Initial Public Offerings (IPOs) in India offer a lucrative investment opportunity for Non-Resident Indians (NRIs) looking to participate in the country’s high-growth equity markets. However, investing in Indian IPOs as an NRI comes with specific rules under SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) regulations.
1. Can NRIs Invest in Indian IPOs?
Yes, NRIs can invest in IPOs in India under two investment routes:
- Repatriation Basis: Using an NRE (Non-Resident External) account.
- Non-Repatriation Basis: Using an NRO (Non-Resident Ordinary) account.
Key Rules for NRI IPO Investments:
✅ Investment Mode: NRIs can invest using NRE/NRO accounts linked to a Demat & trading account.
✅ Eligible IPOs: Not all IPOs allow NRI participation. Check the company’s Red Herring Prospectus (RHP) for NRI eligibility.
✅ FEMA Compliance: Investments must follow Foreign Exchange Management Act (FEMA) regulations.
2. How Can NRIs Invest in an Indian IPO? (Step-by-Step Guide)
Step 1: Open a Demat & Trading Account
- NRIs need a Demat and trading account with an Indian broker registered with SEBI.
- Choose between:
🔹 Portfolio Investment Scheme (PIS) Account – Required for NRE investments.
🔹 Non-PIS Account – For NRO-based investments.
Step 2: Link Bank Account (NRE/NRO)
- For repatriation benefits, link your NRE account.
- For non-repatriable investments, use an NRO account.
- Ensure the bank account is ASBA-enabled (Application Supported by Blocked Amount) for IPO payments.
Step 3: Apply for IPO via ASBA
- IPO applications must be made through ASBA via:
✅ Net banking of your NRI account.
✅ Broker’s IPO platform (Zerodha, ICICI Direct, etc.).
Step 4: Allotment & Listing
- If shares are allotted, they will be credited to your Demat account.
- Post-listing, you can sell shares on the stock exchange.
3. Taxation of IPO Gains for NRIs
When NRIs sell IPO shares, capital gains tax applies:
| Holding Period | Type | Tax Rate |
|---|---|---|
| ≤ 12 months | Short-Term Capital Gains (STCG) | 15% |
| > 12 months | Long-Term Capital Gains (LTCG) | 10% (if gains exceed ₹1 lakh) |
✅ TDS Deduction: NRIs face TDS (Tax Deducted at Source) at 15% on STCG and 10% on LTCG.
✅ DTAA Benefits: Claim tax relief in your resident country through Double Taxation Avoidance Agreement (DTAA).
4. Repatriation of IPO Investment & Gains
- From NRE Account: Fully repatriable (principal + profits).
- From NRO Account: Up to $1 million per year can be repatriated after tax compliance (Form 15CA/CB required).
5. Key Considerations for NRIs Investing in IPOs
✔ Verify NRI Eligibility in the IPO’s prospectus.
✔ Use an NRE account for repatriable investments.
✔ Apply via ASBA to streamline IPO payments.
✔ Understand tax implications & DTAA benefits.
Final Thoughts
IPOs offer NRIs a chance to participate in India’s stock market growth while benefiting from portfolio diversification. By ensuring compliance with RBI, SEBI, and FEMA regulations, NRIs can seamlessly invest in Indian IPOs.
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