An NRI’s Guide To Invest In Unlisted Shares In India

Can an NRI invest in unlisted shares in India? The simple answer is yes. As one of the fastest-growing economies in the world, India remains a hotspot for lucrative investment opportunities for NRIs (Non-Resident Indians). The investment made by NRI is regarded as ‘foreign investment’ from the Indian Foreign Exchange Management Act 1999 Regulation perspective. Like listed shares, unlisted shares in India have also attracted a lot of NRIs to make investments. It is because unlisted shares offer an impressive return to investors. Since the Stock Exchange of India does not regulate unlisted shares, it also comes with fewer risks. However, for an NRI to understand the investment in unlisted companies in India, it’s essential to know what unlisted shares exactly are. Being an NRI, this is a helpful guide for you; stride along till the end. 

What Are Unlisted Shares?

As the name suggests, unlisted shares are financial instruments and securities not listed in the stock market. These shares are traded in over-the-counter (OTC) markets and are thus known as OTC securities. Unlisted share companies are smaller or newer firms that prefer not to trade on any public stock exchange. It is because they don’t meet specific requirements like listing fees, market capitalization, etc. However, one of the main reasons investors buy unlisted shares is the high return post-listing on the stock exchange. 

It is a well-established company which doesn’t have its financials sorted out because in order to get listed in BSE or NSE, a company has to compile a  report of its previous financial metrics called a DRHP or Draft Red Herring prospectus. For Example, Tata Technologies’ last unlisted price was ₹410 but after its IPO, it was listed at a price of over ₹1200, which is a huge profit. 

NRI’s Investment Opportunities and Tax Implications

NRIs often find investment in Indian Capital a tad cumbersome. However, with the advent of Aadhaar-based KYC, setting up a Demat account and investing through it became a convenient process. Apart from investment in unlisted shares, NRIs can invest in mutual funds, direct equities, life insurance policies, portfolio management services, and national pension schemes. These are the different investment opportunities for NRIs available in India. However, knowing the tax implication is also essential for NRIs to get the possible investment returns. 

It might come to your mind whether an NRI can get an Aadhaar card or not. Yes, getting an Aadhaar is a simple process for any NRI if they have a valid Indian Passport and even if they do not have it, getting an Aadhaar is easy if you plan to stay in India for a long period of time.

Investment Opportunities For NRIs in Unlisted Companies

There are different investment opportunities for NRIs if they want to invest in the unlisted companies in India, which include:

Pre-IPO Investment

Companies that are not listed in the stock market are known as pre-IPO investment companies. Being an NRI, you can invest in such pre-IPO companies without the involvement of exchange houses. The share will be deposited in your NRI Demat Account. You can connect with the unlisted share broker to invest in pre-IPO companies.

Investment In Startups

NRIs can also invest in startup companies for exponential growth and higher investment returns. Though it is riskier to invest in startup companies, investors can make a very high return profit from 100% to 1000%. 

Buying ESOPs Directly From Employees

Another best way to buy unlisted shares in India is ESOPs (Employee Stock Ownership Plans). NRIs can contact unlisted share brokers in India to help them connect with the employees of the different companies who want to sell their shares at a specific price. 

Companies offer Employee Stock Ownership Program(ESOP) to their employees as a gift and later when the company grows, employees sell their ESOPs at a higher price.

KYC & Documentation required  

For NRIs, investment in unlisted shares in India has become easier with the KYC process. The essential documents required at the time of investment include – a PAN card, NRI Demat account, and other documents. However, it’s necessary to understand the difference between Non-Residential External (NRE) and Non-Resident Ordinary (NRO) bank accounts.  

  • An NRE is a bank account opened in India in the name of an NRI for his foreign earnings. In contrast, NRO is also a bank account opened in India in the name of an NRI to manage income. 
  • NRI accounts are exempt from tax, whereas NRO accounts are taxable. 
  • NRI can transfer money to their foreign account, and NRO can’t (but interest amount can be transferred). 

Tax Implications on NRI’s Investment

Here are the tax implications on NRI’s investment based on two types of investment mentioned below. 

Short and Long Term Capital Gains Tax

An investment sold in less than three years will come in short-term capital gain and will be taxed on debt. Thus, the gain will be taxed based on the income tax slab of the accesses. On the contrary, the investment in the debt mutual funds, which are sold after three years, comes under long-term capital gain tax on debt, and the gain will be taxed at 20% with indexation benefits. And it will be taxed at 10% without indexation benefits. 

Short and Long-Term Capital Gains On Unlisted Shares

NRIs can invest in unlisted shares in India on a non-repatriation basis. However, they can also buy shares on a repatriation basis, but they need to report the transaction to the RBI. The gain on unlisted shares will be considered short-term only if these unlisted shares are sold within two years, and the income will be taxed at the marginal rate. 

How Can Stockify Help?

Stockify is India’s leading online platform for trading unlisted shares in India. We have years of experience in buying and selling unlisted shares and have been helping people with unlisted share investments in India. We have qualified unlisted share brokers who can guide you throughout the process of unlisted share investment. We aim to build a long-term successful relationship with our clients by providing them solutions that will benefit their investment. So connect with us today to start your journey in unlisted shares in India.

Our platform also provides previous years’ financial metrics of a company like revenue, PAT, PBT, EBITDA and many more, so that you can evaluate them on your own and make a profitable investment. So connect with us today to start your journey in unlisted shares in India.

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