What is a Non-Repatriable Demat Account?

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The meaning of “non-repatriable” signifies the inability to transfer financial securities from one country to another, specifically from the host country to the country of residence. A Demat account is a crucial tool for holding shares, bonds, and other financial securities in electronic form.

A Non-Repatriable Demat account serves NRIs, but it comes with restrictions on transferring funds back to their country of residence. Understanding the non-repatriable meaning is crucial for NRIs as it affects their ability to access and use their investment returns outside of India

Investments made through a non-repatriable Demat account cannot be converted into foreign currency. This type of account is also known as the NRO Demat account and is typically linked to a Non-Resident Ordinary (NRO) savings bank account. The NRO account is designed to manage income earned by NRIs in India, including bonuses and dividends from investments.

With a non-repatriable Demat account, NRIs are limited in their ability to transfer proceeds from the sale of securities and profits from investments. They can only transfer the principal amount and the interest earned after Tax Deducted at Source (TDS) is deducted. The Reserve Bank of India (RBI) permits remittances of up to $1 million per financial year once applicable taxes are paid.

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

What is the Meaning of Non-Repatriable Demat Account?

The term “non-repatriable” signifies the inability to transfer financial securities from one country to another, specifically from the host country to the country of residence. A Demat account is a crucial tool for holding shares, bonds, and other financial securities in electronic form.

A Non-Repatriable Demat account serves NRIs, but it comes with restrictions on transferring funds back to their country of residence. Investments made through a non-repatriable Demat account cannot be converted into foreign currency. This type of account is also known as the NRO Demat account and is typically linked to a Non-Resident Ordinary (NRO) savings bank account. The NRO account is designed to manage income earned by NRIs in India, including bonuses and dividends from investments.

With a non-repatriable Demat account, NRIs are limited in their ability to transfer proceeds from the sale of securities and profits from investments. They can only transfer the principal amount and the interest earned after Tax Deducted at Source (TDS) is deducted. The Reserve Bank of India (RBI) permits remittances of up to $1 million per financial year once applicable taxes are paid.

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

Explaining Non-Repatriable Demat Account with Example

Consider Aniket, an Indian resident who recently retired and relocated to the USA to be with his son. After settling there, his status changed to Non-Resident Indian. However, he still holds a non-repatriable Demat account in India with investments totaling Rs. 80 million. When he decided to sell his investments in India, he received net proceeds of Rs. 24 million. Now, he wishes to transfer this amount to his US account. Unfortunately, he cannot transfer the full Rs. 24 million; only the principal amount can be transferred after tax deduction. RBI guidelines dictate that an NRI must open separate Demat accounts for repatriable and non-repatriable investments.

Distinguishing Between Repatriable and Non-Repatriable Accounts

In contrast to non-repatriable Demat accounts, repatriable Demat accounts enable NRIs to transfer their funds abroad. A repatriable Demat account requires a linked Non-Resident External (NRE) savings account, which is designed for depositing foreign currency and allows funds to be repatriated as needed.

NRIs can use a Repatriable Demat account and bank account for investing in Initial Public Offers (IPOs) or other financial assets on a repatriable basis. Conversely, a non-repatriable Demat account and bank account are used for non-repatriable investments.

Any non-resident Indian wishing to invest in India must have either an NRE or NRO account.

Key Facts About NRO Demat Accounts (Non-Repatriable)

  • A non-repatriable Demat account must be linked to an NRO savings account.
  • Separate accounts are required for repatriable and non-repatriable investments.
  • NRIs cannot transfer proceeds from the sale of securities and investment gains.
  • NRIs can transfer the principal amount and interest earned from the NRO account.
  • RBI permits remittances of up to $1 million per financial year once applicable taxes are paid.

Summarising

In summary, a non-repatriable Demat account allows NRIs to hold securities on a non-repatriable basis, enabling them to invest and trade in the Indian financial market. However, the transfer of funds is restricted, and strict RBI regulations apply. Despite the regulatory constraints, NRIs can still benefit from market diversification by investing in the Indian stock market, provided they adhere to the Foreign Exchange Management Act and other relevant regulations.

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Frequently Asked Questions

What is the difference between non repatriable and NRI repatriable accounts?

Answer Field

repatriable accounts restrict fund transfers abroad, while NRI repatriable accounts allow full repatriation of investment proceeds to the resident country.

What is NRI non-repatriation?

Answer Field

NRI non-repatriation means funds in specific accounts cannot be transferred abroad and must remain within the host country.

Is NRO non-repatriable?

Answer Field

Yes, NRO (Non-Resident Ordinary) accounts are typically non-repatriable, limiting fund transfers abroad, except for certain specified limits.

Can joint accounts be opened as non-repatriable demat accounts?

Answer Field

No, joint accounts cannot be opened as non-repatriable demat accounts.

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