Portfolio Investment Scheme (PIS) and Non-PIS are the two most common accounts used by NRIs to invest in the Indian Stock market.
These are two types of bank accounts that enable you to buy and sell stocks, mutual funds, bonds, and other securities in India.
But what is the difference between them, and which one is better for you?
In this article, we compare PIS and non-PIS accounts and help you choose the best option for your investment needs.
What are PIS (Portfolio Investment Scheme) Accounts?
Portfolio Investment Scheme (PIS) is a facility provided by the Reserve Bank of India (RBI) that allows NRIs and PIOs to invest in stocks and bonds of Indian companies listed on the stock exchange.
PIS accounts can be opened with both NRO and NRE accounts. Just like the difference between the bank accounts, the key difference between NRO and NRE PIS accounts is repairability. NRE PIS accounts are freely repatriable, while NRO PIS accounts have certain restrictions.
Eligibility Criteria for a PIS Account
To open a PIS account mandated by RBI, you need to qualify as one of the following: Non-Resident Indians (NRIs) or, Persons of Indian Origin (PIOs) or foreign institutional investors (FIIs).
- Documents Required to Open a Non-PIS Account
The list of documents typically required to open a Non-PIS Account are:
- Application Form
- Foreign Account Tax Compliance Act (FATCA) declaration form if applicable
- FEMA declaration form
- Self-attested personalized cancelled cheque or bank statement of existing NRE/NRO account
- A self-attested copy of the overseas address proof
- A self-attested copy of the PAN card
- A copy of a Passport with a valid visa/work permit or a PIO card
- Recent passport-sized photographs
What are Non-PIS Accounts?
Non-PIS accounts enable NRIs and PIOs to invest in certain financial instruments in India without going through the PIS route. Non-PIS accounts are not subject to the reporting requirements (to RBI) like PIS.
An NRO non-PIS account allows NRIs to purchase and hold equity shares, preference shares, bonds, convertible debentures and warrants on a non-repatriation basis.
The NRE non-PIS account allows you to invest foreign earnings in India. However, you cannot invest in stocks through this account. But, you can manage earnings from the sale of stocks obtained through Initial Public Offerings (IPOs), Employee Stock Ownership Plans (ESOPs), or received as gifts.
Difference Between NRI PIS and Non-PIS Accounts
The following table summarises the key differences between PIS and non-PIS accounts:
Tax Implications for PIS and Non-PIS Accounts
Tax implications are the same for PIS and non-PIS accounts for NRIs investing in India.
Capital Gain Tax on Equity-Oriented Investment
Short Term Capital Gains (if sold within a year): 20% plus applicable surcharge and cess.
Long-Term Capital Gains (if sold after a year): 12.5% plus applicable surcharge and cess on gains exceeding ₹1,25,000 per financial year.
Capital Gains Tax on Debt-Oriented Investment
Short-Term Capital Gain Tax (if sold within 36 months): Taxed as per the NRIs income tax slab rate.
Long-Term Capital Gain Tax (if sold after 36 months):
- 20% with indexation benefits.
- 12.5% without indexation benefits (as an alternative).
Note:
India has DTAAs with many countries. If you reside in one of those countries, it can reduce your tax burden by providing lower tax rates or exemptions on specific income types.
Authorized banks/brokers are responsible for deducting TDS on capital gains, ensuring compliance with Indian tax regulations. TDS on dividend income is deducted by the company paying the dividend.
Regulatory Compliance for PIS Accounts
The Reserve Bank of India (RBI) regulates the Portfolio Investment Scheme (PIS) account under the Foreign Exchange Management Act (FEMA), ensuring a structured and transparent process for foreign investments in Indian securities.
Key regulatory compliance for PIS accounts:
- PIS accounts require prior approval from the RBI.
- An NRI can maintain only one PIS account with any designated bank authorized by RBI.
- FIIs are not permitted to invest in the capital of an Asset Reconstruction Company.
- NRIs can invest up to 5% of the paid-up capital of a company. (NRIs collectively can't invest more than 10% of the paid-up capital of a company.)
- The RBI monitors these thresholds daily and notifies a list of companies where the ceiling limit has been reached.
- Both FIIs and NRIs are not allowed to invest in any company which is engaged in the following activities:
- Business of chit fund or
- Nidhi company, or
- Agricultural or plantation activities or
- Real estate business* or construction of farmhouses or
- Trading in Transferable Development Rights (TDRs).
(The real estate business does not include the construction of housing / commercial premises, educational institutions, recreational facilities, city and regional-level infrastructure, or townships.)
Common Mistakes to Avoid When Choosing an NRI Investment Account
Some of the common mistakes to avoid while choosing an NRI Investment Account are:
- Choose the correct account as per need, NRO or NRE, as NRE is fully Repatriable and NRO is partially Repatriable (up to $1 million per financial year).
- Ignoring RBI guidelines for PIS accounts. For example, an NRE non-PIS account allows you to invest foreign earnings in India. However, you cannot invest in stocks through this account.
- Understand the tax implications before investing, as the rates vary depending on the asset class and the holding period.
- Ignoring the currency fluctuation risk can erode your returns or amplify losses.
How iNRI Can Simplify Your NRI Investments
iNRI helps NRIs invest in top-performing Indian mutual funds hassle-free by using the Statement of Accounts (SOA) route without opening a PIS or non-PIS account. The funds from the NRO/NRE account can be utilized to purchase mutual funds of the top-performing asset management company.
Conclusion
PIS and Non-PIS are two different types of accounts that you can use to invest in the Indian stock market.
PIS is suitable if you want to invest your foreign earnings in India. However, it has some limitations, such as higher fees, lower flexibility, and restricted transactions.
On the other hand, Non-PIS accounts are suitable when you want to invest your income earned in India. However, they have a repatriation limit of $1 million per financial year after considering taxes and other applicable regulations.
The choice between PIS and non-PIS accounts for investing in the Indian stock market depends on your individual preferences, financial objectives and access to funds.
Investing through PIS and Non-PIS requires a demat account. And, the process for demat account opening is offline and comes with its own challenges.
Mutual funds are the easiest and most suitable alternative to investing in the Indian markets, which do not require a demat account. You can invest through the direct route (folio based investing).
iNRI is a platform that allows you to directly invest in mutual funds with the hassle of opening a demat account.
If you are still confused about how to invest, speak to our experts, who can suggest the best way to invest and suggest the right assets based on your investment preferences.
PIS vs Non-PIS: Frequently Asked Questions (FAQs)
Is PIS mandatory for NRI?
No. You can invest in India through a non-PIS account as well. You will need a NRE or NRO savings bank account.
Can NRIs have 2 PIS accounts?
No. You can have only 1 PIS account each for NRE and NRO accounts. For this, the NRE and NRO accounts must be with the same designated bank. If you wish to open another PIS with a different banker, then you will have to close the current PIS account to open a new one.
What is the minimum balance in a PIS account?
There is no minimum balance for a PIS account.
Do NRIs need a PIS certificate to invest in Mutual Funds?
No. You don’t need a PIS certificate to invest in mutual funds. You can invest through a non-PIS NRE or NRO account i.e., if you want to hold them in your demat account. For the folio route as well, you wouldn’t need a PIS certificate.
If you're a Canadian NRI investing in Indian stocks, don't miss our guide on understanding reporting requirements for Canadian NRIs in our blog here.
How many banks can NRI appoint for PIS?
You can appoint only 1 designated bank for PIS. Here’s a list of a few banks that you can appoint for PIS (not an exhaustive list):
- ICICI Bank
- HDFC Bank
- SBI Bank
- Axis Bank
- Kotak Mahindra Bank
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