Similar to resident Indians, all Non-Resident Indians (NRIs), including US-based NRIs, can also open an NRI trading account and start investing in the Indian market. However, investing in stocks and mutual funds in India is not straightforward for NRIs based in the USA because of FATCA regulations. Here is about the USA NRI trading account in India, NRI Demat account, and NRI investment options in India, as well as FATCA and US SEC.
USA NRI trading account in India for investment
To trade in the Indian Stock Market, US NRIs need to meet the same requirements as other NRIs. Here are account types US NRIs need to open to trade in the Indian Stock Exchanges.
- NRI Bank Account
- PIS or PINS Permission
- NRI Demat Account
- NRI Trading Account
NRI Bank Account: US NRIs need to open an NRI account to invest in India. You can open an NRE (Non-Resident External) account to save and manage your foreign earnings in India. Open an NRO (Non-Resident Ordinary) account for managing your Indian income such as dividends, rent, pension, etc.
PIS permission: The PIS permission is mandatory for NRIs trading through their NRE account. Although the RBI has relaxed the PIS requirements to trade using the NRO account, only a few brokers offer trade without PIS.
USA NRI Demat Account: An NRI Demat account is a must for US NRIs who wish to trade in the Indian stock market. A Demat account holds securities in digital format for secure online transactions. NRIs can link their Demat account with NRE and NRO accounts.
NRI trading account in India: To trade in Indian stock exchanges, NRIs need to open an NRI trading account in India. An NRI trading account provides you access to Indian stock houses. You can open an NRI 3-in-1 account combining PIS, Demat and trading account for trading/ investment.
US NRI investment options
US NRIs can invest in real estate, equities, NPS, bank deposits and mutual funds. NRIs are permitted to invest/ trade in the following securities:
- Equity shares
- Equity Derivatives
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Convertible debenture of Indian companies
- Government securities
- Government treasury bills
- Currency derivatives
- Bonds issued by Public Sector Undertaking (PSU) in India
US NRI Trading Taxes
NRIs need to pay taxes for gains from stocks, mutual funds and derivatives. They have to pay the capital gain tax for the investment in the stock market in India. The taxation depends on the tenure or period for which you hold these funds, such as short-term capital gain tax and long-term capital gain tax.
Long-term capital gain (LTCG) tax for NRIs
Capital gains from securities held for more than a year are subject to long-term capital gain taxes. Capital gains from deb-oriented mutual funds held for more than 3 years before sale are subject to LTCG tax. The long-term capital gain tax applies to profits from the sale of stocks, mutual funds, FDs interest, debentures, property, etc.
Short-term capital gain (STCG) tax for NRIs
Capital gains from securities held for less than a year are subject to short-term capital gain taxes. Debt-oriented mutual funds held for less than 3 years are known as short-term funds. Short-term capital gains tax is applicable on the sale of stocks, mutual funds, debentures, property, FD interest, etc.
LTCG and STCG capital gain tax for NRIs
|Mutual Funds (Equity)||10%||15%|
|Mutual Funds (Debt)||20%||30%|
Note: The above tax rates are subject to periodic changes
USA NRI trading account opening rules and regulations
The RBI and FEMA permits NRIs living in the USA to trade and invest in India. However, companies that offer investment services to US citizens and NRIs have to comply with regulations under FATCA which makes investment/ trading difficult for NRIs and expensive for the service providers.
FATCA (Foreign Account Tax Compliance Act)
FATCA or Foreign Account Tax Compliance Act has been introduced by the US Government to get information from other countries about the investment made by US citizens in their countries. Under this act, financial institutions like banks, stockbrokers, AMCs and insurance companies are required to compulsorily share the investment details of US citizens, including US-based NRIs. Hence, stockbrokers and mutual funds companies that offer investment services must comply with FATCA regulations.
US NRIs investing in stocks, mutual funds and other securities have to share key details like their country of tax residence, country of birth and citizenship, tax identification number, time of account opening, etc. to the stockbroker.
Restriction on solicitation
A broker, foreigner or domestic, is expected to be registered with the SEC to contact a U.S. investor and solicit investment. It is against the law for U.S. investors to directly contact and work with a foreign broker not registered with the SEC and they would not have the same protections as they could get if the broker were registered with the SEC.
Hence, Indian stockbrokers and AMCs which are not registered with the SEC can’t directly or indirectly contact US residents, including NRIs, for selling their products and services. And US residents and NRIs are also advised not to do business with brokers not registered with the SEC, otherwise, they may lose the investor’s protection provided under US law.
Without proper guidance, US-based NRIs may get confused and face some difficulties when investing in India due to some restrictions imposed by the US Government. However, SBNRI has tie-up with Indian banks, stockbrokers and AMCs to offer a hassle-free investment experience to NRIs living in the USA. Through SBNRI, you can easily open a 3-in-1 account or NRI trading account in India.
Download SBNRI App from the Google Play Store or App Store to open NRI trading account online and ask any questions related to PIS permission letter, NRI Trading Account, NRI Demat account, NRI bank account opening online and tax filing in India. To ask any questions related to NRI account opening, PIS letter, etc. click on the button below. Also visit our blog and YouTube channel for more details.