NRI Trading Rules and Restrictions in India
In this article, we will discuss about the rules and restrictions a NRI must know before he/she choose to make investments in India.
An NRI is a person that lives outside India but either is an Indian Citizen or a PIO (Person of Indian Origin). The Income Tax Act and FEMA (Foreign Exchange Management Act) determines an individual as NRI. The residency status according to the FEMA act helps in deciding on how and where to make investment and the residency status as per the Income earned from the various investments will be taxed.
Now, Before an NRI initiate investments in Indian Share Market or Mutual Funds or Bonds they must be aware of certain rules and restrictions.
Some of the NRI Trading Rules in India are:
1. The very first requirement to make investment in Indian Market is to have a bank account and a stock broker to help you to make investment in the Stock Market.
2. An NRI must have Non-Resident bank accounts, trading account and demat account to trade in the Indian Stock Market.
3. The NRI’s can make investment up to 5% of the paid-up capital of the listed Indian company in the national stock exchange on the repatriation or non-repatriation basis.
4. The NRI’s can make investment up to 5% of the paid-up value of each series of the debentures to the listed Indian Companies on the repatriation or non-repatriation basis.
5. The investments made by the NRI’s are clubbed together and does not exceed 10% of the paid-up capital to the Indian Listed company.
6. The aggregate ceiling can be raised to 24% in case the Indian company passes a special resolution in that effect.
7. The NRI needs to maintain a good bank balance to trade.
8. NRI needs to have a CP (Custodial Participant) code to trade in the derivatives market.
9. NRI Investment must be a non-repatriation basis and the rupee funds held in India must be used.
10. NRIs can offer the instruments such as collateral to trade in the exchange-traded derivative contract according to the rules specified by RBI and SEBI.
Knowing about the Rules and Requirements an NRI must fulfil in order to trade in the Indian Stock Market. One must also know about the limitation and restriction he will have to face.
Limitations and the Restrictions of NRI Trading are:
1. NRIs cannot do trade in short selling.
2. NRIs cannot invest in certain sectors such as lottery business that includes private lottery, online lottery.
3. The NRI cannot gamble including the casinos.
4. The NRI cannot make investment in Real Estate Business.
5. An NRI requires to trade on the delivery basis and they cannot trade in Intraday.
6. NRI cannot trade in the scrips under the Caution list without the RBI approval.
7. NRI cannot trade in the stocks under the Ban list.
Note: Caution List- It is the list of stocks issued by the RBI where the NRI Investments are meeting the threshold holding limit.
Ban List- It is the list of stocks that are issued by the RBI where NRI investments has reached the threshold limit.