Portfolio Investment Scheme Account - Everything You Need To Know

Time to read: 6 mins | September 5th, 2018

The PIS Account is a scheme offered by the Reserve Bank of India, defined in Schedule 3 of the Foreign Exchange Management Act 2000.

The PIS Account is particularly useful for NRIs who wish to participate in the Indian capital market– purchase and sell shares (barring intra-day trade) and/or convertible of Indian companies, via a recognised stock exchange (through a registered broker) on repatriation basis.

Features of Product offering:

1. Invest In India
2. Buy, Sell, Repatriate
3. Smooth Transactions
4. Ease of Operation

NRE - Repatriable status:

Source of Funds: Permissible Credit

- Inward remittances in foreign exchange through normal banking channels.

- Transfer from applicant’s other NRE accounts or FCNR accounts maintained with a bank in India

- Dividend or income earned on investments under PIS

- Net sale proceeds (after payment of applicable taxes) of shares and convertible debentures which were acquired on repatriation basis under PIS

Source of Funds: Permissible Debit

- Any charges on account of sale/ purchase of shares and/or convertible debentures under PIS

- Amount paid for purchase of shares and/or convertible debentures

- Outward remittances of the dividend or the income earned

NRO - Non-Repatriable status:

As per the revised guidelines from RBI (Notification No.FEMA.361/2016-RB dated February 15, 2016) a Non-resident Indian (NRI) may acquire and hold equity shares, convertible preference shares, convertible debenture, warrants or units, on non-repatriation basis, which will be deemed to be domestic investment at par with the investment made by residents. Thus, NRIs may acquire, on non-repatriation basis, any security issued by a company without any limit either on the stock exchange or outside it.

In view of the above notification, the Bank has discontinued

• RBI reporting for purchase/sale of securities through secondary market on Non-Repatriation basis
• Issuance of PIS Permission Letter for purchase of securities through secondary market on Non-Repatriation basis

NRIs can still invest on non-repatriation basis and continue to enjoy existing services like trade settlements by submitting the contract notes to the Bank. For this purpose, it has been decided to revamp the offering with the following benefits.

-   Zero balance account.

-   Seamless settlement of financial transactions

-  Enhanced Set-Off facility at portfolio level: Short term capital gain losses of NRE PIS to be adjusted  with the NRO account and vice versa

-   Sweep-in facility from your linked saving account having highest balances for trade settlements.

-   Deduction of capital gains tax and issuance of tax deduction certificate.

-   20 Axis eDGE loyalty points per trade transaction settled by the Bank.

-   24x7 account access through Internet Banking facility.  

What are the documents required to open the PIS Account?

For NRIs the following:

• Copy of valid passport
• Proof of NRI status (which could be valid Employment/Residence Visa copy or Work/Residence Permit)
• Proof of overseas and Indian address
• PAN card (Mandatory)
• Recent passport size colour photographs
• C-KYC
• Fatca
  

For PIOs, in addition to the above, the following documents are necessary:

• Copy of Valid PIO/OCI card or any other proof of PIO status
• Duly signed and filled-in PIO declaration

Is joint holding permitted in case of the PIS Account?

No, the PIS Account cannot be held in joint name.

And as per the RBI guidelines, a NRI is expected to have a separate bank account solely for PIS purposes. Transaction related to personal banking as well as those related to buying and selling securities other than under the PIS account are not allowed to be mixed up or linked. 

How many designated banks can a NRI assign?

Only one designated bank for the purpose of routing transactions under the PIS for NRE is allowed. So, as an NRI, you cannot maintain NRE accounts under PIS with different banks.

Is there is any limit to purchase shares and/or convertible debentures under the PIS?

Yes, it is restricted to 5.0% of the paid-up capital of a company in case of shares, and 5.0% of the paid-up value of each series of debentures. Cumulatively, NRIs can hold only up to a maximum of 10% of such holdings or any higher percentage so permitted in respect of any particular company on repatriation basis.

If the holdings are in excess of the prescribed limit, the excess will need to be offloaded. But shares debentures acquired through the ‘primary market’ are excluded for the purpose of above limits.

Further, intra-day trading is disallowed. So, you cannot do non-delivery based trades; short-selling is not permitted under the PIS.

Can shares received in inheritance permitted?

Yes, RBI permission is not required in case you have received shares in inheritance. But the shares can be held only on non-repatriable basis.

Can NRIs transfer shares purchased under PIS to others under a private arrangement?

Shares purchased under PIS on stock exchange shall be sold on stock exchange only. Such Shares cannot be transferred by way of sale under private arrangement or by way of gift (except by NRIs to their relatives as defined in Section 6 of Companies Act, 1956 or to a charitable trust duly registered under the laws in India) to a person resident in India or outside India without prior approval of the Reserve Bank of India.

How can resident status shares be settled by NRIs?

As per Section 6(5) of Foreign Exchange Management Act (FEMA) an NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non- resident Indian on a non-repatriable basis.

Thus, shares bought through the primary or secondary market as ‘resident individual’ can be held only on a non-repatriation basis.

Once your residential status changes to that of an NRI, these shares need to be credited to the NRO Demat Account, and thereafter they can be sold in the secondary market without PIS permission. The sale proceeds can be credited to the NRO Saving Account after the payment of capital gains tax.

In case an NRI becomes a resident in India, after opening the PIS Account

In case of change in residential status, it is the NRI’s responsibility to inform the bank, who will then follow its process. A new residential status demat account will have to opened so that the securities held in NRI demat account are transferred and the NRI demat account is closed.

What is enhanced set-off facility? How does it work?

Enhanced set-off facility is a feature by which current losses on PIS transactions can be nullified against future profits, thereby enabling you to save Capital Gains tax. The facility is offered at portfolio level during the financial year.

Salient features

• Set-off of losses will be permitted against future profits only & not against earlier profits
• Losses can be carried forward till last day of the financial year or till it is completely set-off, whichever is earlier
• Profits cannot be carried forward and Capital Gain tax will be calculated on a net profit (after adjusting previous losses, if any).

To conclude…

The account enables NRIs to transact smoothly, in a seamless and hassle-free manner. Moreover, you can have a better control over your personal finance and investment activity.

Axis Bank offers attractive rate of interest on NRE and NRO Accounts; so consider opening them to participate in the Portfolio Investment Scheme.

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Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.