Speculative transactions are not allowed and you would need to take delivery of SHARES.

Q. I have been working outside India since the last two and a half years. Due to lack of knowledge, I didn’t inform my banks about my NRI (non-resident Indian) status when I was moving abroad to work. Normally, I remit money to India through my normal savings bank account. Every year I submit my income-tax returns showing all my interest earnings in India. My permanent account number (PAN) is registered with all my accounts. Should I inform bank now? What are the implications? Also, I have a demat account in India and I usually invest in the STOCK MARKET (less than Rs.1 lakh per year) but I haven’t encashed any SHARES till date. What will be the tax treatment if I sell the shares I hold?

Expert Comment: When a citizen of India or a person of Indian origin (PIO) leaves India for the purpose of employment outside India, she is considered to be a non-resident under the Foreign Exchange Management Act or Fema and has to comply with certain formalities.

When you were leaving India, you were required to intimate your bankers about the change in your residential status. It is advisable to intimate your bankers at the earliest. Your bank accounts would then be redesignated as non-resident ordinary (NRO) accounts. You can also open a new non-resident external (NRE) account wherein you could remit FUNDS from abroad.

The advantages of an NRE account include exemption from tax on interest earned and repatriation benefits for both principal and interest.

As regards your existing demat account, you will need to open a new NRO demat account and transfer your existing shares to that account. You could thereafter sell/hold existing shares or INVEST directly in new ones.

As an NRI, you would be able to invest in shares of Indian companies and units of domestic mutual funds through the STOCK exchanges under the portfolio investment scheme. You will need to make an application to a designated branch of an authorized dealer and all the transactions will be routed through that branch. The transactions for shares should be carried out through a registered BROKERon a recognized stock exchange. Speculative transactions are not allowed and you would need to take delivery of shares.

Investment can be made in almost all sectors except companies engaged in print media, chit fund, agriculture, plantation, real estate (other than real estate development) and TRADING of transferable development rights. In respect of shares held for more than one year, capital gains would be exempt when selling.

In respect of shares held for one year or less, the capital gains would be liable to tax at 15.45%. Income-tax would normally be withheld by the broker at the time of making the remittance to your bank account.