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Non-Resident Indians (NRIs) have long shown interest in investing in India’s growing capital markets. One prominent opportunity is participating in Initial Public Offerings (IPOs), where companies raise capital by offering shares to the public for the first time. However, NRIs must navigate a specific set of rules and procedures regulated by Indian authorities to invest in IPOs. This comprehensive guide explains the eligibility, regulatory framework, application process, and key considerations for NRIs wishing to apply for IPOs in India.
The steps are given below:
NRIs must open demat and trading accounts with brokers authorised to handle NRI clients. This involves submitting KYC documents, RBI approvals, and bank account details.
The Application Supported by Blocked Amount (ASBA) process is mandatory for IPO investments. ASBA allows the applicant’s bank to block the IPO amount in their account instead of debiting immediately. Only after successful share allotment is the amount deducted.
NRIs can apply for IPO shares online through their broker’s platform or offline via physical application forms, selecting the NRI category and providing demat and bank details.
The application amount is blocked in the NRI’s bank account using the ASBA facility until allotment.
After subscription closes, shares are allotted proportionally or via a lottery if oversubscribed. Allotted shares are credited to the NRI’s demat account and listed on stock exchanges, enabling trading.
An Initial Public Offering (IPO) allows companies to raise funds by selling shares to investors. For NRIs, investing in IPOs provides a means to participate in India's dynamic economic growth while diversifying their investment portfolio internationally.
NRIs are Indian citizens or persons of Indian origin who reside outside India. Their investments in Indian securities, including IPOs, are governed by Indian securities laws, foreign exchange regulations, and tax laws. Given the cross-border nature of these investments, NRIs must comply with both Securities and Exchange Board of India (SEBI) guidelines and the Reserve Bank of India (RBI) regulations.
NRIs can apply for IPOs if they fulfill certain eligibility conditions:
KYC and Identity Documents: NRIs must complete KYC (Know Your Customer) requirements, including submitting a valid PAN card, passport, proof of overseas address, and proof of Indian address if available. Overseas Citizenship of India (OCI) or Person of Indian Origin (PIO) cards are accepted as additional identity proofs.
Demat and Trading Accounts: NRIs must open a demat account and a trading account with a registered stockbroker that supports NRI accounts. These accounts are necessary to hold and trade shares.
Bank Account: NRIs must maintain an NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) bank account for making payments and receiving refunds or dividends.
Investment Routes: NRIs must choose either the Portfolio Investment Scheme (PIS) route or Non-PIS route for equity investments. PIS enables direct equity trading with RBI approval, while Non-PIS is limited to specific investments like mutual funds.
Investor Categories: NRIs may apply as individuals, corporate entities, trusts, or other entities permitted under applicable RBI and SEBI regulations, subject to compliance requirements.
The investment routes available for NRIs are mentioned below:
This RBI-approved scheme allows NRIs to trade in Indian equities and IPOs with certain restrictions and reporting requirements. NRIs must maintain a PIS account linked to their demat and bank accounts. Transactions are monitored by authorised dealers.
NRIs can invest in IPOs without a PIS account but are restricted to investments in public issues by government companies, mutual funds, or units of specified funds. Trading of these shares on the secondary market may also have limitations.
Understanding these routes helps NRIs comply with regulations and select suitable investment methods.
NRIs investing in Indian IPOs must consider tax implications on both capital gains and dividends. The nature and duration of investment influence the tax treatment. Below are the key aspects to be aware of:
Capital Gains Tax: Gains from selling IPO shares are subject to capital gains tax. Tax on IPO gains depends on holding duration and prevailing tax regulations. NRIs may refer to updated income tax provisions or consult a tax professional.
Dividend Tax: Dividends received from Indian companies are subject to Dividend Distribution Tax (DDT) paid by the company; post-2020, dividends are taxed in the hands of the investor at applicable rates.
Repatriation: NRIs can repatriate IPO investment proceeds, subject to limits and documentation under FEMA. Proper banking channels and documentation must be used.
Investing in IPOs as an NRI involves more than just choosing the right company. Staying compliant with regulatory requirements and avoiding logistical issues is equally important. Keep the following points in mind to ensure a smooth experience:
Timely KYC Updates: Ensure KYC documents are current to avoid application rejections.
Broker Selection: Use brokers experienced with NRI accounts for smooth processing.
Bank Coordination: Maintain active NRE/NRO accounts and inform banks about IPO transactions.
Awareness of Deadlines: IPO subscription windows are limited; timely application is crucial.
Tax Planning: Understand tax implications and file returns appropriately to avoid penalties.
NRI investments in IPOs are regulated primarily under:
SEBI Regulations: The Securities and Exchange Board of India oversees investor protection and transparency norms for IPOs. SEBI mandates disclosure requirements, application procedures, and eligibility criteria for all investors, including NRIs.
RBI’s Foreign Exchange Management Act (FEMA): FEMA governs foreign exchange transactions in India. Under RBI’s guidelines, NRIs must follow the Portfolio Investment Scheme (PIS) or Non-PIS routes to invest in Indian equities, including IPO shares.
Tax Laws: Income from IPO investments, such as capital gains and dividends, is subject to Indian tax laws applicable to NRIs.
Understanding and complying with these frameworks is essential for NRIs to legally participate in IPOs.
NRIs can indeed apply for IPOs in India, but they must follow prescribed rules and processes regulated by SEBI and RBI. Meeting eligibility criteria, maintaining proper accounts, complying with ASBA payment norms, and understanding tax and repatriation guidelines are essential for successful participation. With a clear understanding of regulatory procedures, NRIs can explore the IPO mechanism as part of their broader investment strategy.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
Securities and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
Investopedia – NRI Investment in IPOs
Zerodha Varsity – IPO Process
Yes, NRIs can apply for IPOs subject to compliance with SEBI and RBI regulations.
PAN card, passport, proof of overseas address, KYC documents, demat and trading account details, and bank account information.
ASBA blocks the application amount in the NRI’s bank account until share allotment, ensuring efficient fund usage.
Yes, IPO proceeds can be repatriated subject to RBI guidelines and documentation.
Capital gains and dividends are taxable in India as per applicable laws.
Yes, NRIs are eligible to apply for SME IPOs if they comply with the regulatory requirements.
A PIS account is mandatory for equity trading and IPO application under the PIS route, though some exceptions apply under the Non-PIS route.
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Posted on 18 Aug
Geetanjali Lachke
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