Nris: Understanding The Portfolio Investment Scheme

The Portfolio Investment Scheme (PIS) is a scheme introduced by the Reserve Bank of India (RBI) to facilitate Non-Resident Indians (NRIs) who want to invest in Indian stocks and bonds. NRIs can purchase and sell shares and convertible debentures of companies registered in India via a recognised stock exchange, by routing these transactions through their account with a designated bank branch. The investments can be made either through a repatriation or a non-repatriation basis. For repatriation, a Non-Resident External (NRE) Rupee account is required for foreign inward remittances from an overseas account. For non-repatriation, a Non-Resident Ordinary (NRO) account is needed for remittances from overseas accounts or local resources. The PIS account offers NRIs a flexible way to invest in the Indian secondary market, with the potential for high returns and capital gains.

How to open a PIS account

To open a Portfolio Investment Scheme (PIS) account, Non-Resident Indians (NRIs) must follow a few key steps. Firstly, it is important to note that NRIs can only open a PIS account with designated bank branches authorised by the Reserve Bank of India (RBI). These include IDFC First, Yes Bank, Axis, HDFC, and IndusInd Bank.

The first step is to choose one of these designated bank branches that offer PIS services. Once you have selected the bank, you will need to submit the necessary documents, which typically include your passport, visa, and proof of address. It is important to note that some banks may have additional document requirements, so it is recommended to check with your chosen bank.

After submitting the documents, you will need to fill out the PIS application form. The bank will then verify your documents and process your application. Once your application is approved, your NRI Savings Account will be designated as a PIS account.

It is worth noting that you will need to decide whether you want to open an NRE Savings Account or an NRO Savings Account. If you opt for an NRE account, you will be able to repatriate your earnings back to your foreign account. On the other hand, if you choose an NRO account, you do not need to repatriate your assets.

Additionally, keep in mind that the RBI does not permit joint PIS accounts, so each account must be separate and individual.

In terms of eligibility, both NRIs and Persons of Indian Origin (PIOs) are eligible to open a PIS account according to RBI guidelines. However, there are certain limitations. For example, NRIs travelling abroad for medical treatment or short trips, residents of Bangladesh and Pakistan without prior RBI permission, and mariners employed by Indian shipping companies are not eligible to open PIS accounts.

Furthermore, it is important to be aware of the fees and charges associated with opening and maintaining a PIS account. These may include PIS issuance charges, PIS account maintenance charges, and PIS reporting charges. These fees may vary depending on the bank, so it is advisable to check with your chosen bank for specific details.

Investments and transactions

The Portfolio Investment Scheme (PIS) is a scheme introduced by the Reserve Bank of India (RBI) that allows Non-Resident Indians (NRIs) to invest in Indian stocks and bonds. NRIs can purchase and sell shares and convertible debentures of companies registered in India through a recognised stock exchange, by routing these transactions through their account with a designated bank branch.

The PIS offers NRIs the flexibility to invest in shares of Indian companies, with options for both repatriation and non-repatriation. This means that NRIs can choose to invest in Indian companies by either sending money from their overseas accounts or by using local resources.

To start investing, NRIs must first open a separate PIS account with a designated bank, specifically for the purchase and sale of shares through a stock exchange. This account is in the form of an SB account, and no cheque books are issued. For repatriable investments, a separate NRE PIS account is required, while for non-repatriable investments, an NRO account is used.

In addition to the PIS account, NRIs must also open a Trading Account with a broker and a DP account with the bank or broker. The DP account will be debited or credited by the bank or broker, as per the NRI's authorisation.

When NRIs want to buy or sell shares, they place an order with the broker, who will then execute the trade. The bank will then make or receive payments for the transactions on behalf of the NRI. The bank will also provide daily statements of transactions to NRIs and ensure compliance with regulatory limits on investment.

On the sale of investments, the bank will deduct any applicable taxes, such as capital gains tax, and remit the amount to the IT Department. The bank will also issue a TDS certificate to the customer.

It is important to note that NRIs are not permitted to engage in intraday trading or short selling of shares. They must take delivery of the shares and cannot sell shares they do not own.

