What is a Non-Repatriable Demat Account?

Last Updated: 23 May 2024

Buying real estate such as vacation homes, a residence, or an office is among a few of the investment opportunities Indians abroad seek to invest in. Apart from that, they are also attracted to Indian stocks and the securities market too.

The procedure to invest in Indian markets for non-residential Indians or people of Indian origin is not complex. Similar to Indian residents, they require a Demat account for holding and investing in financial securities. To invest and trade here, they can open repatriable and non-repatriable Demat accounts.

This article spotlights the non-repatriable Demat account meaning, an example, differences with the repatriable Demat account and key facts of this type of Demat account.

Non-repatriable Demat Account?

The term non-repatriable refers to the inability of moving financial securities to the country of residence from any other country. A Demat account is useful for holding shares, bonds, and other financial securities in the dematerialized form.

A Non-repatriable Demat account is used by Non-Resident Indians, from which the transfer of funds to their resident country is restricted. The investment through a non-repatriable Demat account is not allowed to be converted to foreign currency. The non-repatriable Demat account is also known as the NRO Demat account. It also requires a linked Non-resident Ordinary (NRO) savings bank account. This account is for managing the income that NRI earned from India. The bonuses and dividends associated with the investments are deposited in this account.

With this type of Demat account, the NRIs can not transfer the proceeds from the sale of securities and gain from the investment. They can only transfer the principal amount and interest earned after the TDS is deducted. RBI allows remission of up to $1 million per financial year once the applicable taxes are paid.

According to the RBI regulations, an NRI can not hold more than 5% of paid-up capital in an Indian company. Moreover, an NRI can use a non-repatriable Demat account for transactions related to equity shares and mutual funds through Portfolio Investment Scheme (PINS).

Example

Saurabh, an Indian resident, retired recently. As his son is there in the USA, he also decided to shift over there. He settled there and his status changed to Non-resident Indian. Though, he has a non-repatriable Demat account in India with investments of Rs. 80 million in India. As he settled there, he thought about selling off his investment in India. When he sold his investment, he received net proceeds of Rs. 24 million. Now, he wants to transfer the amount to his account in the USA. He cannot transfer Rs. 24 million there. The principal amount can also be transferred after Tax deduction. As per RBI Guidelines, an NRI has to open two separate Demat accounts for repatriable and non-repatriable investments.

Difference between repatriable and non-repatriable accounts?

Unlike non-repatriable Demat accounts, repatriable Demat accounts allow NRI to transfer their funds abroad. A repatriable Demat account requires a linked Non-resident External (NRE) savings account. A non-resident External account is for depositing foreign currency and allows repatriation of funds as and when required.

An NRI investor can use a Repatriable Demat account and bank account while investing in Initial Public Offers (IPO) or other financial assets on a repatriable basis. To invest on a non-repatriable basis, people can use a non-repatriable Demat account and bank account.

If any non-resident Indian is willing to invest in India, they must have either NRE or NRO account.

NRO Demat account (non-repatriable) Key Facts

• A non-repatriable Demat account should be compulsorily associated with an NRO savings account.
• shall have different accounts for repatriable investments other than that for non-repatriable investments.
• NRIs can not transfer the proceeds from the sale of securities and gain from the investment.
• NRI can transfer the principal amount and interest earned on investment from the NRO account.
• RBI allows remission of up to $1 million per financial year once the applicable taxes are paid.

To wrap up, a non-repatriable Demat account is an account for holding securities of NRI on a non-repatriable basis. With this account, even NRIs can invest and trade in the Indian financial market. Though, the transfer of funds is restricted. RBI regulations are applied strictly for such accounts. Apart from that, the NRI must follow regulations by Foreign Exchange Management Act.

Though it is highly regulated, it allows NRI to take advantage of the diversification of the market by investing in the Indian stock market.

Frequently Asked Questions

What are the examples of Non-Repatriable Demat accounts?

An Indian resident decided to shift to the USA. He settled there and his status changed to Non-resident Indian. Though he has a non-repatriable Demat account in India with investments. As he settled there, he thought about selling off his investment in India. When he sells his investment, he receives net proceeds which he wants to transfer to his account in the USA. He cannot transfer the proceeds there. The principal amount can also be transferred after Tax deduction.