold Bonds. Also, NRIs do not have the option of BTST (Buy Today Sell Tomorrow) trade.
So, as an NRI, you need to compare all the pros and cons of both the PIS & Non-PIS Account. Generally, stock brokers and investment advisors recommend opening a non-repatriable Demat Account i.e. NRO non-PIS A/c. This is because it is cost-effective, compliance-friendly and can be even partially repatriated after compliance with certain conditions.
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