The PIS provides NRIs with a hassle-free and compliant way to invest in the Indian stock market, while also offering the potential for capital gains and income from dividends.

What you can and can't do with PIS

What You Can Do With PIS

• You can invest in shares and bonds of companies listed on the stock exchange.
• You can invest in futures or options that are traded only through an accepted stock exchange. However, this can only be done on a non-repatriation basis and is subject to regulatory limits set by the RBI and SEBI.
• If you are a resident Indian and convert your status to an NRI, you can continue to hold the share securities on a non-repatriation basis.
• You can authorise a friend or relative to operate the account in your absence with a Mandate of Power of Attorney.

What You Can't Do With PIS

• You cannot invest in any company that engages in chit funds, agricultural or plantation activities, or the real estate business related to agriculture or farmland, such as the construction of farmhouses.
• You cannot open a portfolio investment scheme as a joint account. According to RBI policy, NRIs should have a separate bank account for PIS.
• Investments in exchange-traded derivative contracts that are approved by SEBI from time to time out of rupee funds are not eligible for repatriation benefits.
• You cannot continue to hold an NRE or NRO account if your status shifts to a resident Indian. If there is a change, you must inform the authorised branch and set up a new resident demat account.
• NRIs are not permitted to carry out any intraday trading or short selling of shares.

Regulatory compliance and tax laws

The Portfolio Investment Scheme (PIS) is a scheme introduced by the Reserve Bank of India (RBI) to enable Non-Resident Indians (NRIs) to invest in Indian stocks and bonds. The scheme allows NRIs to purchase and sell shares and convertible debentures of companies registered in India through recognised stock exchanges.

To comply with regulatory requirements, NRIs must open separate PIS accounts with an Authorised Dealer Bank exclusively for the purchase and sale of shares through stock exchanges. They can only open a PIS account with one bank, and this account is in the form of a savings account without a chequebook. The operations in the account are exclusively for stock market operations.

There are limits to the investments that can be made by NRIs, which are set by the RBI and monitored daily. For investments under repatriation, NRIs can invest only up to 5% of the total paid-up capital of a company. Aggregate investments by all NRIs cannot exceed 10% of the paid-up capital of the company, although this cap can be raised to 24% with a special resolution from the RBI.

In terms of tax laws, the bank will deduct tax on capital gains (TDS) and remit it to the IT Department. The TDS rates are 15.6% for Short-Term Capital Gains (STCG) and 10.4% for Long-Term Capital Gains (LTCG). The bank will also issue a TDS certificate to the customer.

Advantages of a PIS account

The Portfolio Investment Scheme (PIS) is a facility offered by the Reserve Bank of India (RBI) to enable Non-Resident Indians (NRIs) to invest in Indian stocks and bonds. Here are some advantages of a PIS account:

Ease of Transactions

The PIS account ensures that NRIs can enjoy a seamless investment experience within the rules and regulations. The account assists NRIs in completing their transactions smoothly and efficiently.

Low-Cost Transactions

All stock investment transactions are routed through the PIS account, keeping the cost of transactions low.

Seamless RBI Compliance

The PIS account monitors every transaction and ensures compliance with RBI reporting norms and other statutory regulations, so NRIs don't have to worry about reporting their investments separately.

Enhanced Set-off Facility

The Enhanced Set-off facility is a value-added service offered to NRI PIS account holders. It helps them save on Capital Gains Tax by nullifying current losses against future profits. The loss set-off is permitted only on future profits and not on earlier profits. Losses can be carried over until the final day of the financial year or until they are set off.

Access to the Indian Stock Market

PIS accounts allow NRIs to invest in the Indian stock market, providing opportunities to invest in shares and debentures of Indian companies.

Flexibility

PIS accounts offer flexibility to NRIs in terms of investment options and repatriation choices. Investments can be made on a repatriation or non-repatriation basis, and funds can be repatriated after paying applicable taxes.

In summary, a PIS account offers NRIs a convenient, low-cost, and compliant way to invest in the Indian stock market, with the potential to save on taxes and the flexibility to choose between repatriation and non-repatriation options.

Frequently asked questions