In recent years, the Indian stock market has attracted investors from across the globe, including Non-Resident Indians (NRIs). As the Indian economy continues to grow, more NRIs are looking for ways to participate in this growth story. One of the popular methods of investing in India is through Initial Public Offerings (IPOs). But can NRIs apply for IPOs in India? The answer is a resounding yes. However, there are specific guidelines and processes that NRIs need to follow. This article will walk you through the essentials of how NRIs can participate in IPOs in India.
An Initial Public Offering (IPO) is when a company offers its shares to the public for the first time. This is a significant step for a company as it transitions from being privately held to publicly traded. Investors, including NRIs, can apply to buy shares in the company during this phase.
NRIs are allowed to apply for IPOs in India, but there are certain eligibility criteria and procedures that need to be adhered to:
✅ Residential Status: NRIs, as per Indian law, are individuals who reside outside India for purposes such as employment, business, or any other vocation. They must hold a valid Indian passport to be considered eligible to invest in Indian IPOs.
✅ PIS Account: Unlike resident Indians, NRIs need a Portfolio Investment Scheme (PIS) account to invest in Indian stock markets, including IPOs. The PIS account is a specialized Demat and trading account specifically designed for NRIs. It allows NRIs to invest in Indian equities on a repatriation or non-repatriation basis, depending on whether the linked bank account is NRE (Non-Resident External) or NRO (Non-Resident Ordinary). The PIS account is essential for ensuring compliance with RBI regulations on NRI investments.
✅ Demat and Trading Account: In addition to the PIS account, NRIs need to have a Demat (Dematerialized) account and a trading account with an authorized Depository Participant (DP) in India. The Demat account holds the shares in electronic form, while the trading account facilitates buying and selling shares. It's important that these accounts are designated specifically for NRI status and linked to the PIS account.
✅ NRE/NRO Accounts: NRIs can use either their NRE or NRO bank accounts to apply for IPOs. The choice between these accounts depends on whether the funds being used are repatriable (NRE) or non-repatriable (NRO). Using an NRE account allows for repatriation of funds (both principal and gains) back to the country of residence, while NRO accounts do not allow repatriation of funds outside India beyond a certain limit.
✅ PAN Card: Just like resident Indians, NRIs must have a PAN (Permanent Account Number) card to apply for an IPO.
The process for NRIs to apply for an IPO is quite similar to that of resident Indians, with a few additional steps:
1. ASBA Facility: NRIs must use the Application Supported by Blocked Amount (ASBA) process for applying to IPOs. This means that the application amount is blocked in the NRE/NRO bank account until the shares are allotted. Once the shares are allotted, the amount equivalent to the shares allotted is debited, and the remaining amount is released.
2. Online Application: Most banks and brokerage firms offer online facilities for IPO applications. NRIs can apply through their net banking or trading account platform using the ASBA facility. It’s a straightforward process, where one needs to select the IPO, enter the bid details, and authorize the transaction.
3. Allotment and Refunds: After the IPO application process is complete, NRIs will receive the shares in their Demat account if the shares are allotted. In case of partial or no allotment, the blocked funds will be released accordingly.
Investing in Indian IPOs comes with certain tax implications for NRIs:
✅ Short-Term Capital Gains (STCG): If the shares are sold within a year of allotment, the gains will be taxed at 15%.
✅ Long-Term Capital Gains (LTCG): If the shares are sold after a year, the gains above ₹1 lakh are taxed at 10% without the benefit of indexation.
✅ Dividend Income: For non-resident persons, TDS (Tax Deducted at Source) is required to be deducted at the rate of 20% on dividend income, subject to the Double Taxation Avoidance Agreement (DTAA), if any, between India and the NRI's country of residence. To avail of the benefit of a lower deduction due to the beneficial treaty rate, NRIs must submit certain documents such as:
• Form 10F
• Declaration of beneficial ownership
• Certificate of Tax Residency
In the absence of these documents, a higher TDS may be deducted. However, NRIs can claim this excess TDS at the time of filing their Income Tax Return (ITR) in India, effectively reducing their overall tax liability based on the DTAA.
NRIs have a clear and structured path to invest in Indian IPOs. With the proper setup of a PIS account, along with a Demat and trading account, NRIs can actively participate in India’s growing equity market. The opportunity to invest in promising companies right from their public listing is a lucrative option that many NRIs are now exploring. However, it’s crucial to understand the regulations, tax implications, and the overall investment environment to make informed decisions. With careful planning and the right approach, NRIs can indeed reap significant benefits from investing in Indian IPOs.
