Understanding PIS (Portfolio Investment Scheme) Accounts for NRIs
A PIS (Portfolio Investment Scheme) account is a specialized bank account required for Non-Resident Indians (NRIs) who wish to invest in the Indian stock market through NRE (Repatriable) mode. This account is set up when opening the NRE Trading and Demat account. Here’s a comprehensive guide to understanding the PIS account:
Key Features of a PIS Account
Purpose:
The PIS account is designed to facilitate the buying and selling of shares by NRIs in NRE (Repatriable) mode in the secondary market. It ensures that all transactions are reported to the Reserve Bank of India (RBI) to comply with regulatory requirements.
Process and Functionality
Transaction Routing:
All stock market transactions, including buying and selling shares using NRE funds, are routed through the respective PIS account.
Reporting to RBI:
Each transaction executed in an NRI Trading and Demat account is first reported by the Stock Broker to the bank holding the PIS account. The bank, in turn, reports these transactions to the RBI, enabling the RBI to monitor and regulate foreign investments in Indian companies.
Tax Scrutiny and Deduction:
When a sale transaction is executed, the PIS account ensures that any applicable taxes on profits are deducted before crediting the net proceeds to the NRI's account.
Bank Charges:
Banks holding PIS accounts charge a fee for each transaction report sent to the RBI.
Example Scenario
Buying Shares:
If an NRI purchases 100 shares of a company at ₹850 each, the total purchase amount of ₹85,000 (plus any charges) is debited from the PIS account. Details of the purchase, such as shares bought, quantity, date, and rate, are reported to the RBI.
Selling Shares:
If the NRI sells these shares at ₹950 each, the transaction is reported to the RBI. The profit (e.g., ₹10,000 for a ₹100 per share gain) is verified for tax obligations. The applicable taxes are then deducted, and the net proceeds are credited to the PIS account.
Importance of PIS Accounts
Regulatory Compliance:
PIS accounts ensure that all NRE investments in the Indian stock market comply with RBI regulations, facilitating transparent and legal transactions.
Monitoring Investment Limits:
Through PIS accounts, the RBI can monitor and control the extent of foreign investments in individual companies, maintaining market stability and compliance with foreign investment policies.
Note:
For investments in NRO mode, a PIS account is not required.
