Managing Indian shares effectively is crucial when moving abroad. This process involves not just the transfer of assets but also understanding the financial implications and opportunities associated with such a move.
Investors must navigate through a complex regulatory landscape, ensuring compliance while maximizing their investment potential.
This guide will explore the essential steps and considerations for moving Indian shares abroad, providing clarity and direction for those embarking on this journey.
If you want to invest as an expat or high-net-worth individual, which is what i specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).
Table of Contents
Indian Regulatory Bodies and Their Role
Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) plays a pivotal role in regulating the movement of Indian shares abroad. The RBI’s guidelines, particularly those pertaining to the Foreign Exchange Management Act (FEMA), dictate how Non-Resident Indians (NRIs) can invest in Indian securities.
The central bank’s mandates ensure that cross-border investment activities comply with national financial norms and regulations.
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India (SEBI) is another key regulator overseeing Indian securities markets. SEBI’s regulations are crucial for NRIs moving Indian shares abroad.
They set the framework for trading, holding, and repatriating investments, ensuring fair trading practices and investor protection.
Key Regulations Affecting NRI Shareholders
The Foreign Exchange Management Act (FEMA) governs cross-border financial transactions. NRIs must adhere to FEMA regulations when moving Indian shares abroad.
These guidelines detail the allowed investment avenues, the types of bank accounts NRIs can open, and the process of repatriation of funds back to the investor’s country of residence.
Tax Implications
Tax implications are a significant consideration when moving Indian shares abroad. NRIs are subject to capital gains tax on the sale of shares, similar to resident Indians.
Understanding the tax liability in India and the country of residence is critical to ensure compliance and effective financial planning.
Step 1: Assessing Your Current Portfolio
Evaluating Your Indian Shares
Sector Analysis
When moving Indian shares abroad, it’s crucial to start by analyzing the sectors represented in your portfolio.
In 2023, the Indian stock market is navigating a landscape marked by technological disruptions and macro-economic headwinds, including global economic slowdown, rising inflation, and geopolitical tensions.
This environment demands a thorough sector-wise evaluation, identifying industries that are resilient or potentially beneficial in the long term.
For instance, technology-driven sectors may offer growth opportunities, while traditional sectors might face more challenges.
Performance Tracking
Performance tracking is another vital aspect of managing your portfolio when moving Indian shares abroad.
Despite a slowdown in the economy, Indian stocks have shown resilience, rallying to record highs and are predicted to grow by approximately 9% by the end of 2023.
Regularly monitoring the performance of your shares, including assessing their growth potential and risks, aligns your investment decisions with the evolving market conditions.
This step ensures that your portfolio is optimized for both the current and future financial landscape.
Risks and Rewards of Holding Indian Shares Abroad
Holding Indian shares while living abroad presents unique risks and rewards. One key reward is the potential outperformance of Indian markets in comparison to global peers, especially given India’s strong macro-economic fundamentals and domestic consumption.
However, risks include exposure to currency fluctuations and potential regulatory changes.
Step 2: Opening an NRE/NRO Account When Moving Indian Shares
Choosing Between NRE and NRO Accounts
When moving Indian shares abroad, opening an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account is a critical step.
The choice between these accounts depends on the nature of your income and repatriation needs. NRE accounts are ideal for maintaining income earned outside India, offering tax-free interest and full repatriability.
Conversely, NRO accounts are suited for managing income earned in India, like rent or dividends, but come with restrictions on repatriation and are subject to Indian income tax.
Documentation and Compliance Requirements
Compliance and proper documentation are essential for opening NRE or NRO accounts. You’ll need to provide identity proof, address proof, and other relevant documents, ensuring adherence to the Reserve Bank of India’s guidelines.
For NRE accounts, the repatriation of funds is unrestricted, while for NRO accounts, there is a cap of USD 1 million per financial year for repatriation. Understanding these nuances helps in efficient financial planning and compliance with tax regulations.
Step 3: Converting Resident Demat to NRO Demat
The Conversion Process
When moving Indian shares, it’s crucial to convert your Resident Demat account to an NRO Demat account if your residential status changes from Resident Indian to Non-Resident Indian (NRI).
This process involves updating your NRI status across all account relationships, including your Demat account.
All resident bank accounts where you’re the primary holder must be re-designated as NRO accounts.
The necessary steps include filling out a ‘Resident to NRO Conversion’ form, providing self-attested copies of your PAN card, passport, and visa, and submitting proof of your overseas address.
