Investing in India : For NRIs
Non-resident Indian (NRI) means a ‘person resident outside India’ who is a citizen of India or is a ‘person of Indian origin’. Under the Foreign
Exchange Management Act, 1999 (FEMA), a person who is not a ‘person resident in India’, as defined under Section 2 (v) of the Act is considered a ‘person resident outside India’.
‘Person of Indian Origin’ (PIO) means a citizen of any country other than Bangladesh or Pakistan, if he at any time held an Indian passport; or, he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or the person is a spouse of an Indian citizen, or a person referred to in sub-clause (a) or (b).
An investment by a PIO in Indian securities is treated just as investments by nonresident Indians and requires the same approvals, and enjoys the same exemptions. NRIs can purchase existing shares or debentures of Indian companies by private arrangement. The Reserve Bank permits NRIs to purchase shares or debentures of existing Indian companies on non-repatriation basis. An undertaking about nonrepatriation is to be given.
NRIs can also obtain loans abroad against a collateral of shares or debentures of Indian companies. The authorised dealers have been permitted to grant loans or overdrafts abroad to NRIs through their overseas branches and correspondents against a collateral of the shares or debentures of Indian companies held by them, provided the shares or debentures were acquired on a repatriation basis.
An NRI or PIO can open a demat account with any depository participant (DP). He needs to mention the category (‘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 the RBI to open a demat account. However, credits and debits from the demat account may require general or specific permissions as the case may be, from designated banks. Further, no special permission is required by an NRI for dematerialisation or rematerialisation of securities.
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 or NR-nonrepatriable can be dematerialised in the corresponding depository accounts.
The securities purchased under repatriable and nonrepatriable category cannot be held in a single demat account. An NRI must open separate demat accounts for holding ‘repatriable’ and ‘non-repatriable’ securities.
As per Section 6(5) of FEMA, an NRI can continue to hold the securities which he had purchased as a resident Indian, even after he has become a non-resident Indian, on a non-repatriable basis.
In case a NRI becomes a resident in India, he is required to change the status of his holding from nonresident to resident. 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 the Portfolio Investment Scheme and the DP with whom he has opened the demat account. Subsequently, a new demat account in the resident status will have to be opened, and the securities should be transferred from the NRI demat account to the resident account, and then the NRI demat account should be closed.
NRIs are also permitted to make direct investments in shares or debentures of Indian companies, and in units of mutual funds. They are also permitted to make portfolio investments i.e. purchase of share or debentures of Indian companies through stock exchanges. These facilities are granted both on repatriation and non-repatriation basis.
Further, NRIs can purchase securities by subscribing to a public issue. The issuing company is required to issue shares to the NRI on the basis of specific or general permission from the RBI. Therefore, individual NRIs need not obtain any permission to receive bonus or rights shares.
Source : Economic times