“Traditionally, mutual funds based out of India have been the preferred mode for NRIs to invest in Indian equity on account of ease of execution,” said Nikhil Behl, cofounder of INDmoney (a one stop shop personal finance application).

“While NRIs are allowed to directly invest in listed equity shares, the current account broking account opening process is cumbersome, lacks end-to-end digital journey and is grappled with regulatory restrictions around repatriation and trading. Sebi is making all endeavours to allow for an end-to-end digital journey to encourage NRI participation in Indian equity,” said Behl, referring to market regulator Securities and Exchange Board of India.

NRIs can invest in Indian stocks through portfolio investment scheme and non-PIS accounts.

Portfolio Investment Scheme: NRIs must open a designated PIS account with a bank approved by the Reserve Bank of India. The account needs to be linked to a demat account where shares are held electronically. NRIs can invest on a repatriation basis that allows funds to be transferred abroad or on a non-repatriation basis where they remain within India.

Non-PIS Accounts: NRIs can opt for a Non-PIS NRO trading account, which offers more flexibility as it does not require adherence to the same reporting rules as PIS accounts. This option allows NRIs to trade without needing portfolio management services (PMS), making it easier for those who wish to manage their investments independently.

A trading account operates similarly for NRIs and citizens living in India, providing a platform for executing buy and sell orders. With a trading account, NRIs can purchase and sell stocks listed on the BSE and NSE, engage in futures and options contracts, or invest in mutual funds. They have the option to link either a non-resident external bank account or non-resident ordinary bank account to their trading account, allowing them to invest on a repatriation or non-repatriation basis.

“NRIs are subject to tax in India on their Indian sourced income at the Indian tax rates applicable, subject to getting a benefit under a tax treaty which India has entered into with another country in which they are a tax resident Indian. Complexities arise when they are a resident of two countries and the tie breaker test needs to be applied,” said Bijal Ajinkya, partner, Khaitan & Co (law firm).

Sujit Sudhakar Bangar, founder at TaxBuddy.com, explained the tax implications for NRIs investing in Indian stocks.

The 2024 Union Budget has introduced several changes impacting NRIs investing in Indian equities:

Higher short-term capital gains (STCG) Tax: Effective from July 23, 2024, STCG tax rates for NRIs have increased from 15 per cent to 20 per cent on stocks and equity mutual funds.

Standardised long-term capital gains (LTCG) Tax: A flat LTCG tax rate of 12.5 per cent now applies across all long-term assets, simplifying calculations but raising tax on assets previously taxed at 10 per cent.

Unified holding periods: From FY 2024-25, listed assets held for over 12 months and other assets held for over 24 months qualify as long-term, simplifying classification.

Raised exemption limit: The LTCG exemption limit for equity shares and units is raised from Rs 1 lakh to Rs 1.25 lakh, though the tax rate increased to 12.5 per cent.