How to Buy Shares in India as a Non-Resident

Investing in the Indian stock market presents an opportunity to diversify portfolios and capitalize on a growing economy. India’s major stock exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), facilitate trading in a wide array of companies.

Understanding Investor Categories and Account Requirements

Before investing in the Indian stock market, non-residents must understand the different investor categories and the specific accounts necessary for trading. Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) are primary categories for individuals of Indian origin residing outside India.

To invest in Indian shares, non-residents must establish three core accounts: a Demat account, a trading account, and a specific type of bank account. A Demat account, short for “dematerialized account,” holds shares and other securities in electronic form, eliminating the need for physical certificates. This account is mandatory for holding shares.

A trading account serves as the interface for placing buy and sell orders on the stock exchange. It links the Demat account, where securities are stored, with the bank account, which manages the funds for transactions.

For non-residents, a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) bank account is necessary for investment purposes. An NRE account is for funds earned outside India and is fully repatriable, meaning both principal and interest can be freely transferred back overseas. An NRO account manages income earned in India, such as rent or dividends, and funds are generally not fully repatriable without specific approvals. These bank accounts connect to the trading account for seamless funding of purchases and receipt of sale proceeds.

Opening these accounts requires various documents to fulfill Know Your Customer (KYC) norms. Applicants need identity proof such as a passport, along with a copy of their Permanent Account Number (PAN) card, which is mandatory for financial transactions in India. Proof of foreign address, such as a utility bill or bank statement, and visa details for NRIs or an OCI card copy are also typically required.

Opening Investment Accounts

Selecting a stockbroker is the initial step in opening investment accounts in India. Choose a broker registered with the Securities and Exchange Board of India (SEBI), which regulates the Indian securities market. Investors can consider factors like the broker’s reputation, services offered, brokerage fees, customer support, and trading platform features.

Once a broker is chosen, the account opening process typically involves completing an application form for the Demat and trading accounts. This can often be done online or by submitting physical forms. For non-residents, an in-person verification (IPV) or video KYC may be required to confirm identity and document authenticity.

After submitting the application and required documents, the broker and bank will verify them. This verification process typically takes approximately 3 to 7 business days. Upon successful verification, the Demat, trading, and NRE/NRO bank accounts are linked to facilitate transactions. The bank will also provide a Portfolio Investment Scheme (PIS) letter if investing on a repatriable basis, which is necessary for tracking investments for reporting to the Reserve Bank of India (RBI).

Funding Your Account and Placing Trades

After opening the necessary accounts, fund the investment account. Non-residents typically remit funds from their overseas bank account to their NRE or NRO bank account in India. Common methods for this international transfer include wire transfers.

Once funds are in the NRE or NRO bank account, they must be transferred to the linked trading account. This transfer enables the investor to place buy orders for shares.

To place a trade, investors typically log into their broker’s online trading platform. The platform allows searching for specific company shares using their stock symbols or names. Investors can then select the desired stock and specify the quantity of shares they wish to buy.

When placing an order, investors choose between different order types. A market order instructs the broker to buy or sell shares immediately at the best available current price. A limit order allows investors to specify a maximum price they are willing to pay for a purchase or a minimum price they will accept for a sale. A limit order provides price control but does not guarantee immediate execution if the specified price is not met.

After placing the order, shares are credited to the investor’s Demat account. India operates on a T+1 settlement cycle, meaning shares are typically credited one business day after the trade date.

Key Regulatory and Compliance Considerations

Investing in the Indian stock market as a non-resident involves specific regulatory frameworks. The Foreign Exchange Management Act (FEMA) governs all foreign exchange transactions and non-resident investments in India, providing the legal basis for rules related to the repatriation of funds.

Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) are generally required to participate in the Portfolio Investment Scheme (PIS) to invest in the Indian stock market. The PIS, administered by the Reserve Bank of India (RBI), mandates that all share purchases and sales by NRIs through recognized stock exchanges must be routed through a PIS-designated NRE or NRO bank account. This scheme monitors investment limits and facilitates reporting to the RBI.

Repatriation of capital and profits from share investments for non-residents is subject to specific rules. For investments made through an NRE account under the PIS, both the principal invested and the capital gains or dividends earned are generally fully repatriable. However, funds invested through an NRO account are typically not fully repatriable without prior RBI approval, as this account is primarily for managing Indian-sourced income.

Taxation is another important consideration for non-resident investors. Capital gains arising from the sale of Indian shares are subject to tax. Short-Term Capital Gains (STCG) on listed equity shares held for 12 months or less are currently taxed at 15%. Long-Term Capital Gains (LTCG) on listed equity shares held for more than 12 months are taxed at 10% on gains exceeding INR 100,000 in a financial year.

Dividends received from Indian companies are taxable for the non-resident shareholder. Tax Deducted at Source (TDS) is applicable on dividend income, generally at a rate of 20%, unless a lower rate is provided by an applicable Double Taxation Avoidance Agreement (DTAA) between India and the investor’s country of residence. It is advisable to consult with a tax advisor to understand specific tax obligations and DTAA benefits.