NRE/NRO Guidelines for Investment in Indian Equities and Tax Treatment

An NRO account is a rupee-denominated bank account designed for Non-Resident Indians (NRIs) to manage their income earned in India, such as:
✅ Rent from property
✅ Dividends from shares/mutual funds
✅ Pension
✅ Indian salary or business income

Key Features of an NRO Account

✔ Holds Indian Earnings – Used to deposit and manage income generated in India.
✔ Taxable Interest – Interest earned is taxable (TDS ~30%).
✔ Limited Repatriation – Up to $1 million per year can be transferred abroad (with RBI approval).
✔ Joint Account – Can be held with both NRIs & resident Indians.

💡 Banks may have additional requirements, so it's best to check with the chosen bank before applying! 😊

NRIs can invest in Indian equities through various routes, but they must follow RBI & SEBI regulations.

1️⃣ Investment Routes

✅ Portfolio Investment Scheme (PIS) – Mandatory for NRIs investing in stocks directly on stock exchanges.
✅ Non-PIS Route – For mutual funds, IPOs, and bonds (no RBI approval needed).
✅ Foreign Direct Investment (FDI) – Allowed in unlisted private companies per sectoral limits.

2️⃣ Eligible Investments

✔ Direct Equity (via NRE/NRO account under PIS).
✔ Equity Mutual Funds (via NRE/NRO account).
✔ Exchange-Traded Funds (ETFs).
✔ IPOs (Initial Public Offerings).

3️⃣ Restrictions & Limits

🔹 PIS Account required for trading stocks (NRE/NRO-linked Demat & Trading Account).
🔹 Cannot trade in intraday or derivatives (F&O only via custodial route).
🔹 Investment in any Indian company cannot exceed 10% of its paid-up capital.

4️⃣ Taxation for NRIs

💰 Capital Gains Tax:

• Short-Term (<1 year): 20% (for listed stocks).
• Long-Term (≥1 year): 12.5% (if gains exceed ₹1 lakh).
• Debt/Hybrid Funds: LTCG @ 20% (with indexation) or 10% (without).
  💰 TDS (Tax Deducted at Source): Applicable on capital gains; can claim DTAA benefits.

The process of withdrawing or repatriating funds differs for NRE and NRO accounts due to RBI regulations.

🔹 Redemption from an NRE Account

✅ Fully repatriable – Both principal & interest can be sent abroad freely.
✅ Process:

1. Place a withdrawal request via net banking, cheque, or ATM.
2. Transfer funds to another NRE account or overseas bank account without restrictions.
3. No additional approvals required.

💰 Taxation: No tax on withdrawals (interest is tax-free in India).

🔹 Redemption from an NRO Account

🔸 Restricted repatriation – Can transfer up to $1 million per financial year (April–March) abroad, with proper documentation.
🔸 Process:

1. Submit a Fund Transfer Request to the bank.
2. Provide Form 15CA & Form 15CB (certified by a Chartered Accountant) for tax clearance.
3. Bank processes the request & remits funds to your overseas account.

💰 Taxation: Interest earned is taxable (~30% TDS), but you can claim DTAA benefits to reduce tax.

Yes, dividend income from Indian investments is taxable for NRIs under the Income Tax Act, 1961.

1️⃣ Tax Rate on Dividend Income

✅ Tax Deducted at Source (TDS): 20% (plus surcharge & cess)
✅ Final Taxation: Dividend income is taxed at applicable slab rates for NRIs.

2️⃣ Can NRIs Reduce TDS? (DTAA Benefits)

🔹 If your country has a Double Taxation Avoidance Agreement (DTAA) with India, you can claim a lower TDS rate (often 5%-15%).
🔹 Submit Form 10F & Tax Residency Certificate (TRC) to your bank or broker to apply the DTAA rate.

3️⃣ Repatriation Rules

💰 Dividend earned in NRE Account → Freely repatriable
💰 Dividend earned in NRO Account → Limited repatriation (up to $1M per year with Form 15CA & 15CB)

NRIs face exchange rate risk when holding funds in NRE and NRO accounts due to fluctuations in the Indian Rupee (INR) against foreign currencies.

1️⃣ Exchange Rate Risk in NRE Accounts

✅ Funds deposited in foreign currency (USD, GBP, etc.) & converted to INR → If INR depreciates, you may lose value when converting back.
✅ Fully repatriable → But the amount converted back depends on prevailing forex rates.
✅ Risk: If INR weakens, your converted amount in foreign currency reduces.

🔹 Example:

• You deposit $10,000, converted at ₹83/$ → Account balance: ₹8,30,000.
• INR depreciates to ₹90/$ → If you withdraw, you get only $9,222 (loss of $778).

2️⃣ Exchange Rate Risk in NRO Accounts

✅ Funds are already in INR (from rent, pension, dividends, etc.), so no forex conversion on deposit.
✅ Repatriation limit: $1M/year → If INR depreciates, the amount converted to foreign currency is lower.
✅ Risk: Loss occurs only when repatriating funds abroad.

🔹 Example:

• ₹10,00,000 in NRO account at ₹83/$ → Can withdraw $12,048.
• If INR falls to ₹90/$, the same ₹10,00,000 gives only $11,111 (loss of $937).

How to Manage Exchange Rate Risk?

✔ Monitor Forex Rates – Convert funds when rates are favorable.
✔ Use Forward Contracts – Some banks offer hedging options for large transfers.
✔ Diversify Investments – Invest in USD-denominated assets to reduce INR risk.

✅ Yes, NRIs can use NRO accounts to invest in Indian equities on a non-repatriable basis.

Key Points:

✔ No PIS (Portfolio Investment Scheme) Required – Unlike NRE accounts, NRO accounts do not require PIS approval for equity investments.
✔ Investment Mode – NRIs can invest via an NRO-linked Demat & Trading Account.
✔ Non-Repatriable Nature – Funds from these investments cannot be freely repatriated (withdrawal allowed only within India).

Eligible Investments

🔹 Stocks & Shares (listed on Indian exchanges).
🔹 Equity Mutual Funds & ETFs.
🔹 IPOs & Bonds (where allowed).

A Power of Attorney (POA) holder acts on behalf of an NRI to manage their financial and investment transactions in India. This is useful when the NRI cannot be physically present to handle investments.

🔹 Key Roles & Responsibilities of a POA Holder

✅ Manage Bank & Demat Accounts – Operate NRE/NRO accounts and execute investment transactions.
✅ Invest in Stocks & Mutual Funds – Buy/sell shares, mutual funds, and bonds under the NRI’s name.
✅ Sign Property & Real Estate Documents – Purchase, sell, or rent properties on behalf of the NRI.
✅ Handle Tax-Related Matters – File tax returns, pay property tax, or claim deductions.

🔹 Limitations & Restrictions

🔸 Cannot Gift or Transfer Funds – POA holders cannot send money to themselves.
🔸 No Trading in Derivatives (F&O) – POA can only invest in delivery-based equity trading.
🔸 POA is Revocable – The NRI can revoke or modify it anytime.

🔹 Types of POA for NRIs

📌 General POA – Grants broad powers to the holder (risky if misused).
📌 Specific POA – Limited to certain transactions (e.g., only for property or mutual fund investments).