These documents validate your NRI status and facilitate the conversion process.
The submission of the conversion request can be done in two ways: non face-to-face, via registered email or courier, and face-to-face, where all documents are signed in the presence of a bank official.
In the case of non face-to-face submission, documents must be attested by authorized officials like those of overseas branches of Schedule Commercial Banks, Notary Public, Court Magistrate, Judge, or Indian Embassy/Consulate General in your resident country.
Upon conversion, the international debit card linked to your resident account will be deactivated, and you may request a new Rupay NRO domestic debit card.
Any current reimbursement account you have will either be closed or converted to a Current Account – NRO, with an Average Monthly Balance (AMB) requirement.
The joint holder facility allows you to have a resident individual as a joint holder in the NRO account under the “Former or Survivor” operation mode.
Additionally, Tax Deducted at Source (TDS) on interest earned will be applicable post conversion to NRO.
Necessary Documentation and Approvals
The documentation required for converting a Resident Demat account to an NRO Demat account includes the conversion form, a KYC form, an Extended KYC form for individuals (FATCA), and self-attested copies of the PAN card and visa.
At least one officially valid document for address proof is mandatory. The forms need to be duly filled and signed by all Demat account holders.
After the conversion, your Demat account number remains the same, but the residential status gets updated to NRI. If you have multiple resident Demat accounts under your primary or first holder relationship, all must be converted to NRO Demat accounts.
Post conversion, you have the option to open an HSL NRO trading account through HDFC Securities Limited if required.
Step 4: Understanding Tax Implications
Capital Gains Tax in India
Understanding the tax implications of moving Indian shares is essential. The capital gains tax for NRIs on shares depends on the type of instrument and the duration for which they are held before the sale.
For long-term capital gains on listed equity shares or equity-oriented mutual funds held for more than 12 months, the tax rate is 10% if the gain is more than Rs.
1 lakh. If the gain is less than Rs. 1 lakh, it is exempt from tax. Securities Transaction Tax (STT) must be paid on both the acquisition and sale of these shares.
For unlisted equity shares and securities of Indian companies held for more than 24 months, the tax liability is 10% without indexation benefits. For debt-oriented mutual funds held for over 36 months, the tax is 20% after indexation.
Short-term capital gains tax applies to listed equity shares and equity-oriented mutual fund units sold within 12 months of acquisition. The tax rate is 15%, and STT must be paid.
Other short-term assets, like securities and shares of Indian companies sold within 24 months, are taxed as per the slab rate applicable to the non-resident.
Short-term capital gains tax on debt-oriented mutual funds held for less than 36 months is calculated as per the tax slab rates.
NRI investors are subject to a 4% health and education cess over and above the income tax rates and surcharge, and they do not benefit from the basic exemption limit available to resident Indians.
Double Taxation Avoidance Agreement (DTAA)
The Double Taxation Avoidance Agreement (DTAA) between India and over 90 countries provides relief from double taxation for NRIs.
If you have already paid taxes on capital gains in India, you are not required to pay tax on the same in your country of residence. This agreement is crucial for NRIs to ensure they are taxed fairly and only in one country, either India or their country of residence.
Step 5: Repatriation of Funds
Repatriation through NRE Accounts
When moving Indian shares abroad, repatriating funds through an NRE (Non-Resident External) account is a crucial step. An NRE account, primarily used to manage income earned outside India, is popular among NRIs for its tax-exempt status on the interest earned in India.
The process involves transferring funds from an NRI’s Indian bank account to their bank account in their country of residence, governed by the Foreign Exchange Management Act 1999 and various RBI guidelines.
Repatriation through an NRE account is straightforward. NRIs can repatriate any amount from their NRE account balance without any upper limit.
However, to initiate repatriation, you need to fill out a Bank request form and Form A2. It is essential to note that all repatriation activities are subject to tax implications.
Therefore, consulting a tax expert or financial advisor before moving Indian shares or repatriating funds is advisable to ensure compliance and make informed decisions.
Legal Limits and Compliance
The legal limits and compliance in repatriating funds are critical when moving Indian shares. While there is no limitation on the repatriation of funds from an NRE account, remitting more than 1 million USD per financial year from an NRO account has restrictions.
Additional compliance involves ensuring the NRO account does not hold borrowed funds or funds transferred from another NRO account. Also, you can only repatriate sale proceeds of a maximum of two properties in India.
