Application considerations for Non-Resident Indians (NRI)

Overview: 

Who or What is an NRI? 

An Indian Citizen who stays abroad for employment, carrying on business, vacations outside of India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is considered a NRI. In addition, persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as NRIs.  Non-resident foreign citizens of Indian Origin are treated on par with Non-Resident Indian citizens.  According to the Indian Government, anybody who resides outside of India for period of 182 days in a calendar year is considered a Non Resident Indian.

IB provides NRIs with trading access on the National Stock Exchange of India (NSE) through the IB-India subsidiary. Futures and Futures Options trading are available through the F&O Segment, however, at this time stock trading is not yet available.

In order to open an NRI account, applicants are encouraged to familiarize themselves with the  identity documentation and bank account prerequisites outlined below.

Background: 

 1. Identity - PAN Card 

The PAN (Permanent Account Number). is a ten-digit alphanumeric code generated by the India's 'Income Tax Department, This is required by anyone and everyone who wish to conduct any kind of financial transaction in India. If you do not have a PAN card you will need to apply for one before your trading account can be considered for opening. You can apply for a PAN card online though the Tax Information Network (TIN) of the Income Tax Department of India (see link below).
 
The following documentation will be required to complete the application, and is split into two categories, Proof Of Identity and Proof of Address none of which can be older than six months. PAN cards will ordinarilly be received within 15-25 business days.
 
1. Proof Of Identity (Copy of)
· Passport
· Drivers License
· Voted Identity Card
· Property Tax Bill
· Water Bill
· Credit Card Bill
· Bank Account Statement / Passbook
 
2. Proof of Address (Copy of)
· Electricity Bill
· Telephone Bill
· Credit Card Statement
· Employer Certificate
· Passport
· Ration Card
· Property Tax Bill
 
Applications can be done online by clicking on the following link for the Income Tax Department
of India,
https://tin.tin.nsdl.com/pan/index.html .
 
2. NRI Bank Accounts
Indian Regulations Require that customers must have a set of two Indian Bank Accounts, Ordinary Non-Resident Account in Rupees (NRO Main) and Ordinary Non Resident Account in Rupees, Portfolio Investment Scheme (NRO PIS). The second account is considered a sub of the main NRO Account. The functions for each account are described below:
 
Ordinary Non-Resident Account in Rupees (NRO Main):
· Received funds that have been converted from the home currency to NRI (Indian Rupees)
· Serves to provide the initial funding for the IB Account
· Funds can be used for initial stock trading
· Serves to receive the proceeds from futures and options trades
 
Ordinary Non Resident Account in Rupees, Portfolio Investment Scheme (NRO PIS)
· The account used to fund/withdraw monies to/from the IBI Brokerage account for stock purchased/sold, by the exact amount including IBI commissions and costs, after IBI has issued a contract note for the trade. This is required to satisfy Reserve Bank of India (RBI) Regulations when a NRO Main Account is Opened.
 
NRI Bank Accounts can be opened by any of the following major banks, most of which offer online application facilities.
 
Citi - http://www.online.citibank.co.in/
ICICI - http://www.icicibank.com/
HSBC - http://www.hsbc.co.in/1/2/
State Bank of India – www.statebankofindia.com
 
As another option customers can also a set of Non Resident External (NRE) accounts, these are not purely optional accounts, and are not required for trading in the Indian Markets through Interactive Brokers India. Please use the following link for additional information on this option :
http://www.interactivebrokers.co.in/en/accounts/individuals/nriFactSheet.php?
ib_entity=in
 
 
Other Links:
IB India Website- www.interactivebrokers.co.in
Tax Information Network (PAN Card Information) -
https://tin.tin.nsdl.com/pan/form49A.html
 

 

Overview of Fees

Clients and as well as prospective clients are encouraged to review our website where fees are outlined in detail. An overview of the most common fees is provided below:

 

1. Commissions - vary by product type and listing exchange and whether you elect a bundled (all in) or unbundled plan. In the case of US stocks, for example, we charge $0.005 per share with a minimum per trade of $1.00.


2. Interest - interest is charged on margin debit balances and IB uses internationally recognized benchmarks on overnight deposits as a basis for determining interest rates. We then apply a spread around the benchmark interest rate (“BM”) in tiers, such that larger cash balances receive increasingly better rates, to determine an effective rate.  For example, in the case of USD denominated loans, the benchmark rate is the Fed Funds effective rate and a spread of 1.5% is added to the benchmark for balances up to $100,000.  In addition, individuals who short stock should be aware of special fees expressed in terms of daily interest where the stock borrowed to cover the short stock sale is considered 'hard-to-borrow'. 

 3. Exchange Fees - again vary by product type and exchange. For example, in the case of US securities options, certain exchanges charge a fee for removing liquidity (market order or marketable limit order) and provide payments for orders which add liquidity (limit order). In addition, many exchanges charge fees for orders which are canceled or modified.



