PIS account

What is PIS account for NRIs and how is it used for stock trading?

A PIS account (also called PINS account) refers to a special bank account that can be opened by NRIs for trading in the Indian stock markets. This bank account has to be linked to the Trading Account of the NRI.

The PIS stands for Portfolio Investment Scheme and it was introduced by the Reserve Bank of India (RBI), to help the NRIs to trade the Equity shares of the companies listed on Indian Stock Exchanges.

To open a PIS account, the NRI would need to search for a Commercial Bank which offers these services. Then, the NRI would have to find a Stock Broker which supports mapping of PIS account to the Trading Account.

In addition, the NRI would also need to request permission from the RBI for such an account. This PIS permission is applied through the bank with which the NRI Savings Account has been opened.

Types of PIS account

When a new NRI Trading Account is being opened, the investor would need to link a Bank account to this Trading Account. There are primarily two types of PIS bank accounts that can be opened and mapped to the Trading Account.

1. NRE PIS account

A PIS NRE account refers to a Non-Resident External account (NRE account) for which the PIS permission has been received. For any NRI, it is possible to have only 1 active NRE PIS account at any time. The PIS is mostly used for the repatriation benefits that are offered and therefore, most of the accounts under this scheme are NRE PIS accounts.

The amount held in an NRE account is fully repatriable and the funds can be freely transferred to outside of India.  When the Trading Account is linked to the NRE account, then the NRI can also repatriate the Capital Gains and Dividends that are received by investing in stocks (after deducting applicable taxes).

2. NRO PIS account

For a PIS NRO account, the NRI would need to request PIS approval for a Non-Resident Ordinary account (NRO account). Compared to an NRE account, the funds held in an NRO account are not freely repatriable. This means that there are some restrictions and limits on the funds that can be transferred from this account to outside of India.

The Capital Gains and Dividends that are received by investing in stocks can also be added to the NRO account (after deducting applicable taxes). This amount can then be used to make local payments in India. Or, these funds could be transferred to outside of India as per the applicable limits in a Financial Year.

Working of PIS Trading Account

To trade in the Indian stock market, an NRI would need to have the following accounts:

     Trading Account (To place orders on the Stock Exchange)
     Bank Account (To hold cash / Margin for trading)
     Demat Account (To hold the purchased securities)

Step 1: Once the accounts have been opened and linked to each other, the NRI would need to add funds to the PIS bank account.
Step 2: The Stock Broker will update the available Margin in the Trading Account, based on the balance in the bank account.
Step 3: The NRI will then be able to submit orders on the Stock Exchange, through the Trading Account. The total value of trades that can be done in a day will of course depend on the funds held in the Bank Account.
Step 4: At the end of the day, the Stock Broker will submit the trade details to the PIS bank.
Step 5: Depending on the value of trades, the bank will debit or credit the applicable amount from the bank account of the NRI and settle the payment with the Stock Broker.
Step 6: During the Settlement Process, the Stock Broker will credit or debit the shares to/from the Demat Account of the investor.

Securities that can be traded

Through a PIS account, the NRI can buy and sell Equity shares of the companies that are listed on the Indian Stock Exchanges. When using this account, the NRI will have to take delivery of shares and Intraday trading in stocks will not be permitted.

Also, the PIS accounts cannot be used to purchase other securities like Mutual Funds, Exchange Traded Funds (ETFs), Currency Derivatives, Commodity Derivatives etc. Trading in Futures and Options is allowed only when an NRO PIS account is used. So, for NRE PIS accounts, only Equity trading with compulsory delivery can be done.

For some types of PIS accounts, all the transactions which are done through the account will be reported by the PIS bank to the Reserve Bank of India (RBI).

Through the PIS route, an NRI can purchase a maximum of only 5 % of the shares / debentures of any company. Also, the total investments from all the NRI investors in any company cannot exceed 10%. This NRI holding limit of 10% can be increased to 24% through a Special Resolution, which needs to be passed by the company.

Brokerage and other charges

The Stock Brokers usually collect an Account Maintenance Charge (AMC) on regular intervals and a Brokerage for every trade that is executed by the NRI. So, it would be best to check the fee and charges of the Broker when opening a new account.

Any requirement for deducting TDS (Tax Deducted at Source) will also be completed at settlement time. The PIS bank (with which the savings account is opened) will debit the taxes from the bank account. Also, the PIS bank will charge a regular AMC and some transaction charges for each trade that is done by the NRI.

Besides these charges, the NRI would also need to pay other taxes and fees for trading on the Stock Exchange. Example: Based on the value of the orders, all traders need to pay Securities Transaction Tax (STT), Exchange Transaction Charges, Stamp Duty etc. The Broker is responsible for collecting these taxes and charges from the NRI and for paying it to the respective authorities.

Opening a PIS account

The PIS account can be opened by any Non-Resident Indian (NRI), Person of Indian Origin (PIO) or an Overseas Citizen of India (OCI). The documents and the process for creating the account will depend on the type of NRI Trading account that is being opened.

In order to create a Trading Account through the PIS route, the first step is to open an NRE or NRO account with a bank. After that, a PIS request needs to be submitted for converting this normal savings account to a PIS bank account.

Once the bank account is ready, a Trading Account can be opened with a Stock Broker and this account can then be linked to the PIS bank account. Some Stock Brokers also provide a service where they help in opening an integrated 3-in-1 NRI PIS account, which includes: Trading Account + Demat Account + Bank Account.

PIS letter

When opening a PIS account, the NRI would need to request a PIS permission letter from the Reserve Bank of India (RBI). This application can be submitted through the bank with which the NRE or NRO account has been opened.

But the NRI would need to check if the bank branch provides these services, because only a few designated banks have the permission to offer PIS services. Once the PIS certificate has been granted by the RBI, then the Savings Account can be converted to a PIS account. This approved PIS account can be mapped with the Demat Account and the Trading Account of the NRI.

PIS vs non PIS account

A simpler option for the NRIs to invest in the Indian stock market is to open a non-PIS account for trading. In the non-PIS route, there is no need for a special PIS bank account, and therefore, no PIS permission from RBI is needed. Since there are no PIS services, there will obviously be no trading fees or AMC payable to the bank for every trade.

Instead, the non-PIS Trading Account will work in a very similar way as a normal Trading Account for Resident Individuals. The NRI would need to transfer funds from the Savings Account to the Trading Account and then the margin will be made available for trading. When required, the funds can be withdrawn from the Trading Account.

For using the non-PIS option, the NRI can choose to link either the NRE account or the NRO account to the Trading Account. The non-PIS bank account can be opened with any Commercial Bank which offers NRI services and the trades done in the non-PIS mode are not reported to the RBI.

Disclaimer

  • This page is for education purpose only
  • Some information could be outdated / inaccurate
  • Investors should always consult with certified advisors and experts before taking final decision
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