In Indian stock markets, both residents and non-resident Indians can trade securities. NRI Demat accounts are Demat accounts for non-resident Indians. Whereas customers who live in India can open a regular or normal Demat account. An NRI Demat account is required by the Foreign Exchange Management (FEMA) for non-resident Indians. The Foreign Exchange Management Act (FEMA) governs all foreign currency transactions in India. In this article, let’s understand the difference between NRI Demat account and a normal Demat account.
What is meant by an NRI Demat account?
NRIs can open their Demat account either with CSDL or with NSDL, the two principal depositories. Of course, in both these cases, the NRI will have to open the Demat account with the depository participant affiliated with theNSDL or the CDSL.Like in the case of Demat accounts for resident Indians, even NRIs need a bank account number and basic documentation pertaining to their identity and their proof of residence.
However, the NRI Demat account also calls for some additional formalities and document submissions. NRIs canopen Demat accountsunder the RBI Portfolio Investment Scheme (PINS) or even through the ordinary route (non-PINS). The Demat account can either be a repatriable Demat account, or it can be a non-repatriable Demat account.
What is this PINS all about? If you want to trade and invest in secondary market equities in India, then Portfolio Investment Scheme (PINS)Demat account is mandatory. Non-PINS accounts can be used to make investments in initial public offerings (IPOs) and for making investments in mutual funds. PINS is also needed for buying index ETFs in India.
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Table of Content
- What is meant by an NRI Demat account?
- Difference Between NRI Demat Account and Normal Demat Account
- Steps to open NRI Demat account
Difference Between NRI Demat Account and Normal Demat Account
Here is the difference between NRI Demat and normal Demat account in detail:
| Feature | Normal Demat Account | NRI Demat Account |
|---|---|---|
| Eligibility | Available for resident Indians only | Available for both resident Indians and Non-Resident Indians (NRIs) |
| Purpose | For trading and holding securities | For trading and holding securities |
| Types | Single holder or joint holder | Single holder or joint holder |
| Linkage | Linked to resident bank account | Linked to NRE or NRO bank account |
| Repatriability | Not applicable | Repatriable or non-repatriable |
| Currency | Indian Rupees (INR) | Indian Rupees (INR) or foreign currency depending on the type |
| Taxation | Taxed as per Indian tax laws | Taxed as per Indian tax laws for Indian holdings; tax implications in the home country for foreign holdings |
| Documentation required | KYC documents required | Additional documents required for NRIs such as passport, visa, proof of NRI status, etc. |
| Investment restrictions | No specific restrictions | Subject to regulations set by the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) for NRIs |
| Nomination facility | Available | Available |
| Conversion of existing accounts | Not applicable | Resident Demat account can be converted to NRI Demat account upon status change |
Steps to open NRI Demat account
The process to open a trading and Demat account is mostly similar to the process for an ordinary Indian. NRIs must also approach a depository participant affiliated with either NSDL or CDSL to open the Demat account. However, the formalities may be a little more stringent in the case of NRIs. Essentially, the NRIs have to submit themselves to additional documents required to open anNRI Demat account. This is the difference between NRI tradingaccountsvs normalaccounts.
Here are some of the specific process details to open an NRI Demat account:
- While NRIs also have to submit basic details like the PAN, photographs, proof of address, etc, they must complete some additional formalities.
- NRIs must also submit copies of their passport and employment visas or work permits (as may be applicable in their case). The submission must also contain their visa details, including the visa number and the visa expiry date.
- NRIs are also required to mention whether they want to open a repatriable Demat account or a non-repatriable Demat account. In the former case, they must link it to an NRE account, while in the latter case, it must be linked to an NRO bank account.
- This classification is important because free repatriation of funds is not allowed with NRO bank accounts (it is limited to $1 million per year). However, free repatriation is possible in the case of an NRE Demat account that is linked to an NRE bank account.
- The important point is that the transfer of shares to an NRI Demat account can only take place via sale or purchase in the Indian markets, i.e., market transactions. Off-market transfers and gift transfers to NRI Demat accounts are not allowed as per RBI guidelines.
Participating in the Indian IPO, MF, and secondary market gives NRIs an opportunity to be part of one of the fastest-growing large markets in the world. The Indian economy is poised to touch $5 trillion in GDP in the next 6-7 years. For NRIs, India in general and Indian equities in particular is the big opportunity.