4. Market Data - you are not required to subscribe to market data through IB but if you do you may incur a monthly fee which is dependent upon the vendor exchange and their subscription offering. We provide a Market Data Assistant tool which assists in selecting the appropriate market data subscription service available based upon the product you wish to trade. To access, log into Account Management click on the Support section and then the Market Data Assistant link.



5. Minimum Monthly Activity Fee - as we cater to active traders we require accounts to generate a minimum in commissions each month or be charged the difference as an activity fee. The minimum is $10 per month for accounts maintaining a balance above $2,000 and $20 per month for accounts whose equity has fallen below $2,000.



6. Miscellaneous - IB allows for one free withdrawal per month and charges a fee for each subsequent withdrawal. In addition, there are certain pass-through fees for trade bust requests, options and futures exercise & assignments and ADR custodian fees.



For additional information, we recommend visiting our website at ww.interactivebrokers.com and selecting any of the options from the Pricing menu option.

 

2009 Gain/Loss Summary Worksheet: General Explanation

Important Note:  The Worksheet has been prepared using IRS guidelines for information purposes only.  It is not intended to replace any official IRS tax forms or schedules; and should not be regarded as an IRS Form Schedule D.

Interactive Broker's 2009 Gain/Loss Summary Worksheet ("Worksheet") provides the capital gains and losses for your account's year-end review.  Investors of a limited number of securities will find the pairing of 2009 sell trades useful.  Designed to aid with your year end reconciliation, the following securities and trades are included: Bonds, Equity Options, Fractional Shares, Index Futures*, Mutual Funds, Short Sale, T-Bills, Tender Offers, and WHIFITs.

A general explanation of the Worksheet is organized below by Parts, Columns, and Totals.

 *Only cash-settled

Worksheet Parts

The Worksheet is divided into two parts.  The period in which you held the position determines whether or not Short-Term or Long-Term applies. 

Part 1 - Short Term Capital Gains and Losses - Assets Held One Year or Less

Part 2 - Long Term Capital Gains and Losses - Assets Held More Than One Year

Worksheet Columns

Each section contains the following seven columns to identify your trades.

(a) Description of property (b) Date acquired (c) Date sold (d) Sales price (e) Cost or other basis (f) Gain or (loss) Codes

1.  (a) Description of property...shows the security symbol, name, quantity, and other information to identify the asset sold.

Example:  500 sh. DB - DEUTSCHE BANK AG-REGISTERED

2.  (b) Date acquired...shows the trade date of your security's purchase. 

Asset Transfers:  IB has entered the date supplied by you through Position Transfer Basis.  If an update was not received by year-end, then the asset transfer settlement date appears. See your monthly or annual summary for details. 

Short Sales:  The box is left blank if the closing trade has not been completed.  For short sales included on a prior year Worksheet or 1099-B, the code ADJ is entered.

3.  (c) Date sold...shows the trade date of your security's sale.

4.  (d) Sales price...shows the gross security sale price, net of commissions. 

Option Adjustments:  For exercised call options, the writer's sale proceeds have been increased by the amount received for the call. For exercised put options, the holder's sale proceeds have been reduced by the cost of the put. See IRS Pub. 550, page 57, for details.  For expired options, an amount of 0.00 is entered, followed by the Code "Ep".

5.  (e) Cost or other basis...shows the total price paid for your security, plus commissions.

Corporate Actions:  Adjustments have not been made for any stock splits or non-dividend distributions. See IRS Pub. 550, page 44, for details.

Mutual Funds:  IB does not use an average basis for mutual funds. The First In, First Out (FIFO) method is used.

Original Issue Discount:  The basis has not been increased by the amount of OID included in your income. See IRS Pub. 550, page 13, for details.

Option Adjustments: For exercised put options, the writer's basis has been increased by the amount received for the put.  For exercised call options, the holder's basis has been increased by the cost of the call. See IRS Pub. 550, page 57, for details.

6.  (f) Gain or (loss)...shows the calculation for each security using the tax execution methods First-In, First Out (FIFO), Last In, First Out (LIFO), or Maximize Losses (ML). 

Loss: Negative amounts are identified in parentheses.  For example, a loss of $2,000.00 displays as (2,000.00).

Tax Method:  If no code appears in the Codes column, then FIFO applies.  The other methods are noted by either LI = LIFO or ML = Maximize Losses.

7.  Codes...shows various trade designations, such as: corporate actions, asset transfers, or option assignments.

Codes and Meanings Table:  The last page of the Worksheet contains a table to identify each non-security symbol used.

Worksheet Totals

1. Subtotal adjustment from option assignment...shows the total amount of all sale proceeds increases or decreases made from option assignments to the assigned stock sale proceeds (see Cost or other basis details above). 

