Managing a demat account in India can become problematic, especially for non-resident Indians (NRIs), residents without PANs, or those with dormant Demat accounts. Complex rules, account inactivity, and PAN restrictions can impact their trading, transferring money abroad, and tax compliance. Many investors are unaware of these issues.
If you are one of them, then this blog is for you. It explains what repatriable and dormant Demat accounts are, along with the repercussions of using PAN-less Demat accounts in India.
What is a Repatriable Demat Account?
As of 2023, a total of 1.34 crore Indians are residing outside India as NRIs. To invest in the Indian stock market, NRIs can use two types of Demat accounts: repatriable and non-repatriable Demat accounts. NRIs can transfer money home through a repatriable Demat account. NRIs must adhere to the regulations of the Foreign Exchange Management Act when deciding to create a repatriable Demat account.
Features of a Repatriable Demat Account
As you are aware of the concept of a repatriable Demat account, you should know the features of a repatriable Demat account, which are described below:
- If NRIs want to invest in financial assets or initial public offerings (IPOs) on a repatriable basis, they can use a repatriable Demat account.
- NRIs can also transfer all of their earnings from selling securities and profits from investments to another country.
- NRIs can also repatriate up to USD 1 million with this Demat account each year.
What is a Dormant Demat Account?
One of the most important aspects of a Demat account is a dormant Demat account. If your Demat account has had no transactional activity for the last 12 months, it can be considered an inactive or dormant Demat account. You cannot make any trade using the linked trading account until you reactivate the account. In 2020, reports found that 75% of Demat accounts in India were inactive.
How to Reactivate a Dormant Demat Account?
Reactivating your dormant Demat account is crucial to avoid fraudulent access and use of linked accounts to trade securities. However, the Demat account reactivation process varies depending on the duration of the dormant Demat account.
You can reactivate your Demat account by following the instructions in the email that your depository participant (DP) shared with you. If your account has been inactive for 12 to 24 months, you need to pay off all outstanding balances, reactivate the account, and sign in.
However, if your Demat account had been inactive for more than 24 months, you would have to go through the KYC procedure once again and then undergo an in-person verification online.
You must note that the KYC procedure for a dormant Demat account includes the submission of many documents. These are a copy of recent passport-size photos, the latest bank account statement, and the completed and signed KYC form.
Can You Open a Demat Account Without a PAN?
A lot of beginner investors ask how to open a Demat account without a PAN card. However, a PAN is mandatory to open a Demat account, as per SEBI regulations. According to SEBI regulations, you must submit your PAN card at the time of account opening.
However, certain entities and individuals are exempt from this criterion. These are:
- Entities that do not have to pay taxes in India
- Scheduled Tribe (ST) from Mizoram, Manipur, Tripura, Arunachal Pradesh, Nagaland, and North Cachar Hills of Assam
- People live in the state of Sikkim
Why is PAN mandatory to Open a Demat Account?
A PAN card serves as evidence of a person’s legal status in the country. According to SEBI, authorities must keep track of the investors’ assets and compare them to their income tax returns. According to data from the income tax department, women received 29.1 million PANs in FY25, which is 23% greater than the 23.7 million PANs granted to males. This shows how crucial a PAN is for the Indians to avail numerous services.
A Demat account should be linked to a PAN for the Income Tax Department to monitor your financial transactions. To register a Demat account in their name in India, even Persons of Indian Origin (PIO) and NRIs must have a valid PAN card.
Final Thoughts
Individuals need to know the different aspects of using a Demat account if they want to open one. You cannot open it without a PAN, since it is mandatory to monitor your financial transactions.
In addition, NRIs can use a repatriable Demat account to invest in financial assets or IPOs on a repatriable basis. NRIs also transfer their earnings from selling securities and investments to another country using this account.
