Can I sell shares in India and transfer proceeds to the US as a non-resident?

I have been working in the US for the last three years. I had a regular demat account and had shares listed in India when I was in India. I do still hold an Indian passport but have become a non-resident and thus have been filing my ITR(Income Tax Return) as a resident for the last two assessment years. I have not been able to change my bank accounts and demat accounts to NRO as these need a lot of documentation verification, and banks do not do them over email. I have been paying additional tax as a self-assessment tax on my term deposit interest, though the TDS is 10% as my banking accounts remain resident, and there is no tax evasion. Now, I would like to sell these shares and transfer the proceeds over to the US, as I need funds here. Can I sell the shares held in the Demat account and get the proceeds transferred to the US? If so, how much money can I repatriate to the US? Will there be any repercussions if I do this route? If for the sake of getting dollars into the US, I need to transfer my accounts to NRO and NRO demat accounts, then will I be able to transfer my existing shares holdings in my new demat account as Non-Resident (as I would need to open fresh non-resident accounts for banking and demat and if so how do I do that?

Factually, you have become a non-resident under the FEMA (Foreign Exchange Management Act) which governs your banking and investments in India. As per the FEMA laws, a person must notify his existing bankers about his becoming non-resident under FEMA, and the bank will designate the existing bank account as NRO (Non-Resident Ordinary Account). Once the bank account is designated as an NRO account, the bank will start deducting tax at the highest slab rate, including saving bank interest.

Non-residents must convert accounts to NRO before selling shares in India

Likewise, the person who has become a non-resident has his existing demat account converted to an NRO demat account, reflecting the new residential status. You can continue to hold the investment in India but with restrictions on repatriating funds abroad. It would be best if you informed your depository participant (DP) about the change in residency. The broker has to deduct tax at source while crediting the sale proceeds to the NRO account.

Though no specific penalty is provided for contravening the provision requiring a person becoming a nonresident to convert his existing bank account and Demat account into an NRO account, Section 13 of the FEMA provides for a general penalty provision for contravening the provisions of FEMA, so you can be fined up to three times the amount of the contravention if the amount is quantifiable and up to Rs. 200,000 if the amount is not quantifiable.

In case of continuing contravention, there is a daily penalty of an additional INR 5,000 for each day during which the violation continues. Your case falls into this category. So, it is in your interest to get your existing bank account and demat account designated as NRO accounts.

It is your duty to inform your bank and depository participant about your residential status change with proof of delivery. Then, it is their duty to carry out changes in the accounts accordingly. So please communicate with them accordingly to avoid any unpleasant situation.

Before you embark on selling the shares, I would advise you to get your bank account and demat account designated as NRO accounts. Once you have informed us that you have become a nonresident, you can remit up to 10 lakh USD every year after paying applicable taxes.

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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant his X handle.

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