The adjustments, in accordance with IRS guidelines, are added or subtracted in order for the next Subtotal line to equal the amount reported by IB on the 1099-B, box 2.  Please keep in mind that IB does not report any option proceeds or adjustments to sales proceeds from assignments on the 1099s.

2.  Subtotal for stocks, bonds and T-bills...shows the total non-adjusted proceeds reported for each trade under column (d) Sales price for stocks, bonds, and T-bills only.  This amount should equal the 1099-B, box 2, amount. 

1099-B, box 2:  In general, this 1099 figure should equal the combined Parts 1 & 2 Subtotal for stocks, bonds and T-bills figure.

3.  Total...shows the combined proceeds for all trades under column (d) Sales price, including option sale proceeds.

Total Option Sale Proceeds:  Subtract the Total amount of column (d) from the Subtotal for stocks, bonds and T-bills of column (d) to obtain the total proceeds from all option sales.

 

Click here to go back to the main 2009 Worksheet article.

Note:  Securities classified by the IRS as IRC Section 1256 contracts are included on the Gain/Loss Worksheet for 1256 Contracts.

 


IRS Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

 

What’s New for the 2009 Gain/Loss Summary Worksheet

 

 
Wash Sales – If you sold a stock or security at a loss, but re-purchased within 30 days the same or substantially the same security, the Worksheet identifies the sale using code “WS” (Disallowed loss from wash sale).
 
Social Security Number – For security purposes, the first 5 digits of the tax identification number have been removed.
 
Tax Basis Declaration – Two new tax basis methods, made available January 2009, help identify gain/loss methods for trades.  The optional methods Last In, First Out (LIFO) and Maximize Losses (ML) join the default First In, First Out (FIFO) on the Worksheet.
 

Select Gain/Loss Summary Worksheet: Considerations for details about the new features.

Click here to go back to the main 2009 Worksheet article.

 

 

 

IRS Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Understanding the 2009 Gain/Loss Summary Worksheet

IMPORTANT NOTE: This article has been customized for use by individual US taxpayers investing in securities for information purposes only.  Persons are encouraged to consult a qualified tax professional with the preparation of tax returns.  IB does not provide tax advice.  Traders or dealers in securities, for whom other tax treatment applies, may find the worksheet helpful.  The methodology used to determine the yearly gain or loss, however, differs.  Traders electing the mark-to-market accounting method may consult IRS Instructions for Form 4797, page 2.

The 2009 Gain/Loss Summary Worksheet calculates the gain or loss for your securities bought and sold from January 1 through December 31 utilizing the Internal Revenue Service (IRS) guidelines.  Every sell trade executed appears, including short sells, on a trade-date basis.  Not all securities, however, are eligible for inclusion.  For additional information, see the following article categories.


Below we have categorized information about this year's "Worksheet" within the IB Knowledge Base.  Each article provides more details to assist with your understanding of this tool.

 

 

IRS Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.

Tax Treaty Benefits

Overview: 

Income payments (dividends and payment in lieu) from U.S. sources into your IB account may have U.S. tax withheld.  Generally, a 30% rate is applied to non-U.S. accounts.  Exemption from the withholding or a lower rate may apply if your home country has a tax treaty with the U.S.  Complete the applicable Form W-8 to find out your status. 

Background: 

Tax Treaties*

U.S. tax treaties with some countries have different benefits.  Legal tax residents of the following countries may be eligible for the treaty benefits.  Below is a list of the tax treaty countries.  Benefits vary by country.

Australia Czech Republic India Lithuania Sweden
Austria Denmark Indonesia Poland Switzerland
Bangladesh Egypt Ireland Portugal Thailand
Barbados Estonia Israel Romania Trinidad & Tobago
Belgium Finland Italy Russia Tunisia
Bulgaria France Jamaica Slovak Republic Turkey
Canada Germany Japan Slovenia Ukraine
China, People's Rep. Of Greece Kazakhstan South Africa United Kingdom
Commonwealth of Ind. States Hungary Korea, Rep. of Spain Venezuela
Cyprus Iceland Latvia Sri Lanka  

*Country list as of April 2009

 

Refer to IRS Publication 901 for details on withholding rates for your tax residence country and your eligible benefits.

 

Why am I required to disclose my employment with a financial institution?

Rule 407 of the New York Stock Exchange prohibits a member organization (i.e., IB) from opening a securities or commodities account or executing any transaction for an account in which an exchange member, employee associated with another exchange member or member organization or an exchange employee is directly or indirectly interested without prior written consent of the employer.  The rule also requires IB to promptly submit to the account holder's employer duplicate account statements and confirmations.

Applicants who designate employment or affiliation with another broker are required to submit a Rule 407 letter containing the email address of their organization in order to provide notification and consent to the employer and for the purpose of transmitting statements and confirmations.  If the employment is with a financial institution and  no such Rule 407 letter is submitted, IB's Compliance Department will typically contact the applicant in order to confirm that Rule 407 does not apply.

