What is NRI Trading Account?

Last Updated: Mar 21, 2024 Value Broking 13 Mins 1.6K

The stock market in India brings opportunities for ordinary people in India and people worldwide who want to grow money. But certain accounts act as doors to enter the Indian stock market, that is, NRE accounts. First, you need to understand that both NRO and NRI accounts are essential in their place. Choosing between them is dependent upon one’s expectations and requirements which means for what purpose they want to use.

Ways to Trade and Invest in Indian Equities

Let’s discuss NRE accounts in detail to understand how you can trade and invest in Indian Equities.

NRI Trading Account

Non-Resident Indians can use an NRI trading account to buy stocks, Stock Derivatives, IPOs, Mutual Funds, and Bonds in the Indian stock market. There are two types of Non-Resident Indian (NRI) Trading Accounts: NRE trading account and NRO trading account.

NRE Trading Account

A Non-Resident External (NRE) account allows you to transfer foreign earnings to India. It is helpful for personal and business activities in India as a direct investment in India.

NRO Trading Account

A Non-Resident Ordinary (NRO) account allows you to manage the income earned in India.

NRE Account

An NRI can open an NRE Savings account in India to deposit funds earned in foreign countries. You can maintain your foreign earnings in India conveniently and safely. You quickly transfer your funds from any country to India. Also, there is an easy way of converting any currency belonging to any foreign country to Indian currency (INR).

NRE accounts are exempt from taxation in India. There is no need for taxation on the actual amount and the interest earned on such accounts. It is possible to repatriate your funds whenever you want on a repatriable basis.

NRO Account

An NRO Savings Account allows NRIs to manage the income they have earned in India from sources like rent, pension, dividends, etc. You can move foreign currency into an NRO account. You can even convert foreign currency to Indian Rupees (INR). There is no tax exemption on an NRO account. If you are one of them who wants to change their residential status, then you can convert your existing residential savings account.

Actual Trading Process for NRE and NRO Trading Account

Following are the steps to trade online using an NRI trading account in India:

Transfer money into PIS account

There is a need for an NRI to park funds to invest/trade in their PIS bank Account.

Place an order for buy/sell

Make sure your bank account has sufficient funds to proceed with the order you placed. The trade will get executed as per your order if it is enough. You will get confirmation about the same.

Submit Contract Note

The bank will receive the contract notes regarding buy/sell transactions from the bank at the day’s end. Afterward, the stockbroker will receive the funds from the bank.

Stock Settlement

Depending on your buy or sell order request, the stocks will get credited or debited using your NRI Demat account in T+2 days.

The Categorization of NRI Stockbrokers

There are two types of NRI stockbrokers in India:

NRI Full-services Broker

NRI Full-service brokers in India provide multiple services. They offer a 4-in-1 or 3-in-1 trading account. NRI Bank Accounts (NRE & NRO), PIS accounts, trading, and Demat accounts must link to each other for convenient trading and investing.

Online stock trading
Dedicated relationship manager with personalized service
Research & advisory
Other wealth management solutions

Here are the following providing NRI full services in India-

SBI Capital
HDFC Securities
Axis Direct
ICICI Direct

NRI Discount Stockbrokers

You will get limited no-frill trading services that involve online trading and investment in securities such as Equity, F&O, MF, IPO, Bonds, etc. There is a very low brokerage as compared with full-service brokers. They don’t offer research and financial advisory services.

Here are the following providing NRI Discount stock broking services in India-

Zerodha
Pro stocks
Tradeplus
Tradejini

NRI Account Opening Online

Here are the following ways to open an NRI account in India.

Who Can Open an NRI Trading Account?

It is a hassle-free process to open an NRI account. All you need to do is check out whether you are eligible to open it.

Individuals with an Indian passport at any time
Individuals whose grandparents or parents were Indian citizens as per the India Citizen Act, 1955
NRIs, OCIs, PIOs, and their spouses
Individuals on official deputation abroad by the Indian Government or any public sector undertaking
Indian citizens who reside in foreign countries for business, studies, and employment

How to Open an NRI Account?

