For NRIs, the Portfolio Investment Scheme (PIS) and Non-PIS are the two popular accounts for investing in the Indian Stock market. These bank accounts help you to purchase and sell bonds, stocks, mutual funds, and other securities. However, among the two options, NRIs are always confused about which is better.
To clear up any confusion, this blog compares PIS and Non-PIS accounts. Read on and select the account that perfectly matches your investment needs.
Key Takeaways
- PIS and Non-PIS are two types of accounts that help NRIs to invest in the Indian stock market.
- The RBI regulates PIS accounts, and transactions should be conducted in accordance with its guidelines.
- Non-PIS accounts do not require RBI approval to invest in India.
- The tax implications of PIS and Non-PIS accounts are the same.
- You need an NRE or NRO account to have a PIS and a Non-PIS account.
What is a PIS (Portfolio Investment Scheme) Account?
A Portfolio Investment Scheme (PIS) account is a facility regulated by the Reserve Bank of India (RBI) that helps NRIs invest directly in the Indian stock markets. It is a regulated, structured way for Indians living overseas to participate in Indian debt and equity markets.
You can open this account with your NRE or NRO accounts. Let's take a quick overview of this account.
- Without a PIS account, NRIs cannot make a direct investment in the Indian stock market. It is vital to have this account to process all the investment deals.
- RBI supervised the PIS account of NRIs investing in Indian stocks and shares.
- In case of repatriation, in accordance with RBI regulations, money, including earnings, is sent back abroad.
- Through listed stocks, NRIs can participate in primary and secondary markets.
- For fund transfer, NRIS need to connect their PIS account to either NRO or NRE account.
This was all about the PIS or Portfolio Investment Scheme account. Moving ahead, let's know about the Non-PIS account.
What is a Non-PIS Account?
A Non-PIS account, on the other hand, offers NRIs more flexible options for investing in the Indian stock market. Additionally, unlike a PIS account, you do not need to report RBI for your transactions in this account. This makes the Non-PIS account more adaptable and less restrictive for a wide range of financial options.
Considering its flexibility and simplicity, this account attracts several NRIs for investment in India. Also, if you want to invest outside publicly traded equities, this account offers several options. Further, let's take a quick overview of this account.
- Non-PIS accounts do not allow stock exchange trading. However, you can invest in unlisted stocks, mutual funds, or debt units.
- You can use this account for unlisted stocks or long-term non-public investments in India.
- Usually, remittances are not effectively available in Non-PIS accounts.
- Unlike in PIS, in Non-PIS accounts, RBI does not keep a record of the transactions made by the NRIs in the investment market.
So, this is what a Non-PIS account is. Moving on, let's look at the key differences between PIS and Non-PIS accounts.
PIS vs. Non-PIS Account: Key Differences
Here, the table below summarizes the difference between a PIS and a Non-PIS account:
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Basis
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PIS
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Non-PIS
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Savings Account
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NRE Savings account
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NRO Savings account
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Purpose
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Help NRIs on a repatriation basis in the purchase and sale of equity shares, IPOs, and convertible debentures. It is a suitable choice for short-term investments and active trading.
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This account helps NRIs to purchase and sell mutual funds and financial securities on a non-repatriation basis. Right choice for long-term strategic holdings.
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PIS Permission Letter
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NRIs need to get a PIS permission letter from the RBI through their partner bank.
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A Non-PIS account does not require a PIS permission letter.
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Instruments
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This account is especially designed for share trading on Indian stock exchanges.
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Through this account, NRIs can invest in equity futures & options, shares, commodities, mutual funds, and currency.
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Repatriability
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These are repatriable.
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These accounts are not repatriable.
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Fund Transfer
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For investment, it is vital to transfer funds to the PIS account. After this, they will be available on your trading account. Considering this, the whole process takes one day.
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Using net banking, you can transfer your funds directly from your NRO account to a trading account.
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Investment Restriction
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The maximum NRI or foreign shareholding in a company by the RBI is applicable.
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There are no such investment restrictions in this account.
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Mutual Fund Investment
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Under a PIS account, you cannot invest in mutual funds.
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In the Non-PIS account, you can invest in mutual funds.