Step 6: Managing Your Shares from Abroad
Online Trading Platforms and Tools
For NRIs moving Indian shares, utilizing online trading platforms and tools is essential for effective portfolio management.
NRI trading accounts, which are mandatory for investing in stocks, IPOs, bonds, and mutual funds listed on the NSE and BSE, facilitate this process.
Indian stock brokers offer services such as Zero AMC NRI Demat Account, 3-in-1 NRI Trading Account, and Low Brokerage NRI plans, which are attractive to NRIs.
Many brokers provide dedicated NRI desks, Good-till-cancelled (GTC) orders, Call n Trade, After Market Orders (AMO), Stock Recommendations, and mobile apps for NRIs to trade from abroad.
However, due to FATCA and CRS regulations, some Indian brokers might not offer services to NRIs based in the US and Canada.
Trading account charges for NRIs include account opening fees, brokerage charges, exchange transaction charges, taxes, and trading platform access fees.
Hiring a Financial Advisor in India
Hiring a financial advisor in India is a significant step for NRIs moving Indian shares. NRIs have started looking for trusted financial advisors in India for a secure financial future. The advisor should be a Certified Financial Planner and SEBI Registered Investment Adviser.
When choosing a financial advisor, consider their experience with NRI services, product knowledge, expertise in NRI taxation, investment philosophy, and the process they follow.
It’s important to ask the right questions regarding their experience, communication plan, services provided, fees, and how they align with your requirements.
The right financial planner can significantly improve your financial plan and wealth. Before hiring a financial planner, verify their credentials, take advice in writing, understand their compensation model, avoid signing blank documents, and be cautious of pressure selling techniques.
Regularly reviewing the advisor’s recommendations and seeking a second opinion every few years is also advisable.
This due diligence ensures that your financial goals align with the advisor’s strategies, especially when moving Indian shares.
Step 7: Estate Planning and Inheritance
Will and Succession Planning
When it comes to moving Indian shares abroad, Non-Resident Indians (NRIs) must prioritize estate planning to ensure a smooth transfer of their assets.
Estate planning is crucial for NRIs, especially as the number of high-net-worth and ultra-high net-worth individuals continues to rise globally.
India, in particular, is witnessing a significant increase in its ultra-high-net-worth population, with a projected rise of nearly 63% in the next five years. Creating a will is a fundamental aspect of estate planning.
A will provides a legal declaration of an individual’s intentions regarding their property after their death. The Indian Succession Act defines a will as a testamentary document where the testator expresses their desire about how their property should be handled posthumously.
For NRIs, drafting a will is essential to avoid intestate succession, where assets are distributed according to relevant succession laws, which can vary greatly depending on the country.
To draft a valid will, an individual must be of legal age, of sound mind, and acting of their own free will. The will should explicitly state the distribution of properties and name an executor to manage the estate after the testator’s demise.
Notably, the Indian Succession Act requires the will to be attested by at least two witnesses, though registration is not mandatory.
However, registering the will can provide easier recourse, especially for NRIs.
NRI Inheritance Laws
Inheritance laws for NRIs can be complex, involving navigation through various legal procedures and regulations. NRIs have the right to inherit immovable property in India, but they must comply with the rules set by the Foreign Exchange Management Act (FEMA).
Inherited property can include residential, commercial, or agricultural property, and the transfer of ownership must adhere to FEMA regulations.
The transfer of ownership can occur through a will or intestate succession, and in some cases, obtaining probate is necessary for a clear title.
For example, in cities like Mumbai, Kolkata, and Chennai, probate, a succession certificate, or a letter of administration may be required for the transfer of property in cooperative societies.
When it comes to taxation, there are no tax implications for NRIs inheriting property in India. However, if the property is rented out, income tax may apply as per the Income Tax Act.
NRIs can sell inherited property to an Indian resident without Reserve Bank of India (RBI) permission, but selling to a non-resident requires RBI approval. Additionally, capital gains tax may apply based on the property’s purchase date.
Conclusion
Moving Indian shares abroad as an NRI requires careful planning and adherence to various legal and regulatory frameworks. Estate planning, through creating a will or setting up trusts, is critical to ensure the smooth transfer and management of assets.
Understanding the nuances of NRI inheritance laws, including tax implications and FEMA regulations, is vital for a hassle-free transition.
Given the complexities involved, NRIs are encouraged to seek professional advice to navigate these processes effectively and ensure that their financial and estate planning goals are achieved efficiently and legally.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
