US citizenship and Indian stocks (ESOP)

A

Addisara

New Member
Hello all,

I need your help and directions regarding my Indian stocks.

Background:

I got stock options from my Indian employer and bought them about 5 years back. I used the money routed thru my Indian NRE account to buy these stocks. That time, I was advised by the stock broker to open a resident non-repatriable DMAT account (though I was an NRI) to buy these stocks as I was/am NOT planning to trade them. His advise was, when I plan to trade in future, I can open a non-resident repatriable DMAT account and transfer these stocks. I just followed the advise and forgot it for the past years. I didn't do anything with the account, other than just checking them once in a while.

Recently, when I acquired US citizenship, I thought of changing my status to foreign national and changing the status of DMAT account to NRI - repatriable. But, I was told by the banker that I can not do that and my only option is to sell them and invest the money thru NRO account.

My questions:

1. Is selling the only option? Why can't I hold them?
2. How can I repatriate the proceeds if I sell them? As I mentioned above, all these stocks are bought thru the money earned in US routed thru NRE account.

Appreciate your help.
 
Addisara said:
I got stock options from my Indian employer and bought them about 5 years back. I used the money routed thru my Indian NRE account to buy these stocks. That time, I was advised by the stock broker to open a resident non-repatriable DMAT account (though I was an NRI) to buy these stocks as I was/am NOT planning to trade them. His advise was, when I plan to trade in future, I can open a non-resident repatriable DMAT account and transfer these stocks. I just followed the advise and forgot it for the past years. I didn't do anything with the account, other than just checking them once in a while.

Recently, when I acquired US citizenship, I thought of changing my status to foreign national and changing the status of DMAT account to NRI - repatriable. But, I was told by the banker that I can not do that and my only option is to sell them and invest the money thru NRO account.

My questions:

1. Is selling the only option? Why can't I hold them?
2. How can I repatriate the proceeds if I sell them? As I mentioned above, all these stocks are bought thru the money earned in US routed thru NRE account.
Click to expand...

I am not a qualified accountant, so please take it with a pinch of salt.

My advise to you will be to engage a good desi CPA as well as a CA in India. However, my experience is that their advice is sometimes circumspect.

Banks have rules, and other banks have other rules. It varies significantly. Also, the paperwork which might be accepted when you are sitting face to face with a banker might be rejected if you send them by mail. One way you can fight them is by taking OCI ... OCIs are supposed to have same economic rights as NRIs, so why not DMAT. Again, the response you get will vary from bank to bank.

As an NRI (before USC), I could repatriate funds upto the limits if I could prove (via a CA certificate) that I had paid taxes on that money.

There are schemes like Portfolio Investment Schemes which allow foreigners to invest in India. See if you can't transfer your stock in them (or sell and buy back but that will attract capital gains). No one can stop you from opening the PIS account, but your company might have reached its foreign holdings limit so they may not allow you to convert.

A quick question: Did you report the stock options you earned as ISO or NSO on your US taxes?
 
You are absolutely right. That's what happened. Each time we ask more questions, the answers differ.

BTW, since my options were ISO, I didn't report in US tax returns when I excercised. I believe, I need to show them and pay appropriate taxes when I sell them.

Thanks for your suggestions, Sanjoseaug20.
 
yes your stockbroker is right.
residents of the US and several other nations ( UK, NZ, Australia) are not allowed to own stocks in India through the portfolio investment Scheme any longer. I had to sell my stocks in this scheme this year.
 
schandrag said:
yes your stockbroker is right.
residents of the US and several other nations ( UK, NZ, Australia) are not allowed to own stocks in India through the portfolio investment Scheme any longer. I had to sell my stocks in this scheme this year.
Click to expand...

Are residents/citizens of the US not allowed to own stocks in India through the PIS period??
or
Are there any other mechanisms by which they can be owned (traded)?

Could you provide any link to official ruling on this (RBI/SEBI etc)???

Thanks,
speedy
 
I was made aware of this by my brokerage in July 2009 had to sellmy stocks by n0v 2009. I looked for a specific RBI ruling on this but there was none. My accountant in India told me that it was at the request of the US( and other ) govt/s, to combat money laundering and sheltering taxes. Residents of many countries are still allowed to own stocks through the PIS
 
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