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Cost
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Charges you need to pay the bank include:
- Per contact note Rs 300. It is per day of trading.
- Additionally, you also need to pay the Annual Maintenance Charge (AMC) of a maximum of Rs 1500 per year.
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Rs 100 or 0.10% to 1% whichever is less. Also, the prices may vary from broker to broker.
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Shares Bought with Resident Status
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You must liquidate the shares that you bought as an Indian resident. Additionally, you need to open a new demat account to buy shares on a non-repatriation basis.
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You can transfer the shares you bought as a resident Indian through your Non-PIS account.
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This was all about PIS vs. Non-PIS accounts and how they are different from each other. Moving ahead, let's know about the tax implications for these accounts.
What Are the Tax Implications for PIS and Non-PIS Accounts?
For both accounts, PIS and Non-PIS, for NRIs investing in India, the tax implications are the same:
- Capital Gain Tax on Investment-Oriented Investment
- If sold within 12 months of purchase, short-term capital gain is taxed at 20% plus applicable surcharge and cess.
- If sold after 1 year, a long-term capital gain is subject to a 12.5% tax plus the applicable surcharge. Additionally, cess is charged on capital gains exceeding INR 1,25,000 in a financial year.
- Capital Gains Tax on Debt-Oriented Investment
- If sold within 36 months, a short-term capital gain tax is charged at the income tax slab rate for NRIs.
- If the investment is sold after 36 months, long-term capital gain is taxed:
- 20% with indexation benefits.
- 12.5% without indexation benefits. It is an alternative.
These are the tax implications for PIS and Non-PIS accounts. Moving further, let's know how to open a PIS account.
How to Open a PIS Account?
Follow the steps below to open a PIS account:
- Step 1: Choose an authorized Indian bank account that offers PIS services for NRIs.
- Step 2: Submit the required documents, such as proof of your NRI status, passport, PAN card, overseas address proof, and visa.
- Step 3: Link your PIS account to your NRE or NRO account. It further helps you with fund transfer.
- Step 4: Open a trading account with a registered broker in India.
- Step 5: Once your bank and broker have completed document verification under the RBI PIS system, your account will be registered.
This is how you can simply open a PIS account in India. Moving ahead, let's know how to use a Non-PIS account.
How to Use a Non-PIS Account?
The process to open a Non-PIS account is simpler than the PIS account. Here is how you can open a Non-PIS account in India:
- To open a Non-PIS account, first you need to open an NRO or NRE account.
- Submit the investment application to your bank or broker.
- As per the requirements of your investment, make payments using your NRO or NRE accounts.
- Follow the rules and regulations stated under FEMA (Foreign Exchange Management Act) for Non-PIS accounts.
This is how you can use your Non-PIS account in India. Now, let's move on to the key things NRIs need to consider when investing in Indian stocks.
Key Considerations NRIs Need to Consider While Investing in Indian Stocks
NRIs should consider the following things while selecting between the PIS and Non-PIS accounts:
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Basis
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PIS Accounts
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Non-PIS Accounts
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Investment Purpose
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For actively trading in listed equities, it is mandatory to have a PIS account.
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This account is a good option for long-term investments in private placements or unlisted companies.
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Repatriation Needs
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Under RBI guidelines, it allows easy repatriation and principal overseas.
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Depending on the type of investment, repatriation is limited.
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Regulatory Compliance
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Needs strict compliance and reporting to RBI.
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Provides flexibility with fewer regulatory requirements.
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Invest Horizon
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Right option for short to medium term trading in listed equities.
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Ideal selection for holding in unlisted shares or private investments on a long-term basis.
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These are the key considerations NRIs should consider when opting for stock investments in India.
Final Thoughts
Lastly, when choosing between a PIS account and a Non-PIS account, NRIs need to consider their financial and investment goals. A PIS account is a good option if you want to invest your foreign income in India. On the other side, Non-PIS accounts are a good choice for investing your Indian earned income in India.
So, it totally depends on your investment choice which account you choose. Further, if you are still confused and want to know more about these accounts, connect with Savetaxs. We have a team of experts who will assist you with all your queries related to these accounts and help you choose the one that best matches your financial needs.
Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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