There are two ways for opening an NRI account in India, such as offline and online.

For an offline NRI account, you have to visit the nearest branch of an authorized bank in India.
For an offline NRI account, you have to visit the bank’s website for the account opening form online. Along with filling out and submitting the form, you must upload the scanned copy of the required documents.

What Documents Will You Require for an NRI Trading Account Opening in India?

Here are the following documents required to open an NRI Account in India-

Copy of valid passport includes pages with basic details [name, address, date of birth, etc.] along with a photograph, signature, and elements [date of issue, place of issue, expiry date, and observation page, if any]
Recent passport-size colored photocopy
A payment cheque or DD is equivalent to the amount needed for maintaining the Average Monthly Balance.
NRI status proof- Valid Employment Permit / Residence Visa/ Student Visa.
A copy of PAN or Form 60
Any document which confirms the Indian or overseas address
Proof of Indian and Overseas Address.

Note- If an individual can’t visit the branch, he can go to the Indian Embassy in the country of residence, notary, or banker to receive the documents and attested photocopies.

Distinguishing Factors – NRE Account & NRO Accounts

There are a lot of differences and similarities in both NRE and NRO Savings accounts. To choose from both of these accounts, you must understand their functionalities and working styles. Mentioned below are some major facts that make an NRE account different from an NRO account.

Currency Option to Deposit Funds

The currency option to deposit funds is one of the significant factors that make an NRE account different from an NRO Savings account. Using an NRE savings account in India, you can hold your funds in a foreign currency. Depositing funds in Indian Rupee (INR) is possible through an NRO Savings account.

Objective

The main objective of an NRE Savings account is to allow an NRI to move foreign funds to India. After transferring to India, you can maintain your foreign funds as long as you want according to SEBI regulations. Therefore, it is possible to collect and maintain a regular flow of income which can be Rent, Dividends, Pension, and so on, in India.

Repatriation of Funds

Repatriation is the outflow of currency abroad. There is a slight difference between NRE and NRO Savings accounts related to the repatriation of funds. It is very convenient to repatriate funds like the interest earned using an NRE Savings Account. There are certain restrictions in terms of repatriation from NRO Accounts by the RBI. If you are using an NRO Savings account, then you can remit nearly USD 1 million at the time of one financial year (April to March).

Interest Rates

The interest rates on NRE and NRO accounts are different from one bank or stock broking firm to another. There are many banks and stockbrokers in India who provide NRE and NRO accounts with similar interest rates.

Taxation

When it comes to tax imposition, there is a significant difference between NRE and NRO Savings accounts. There is no tax imposition on NRE accounts, so you don’t have to pay tax on the income as well as the interest. There is no imposition of different taxes such as Income tax, wealth tax, and gift tax in India. There is tax imposition on NRO accounts according to the Indian Income Tax Laws. If you own an NRO account, then you may have to pay different taxes (Gift tax, Income tax, Wealth tax, etc.). You will have to pay tax on the interest that you earned using an NRO account. If you have an NRO account, then you can avail of the reduced tax benefit under the Double Taxation Avoidance Agreement (DTAA).

Account Holding

Two NRIs can open an NRE Joint account as well as an NRO Joint account. When it comes to an NRE Joint account, an NRI can’t open an NRE Joint Account by accompanying an Indian resident. While it is absolutely possible for an NRI to open an NRO Joint account together with an Indian resident.

Exchange Rates

There may be a significant currency loss in terms of exchange rates on NRE accounts. Exchange rates cause two kinds of losses viz., daily fluctuations in the rupee value (INR) and conversion loss. There is no effect from these exchange rate fluctuations on NRO accounts.

Transfer of Fund

There is a need to transfer funds to a family, friend, or anyone for different purposes. It is one of the major concerns that almost every NRI has. It is possible for an NRI to move funds from his/her NRE account to his/her NRO account. NRIs can move funds from his/her NRE account to another NRE account. NRIs can move funds from an NRO account to an NRE account for upto USD 1 million every year.