Can I customize my User Name?

Overview: 

As the User Name is the principal factor for identifying accounts upon log in, by definition, no two accounts can share the same User Name.  IB enforces this constraint at the point of application by allowing the applicant to define the first 5 characters (lower-case letters) of the User Name and randomly assigning three trailing numbers which are then appended to the applicant-defined characters.  Allowing the applicant to select these leading 5 characters is intended to strike a balance between enforcing unique User Names and providing a User Name that is easy to remember.

The User Name is required for log in to all account applications including Account Management, WebTrader and TraderWorkstation.  Once established, the User Name cannot be changed and will remained associated with the account throughout its life.


How do I find out about the status of my account application?

Once you have completed the on-line portion of the application, you will be provided with a list of any documentation required to be submitted in order to verify the identity and/or address of the account holder as well as forms of documentation which will satisfy the request. Documentation may be submitted via fax or email (i.e., scanned documents).

While waiting for this documentation, the application will be reviewed to determine whether clarification is required for any responses provided during the course of the application.  This is most often the case where the applicant  is unemployed or retired, warranting additional due diligence in order to ensure that the applicant's financial qualifications are sufficient. 

Once IB has received the necessary documentation and clarifying responses, a decision will be made regarding account approval.  Applicants will be informed of that decision via e-mail and may log in through the Complete Application link to view the current application status.

Margin oversight for U.S. listed securities & commodities products

The particular regulation which determines the minimum amount of margin collateral that each broker is required to collect from clients transacting in U.S. exchange listed products generally depends upon the following 3 factors:

1. Product Classification - the principal determinant of regulatory oversight is based upon whether the product is classified as a security or commodity. Security products, including stocks, bonds, options and mutual funds are regulated by the Securities and Exchange Commission (SEC).  Commodity products, which include futures contracts and options on futures contracts, are regulated by the Commodities Futures Trading Commission (CFTC).  Single stock futures, a special class of futures contracts, are considered a hybrid product subject to joint regulation by the SEC and CFTC.

In the case of security products, the US central bank referred to as the Federal Reserve (FRB) holds responsibility for regulating the extension of credit by brokers and dealers.  This is accomplished through Regulation T, or Reg T as it is commonly referred, which provides for establishment of a margin account and which imposes the initial margin requirement and payment rules on certain securities transactions.  For example, on stock purchases, Reg T currently requires an initial margin deposit by the client equal to of 50% of the purchase value, allowing the broker to extend credit or finance the remaining 50%.  Reg T does not establish margin requirements for securities options which fall under the jurisdiction of exchange rules (subject to SEC approval).  In addition, the FRB has excluded from Reg T the authority to establish either initial or maintenance margin requirements on securities positions held in a portfolio margining account.  here margin authority resides with the security exchanges whose rules are subject to SEC approval. 

The authority for establishing margin rates on commodity products resides with the listing exchanges, with the exception of broad based stock index futures, for which the FRB has delegated authority to the CFTC.

In the case of single stock futures, margin is set by the listing exchange and subject to SEC approval to the extent the position is carried in a securities account, and subject to an agreement that the margin be equivalent whether held in a securities or commodities account.  Margin for single stock futures are currently set at 20% of the underlying stock value.

2. Initial or Maintenance - initial margin generally refers to the amount of money or its equivalent that the customer must deposit in order to initiate the position and maintenance margin the amount of equity which must be maintained in order to continue holding the position. As noted above, Reg T controls the initial margin requirement on securities transactions.  The rules of the listing exchanges specify the maintenance margin requirements on security transactions subject to SEC approval.  The maintenance margin requirement for long stock positions is currently set at 25% although brokers often establish 'house margin' requirements in excess of that, particularly where the security is considered low-priced or subject to volatile price changes.

Commodities exchanges establish both the initial and maintenance margin requirements for products which they list (subject to provisions for broad based index futures and single stock futures as noted above).

3. Listing Exchange - as noted above, in the case of US securities products the listing exchange has the authority to establish rules for the maintenance margin requirement on positions held in a Reg T margin account and initial and maintenance margin (currently the same) for positions held in a portfolio margin account. Exchange margin rules, however, require prior SEC approval which acts to ensure that margin requirements are set  in a consistent manner across exchanges.  

Subject to the provisions noted above, commodities exchanges maintain authority to establish both initial and maintenance margin requirements.  As a general rule, US commodities exchanges employ the same risk-based margining methodology referred to as SPAN for determining the margin requirement on listed positions with each exchange specifying the relevant SPAN input factors (e.g., Price Scan Range, Volatility Scan Range, Spread Charges, Combined Commodity offsets).

Glossary terms: 
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