NRI Investment in Indian Stocks
Non-Resident Indians can invest in Indian listed equity through the Portfolio Investment Scheme (PIS) under FEMA, using a designated NRE or NRO bank account linked to a PINS-enabled broker account, subject to sectoral limits and repatriation rules.
Non-Resident Indians have a well-defined regulatory framework for participating in Indian equity markets, governed by the Foreign Exchange Management Act, 1999 and RBI regulations. The primary route for NRI stock investment is the Portfolio Investment Scheme (PIS), which authorises NRIs to purchase and sell shares and convertible debentures of Indian companies on a recognised stock exchange on a repatriation or non-repatriation basis.
To invest under PIS, an NRI must designate a single branch of an RBI-authorised bank as their PIS bank and open either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account. The NRE account holds foreign currency funds remitted from abroad or proceeds from a matured fixed deposit, and all funds in an NRE account are fully repatriable. An NRO account can receive income generated within India — such as dividends, rental income, or proceeds from inherited assets — and repatriation of funds from an NRO account is permitted up to one million US dollars per financial year subject to tax clearance.
The broker account through which NRI trades are executed must be linked to the designated PIS bank account. The bank reports all trades to RBI to ensure aggregate NRI holdings in any company do not breach the sectoral foreign investment limits. Aggregate NRI investment in an Indian company is capped at ten percent of its paid-up capital; if the company's board and shareholders pass a resolution to raise this limit, it can go up to the sectoral foreign direct investment limit applicable to that industry.
Tax treatment for NRI investors generally mirrors that of resident individuals for capital gains, with listed equity gains taxed at fifteen percent (short-term) and ten percent (long-term above one lakh rupees). However, TDS is deducted by the broker at source on NRI capital gains — thirty percent for short-term and ten percent for long-term — before the proceeds are credited, making the tax experience different from resident investors who pay tax through advance tax and self-assessment.
Overseas Citizens of India (OCI) cardholders are treated on par with NRIs for most investment purposes under FEMA, but there are specific restrictions in sectors such as agricultural land and plantation properties that do not apply to regular NRIs.