How Does NRI trade in the Indian Stock Market?

Last Updated: 4 Sep 2025

If you’re an NRI (Non-Resident Indian), and want to invest in the Indian stock market, the entire process can seem to be intimidating. But, it’s easier than you think to get started trading stocks in India. By learning about certain nuances and rules of the stock market, you can start trading successfully, wherever you are or how much time you have available to devote to your investments. The Indian stock market has been attracting many NRI investors in recent years, who can invest in the Indian stock market as per the rules set by the Foreign Exchange Management Act (FEMA).

Who is a NRI?

According to FEMA, “an NRI is a person resident outside India who is either a citizen of India or a person of Indian origin (PIO)”.

As per taxation norms, an NRI is a person who does not satisfy these two conditions:

• If a person is in India for 182 days or more during the financial year
• If a person is in India for a minimum of 365 days during the previous four years that year and at least 60 days in that year.

Pre-Requisites for NRIs to Invest in India

There are a few requirements NRIs must meet before beginning:.

• You must be classified as an NRI and hold a Permanent Account Number (PAN) card.
• Open an NRE bank account under PINS (Portfolio Investment Scheme) to invest in equity shares.
• Set up a demat and trading account with a registered broker or bank.
• If you cannot manage investments directly, you can appoint a mandate holder or give a Power of Attorney (PoA) to someone who can invest on your behalf.

How can you invest?

Begin by figuring out which instruments are right for your objectives. Some are more suited to active traders, while others are appropriate for long-term investors. Consider investments to be devices. Each one assists you in accomplishing a specific objective.

There is no one right method of investing. Each investor has unique goals, risk tolerance, and time horizons. The ideal method is to seek the counsel of professionals who can recommend what best suits you.

NRIs can invest in the Indian stock market through the Portfolio Investment Scheme (PIS). Offshore investors can take a repatriation or non-repatriation route to invest in the product via a registered broker. The investment money is held in the PIS account. You spend from it, and get paid in. A PIS authorisation letter is needed to open a demat and trading account.

Trading and Demat Account

A trading account facilitates the NRI to make sale and purchase transactions in the share market. The Demat Account will be used for holding the shares in an electronic format. These two accounts should be linked to a PIS-enabled NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account.

Investment Options Available to NRIs

There are numerous options for NRIs to invest in India. The answer depends on what they are trying to achieve, their risk tolerance and their investment horizon. Here are some common options:

Investment Option	Description
Equity	NRIs can invest in shares of Indian companies through a demat and trading account. Offers high growth but comes with higher risk.
Derivatives	NRIs can invest in futures and options with required approvals. Useful for hedging or speculation, but needs good market knowledge.
Mutual Funds	Pools money from many investors and invests in stocks, bonds, or other assets. Offers professional management and diversification.
ETFs (Exchange Traded Funds)	Similar to mutual funds but traded on stock exchanges like shares. Low-cost, transparent, and easy for NRIs to enter the market.

Taxation Rules for NRI Investors

NRIs investing in India need to follow specific tax rules. The main taxes include capital gains, dividend tax, and TDS.

Capital Gains Tax

• Short-term: 20% if the holding period is less than 1 year for equity investments.
• Long-term: 12.5% if the holding period is more than 1 year. This is applicable to gains exceeding ₹1.25 lakh.

Dividend Tax

• Taxed as per the NRI’s income tax slab rate.

Tax Deducted at Source (TDS)

• Deducted on both capital gains and dividends.
• If the total tax liability is lower than the TDS paid, NRIs can claim a refund by filing an income tax return in India.

Points to Remember

Some important things to remember about NRI trading in India are as follows:

1. Intra-day trading is not permitted for NRIs. Therefore, they must always opt for delivery-based transactions.
2. Be careful to avoid investment in prohibited sectors, as they may bring steep penalties.
3. Make sure to reconcile the demat account balance with the bank balance.
4. Banks will levy associated charges with PIS, demat and trading accounts.
5. Trading will be carried out via brokers, so there will be brokerage charges involved.

Conclusion

The Indian stock market welcomes investment from NRIs. There might be some additional considerations like taxes, repatriation, holding periods and restricted markets. However, an NRI can trade in the Indian stock market in a hassle-free way and reap the benefits of a rising economy by adhering to these basic rules and regulations.

Frequently Asked Questions

Can I use my resident demat account to trade stocks on the Indian market as an NRI?

No, NRIs cannot use a resident demat account for stock trading in India. You must convert it into an NRI demat account linked to your NRO account to continue trading.

What will happen to my existing stocks after my status changes to an NRI?

Your stocks will stay safe even after your status changes. But your demat account must be converted into an NRI demat account. NRIs are not allowed to hold resident savings or demat accounts.

Can a PIO or OCI invest in shares of companies listed on the Indian stock market?

Yes, both PIOs and OCIs can invest in Indian listed companies. Their rights and restrictions are the same as those of NRIs.