Mentioned below is a list of documents that are important to transfer funds from an NRO account to an NRE account:

You must submit a signed cheque to transfer funds from an NRO account to an NRE account.

There is also a need for a FEMA declaration.
Make sure to have documentary evidence of the source of funds
Form 15CA is a mandatory document.
Also, make sure to submit Form 15CB which is a form certified by the CA. The Form 15CB has the payment information which includes the TDS rate, the applicability of DTAA, deductions, etc.

Deposit/Withdrawal of Funds

Fund depositing and withdrawal usually comes to mind while opening an NRE account as well as an NRO account. You can deposit funds earned in foreign countries in both NRE and NRO accounts. But, only NRO accounts are helpful to deposit funds earned in India in Indian Rupees (INR), not NRE accounts. NRIs can withdraw funds only in Indian Rupees (INR) from both an NRE account and an NRO account.

Foreign Currency Non-Resident (Banks) Account

Other than NRI accounts- NRI and NRO accounts. There are also Foreign Currency Non-Resident (Banks) Accounts, commonly known as FCNR-B bank accounts which include bank deposits through NRIs, PIOs, and OCIs. These deposits can be any of the foreign currencies and should be as per the RBI instructions.

When there is a change in residential status, it is possible to hold an account until maturity. But fluctuation in the interest rate may occur according to bank guidelines. It is easy to open an FCNR- B joint account with another NRI or anyone who belongs to India. The period of 1 year to 5 is the tenure range for the FCNR account. There is no taxation on the principal and interest amounts on the FCNR accounts. And fluctuations in the interest rate will not be there in an FCNR account, as the deposit and withdrawals take place in foreign currencies.

What are the Advantages of Opening an NRI Account in India?

Mentioned below are the key advantages for an NRI having an NRI account in India.

Inward Remittances

The best thing for an NRI having an NRI account in India is that they can repatriate their income to their dependents who belong to India. Let’s understand this concept in India. Mr. A stays and works in an XY company in the United States of America, while his father Mr. B is a dependent individual who stays in Delhi, India. Every month, his NRO Savings account is remitted with USD 2000 to fulfill the daily expenses of his father. His NRO account has a balance denominating in Indian currency which is INR. Let’s say an exchange rate of 1 USD is Rs.75. Thus, his NRO Account would have the remittance of USD 2000 with a denomination of Rs. 1,50,000.

Assures Continuity of Income

An NRI can continuously earn income from their assets which are in India using an NRI account. Here is an example of it- Mr. Ashish stays in Sydney, Australia, and has a residential flat in Mumbai, Maharashtra. He has given his flat for rent to Mr. Kamlesh. Mr.Kamlesh deposits the rental amount on a monthly basis to Mr.Ashish’s NRO account with a bank in Mumbai.

Investment in the Stock Market in India

It is possible for NRIs to invest in a range of Indian investment avenues like Equity, Mutual funds, Debt instruments, and so on using an NRI account. They need to go for the Portfolio Investment Scheme (PIS) to make investments and trades in the Indian stock market. The Portfolio Investment Scheme (PIS) is a scheme facilitated by the Reserve Bank of India (RBI).

Avoid Exchange Rate Fluctuations

Another major advantage of opening an NRI account is that there is no need to convert foreign funds in an FCNR- B to Indian Rupee (INR). Minimizing the risk that comes with foreign currency rate fluctuations is possible by using an NRI account.

Significant Profits

If you are an NRI, then you can go for NRI accounts like NRE FDs or FCNR-B deposits to generate significant returns. There have been higher interest rates in India as compared to many western countries for more than a decade now.

No Taxation

According to the Income Tax Act 1961, an NRI doesn’t have to pay tax on the interest income on NRE and FCNR (B) accounts.

Loan Facility

An NRI account holder can apply for a loan in India against the security in an NRI account. There will be every fund-based or non-fund-based facility in the term “loan”.

Conclusion

Both NRI accounts- NRO and NRE accounts offer a secure and convenient way to manage your funds all over the globe. Choosing the right account between both these accounts depends upon one’s financial expectations and requirements. You just need to understand their definitions along with basic differences to go for the right one.