NRI investment in India is regulated by two separate layers: the Reserve Bank of India (RBI) decides what you may buy and where the proceeds go under the Foreign Exchange Management Act (FEMA), and the Income Tax Department decides what you pay on gains and dividends. The core choice for an NRI or OCI holder is between investing on a repatriation basis, where sale proceeds can be sent abroad, and a non-repatriation basis, where they stay in India. This page explains the accounts for shares, mutual funds and the National Pension System, what changed in June 2026, how the gains are taxed, and the U.S. reporting that follows.
How does NRI investment in India work?
RBI's regulations on mode of payment, as amended up to June 13, 2026, spell out the two routes.
| Feature | Repatriation basis (Schedule III) | Non-repatriation basis (Schedule IV) |
|---|---|---|
| Who | An individual person resident outside India, including an NRI or OCI | NRI or OCI |
| Payment | Inward remittance, or a repatriable deposit account | Inward remittance, or NRE, FCNR(B) or NRO account |
| Account | A repatriable rupee account designated and used only for these investments | Any of the listed accounts |
| Sale proceeds | Remitted abroad or credited to the designated rupee account (net of taxes) | Credited only to the NRO account, whatever the source account |
| Repatriation of principal and gains | Allowed after taxes | Not allowed |
| Instruments | Listed equity on a stock exchange, mutual fund units, NPS | Equity of Indian companies, units, LLP capital, firms and proprietary concerns |
For mutual funds, the sale proceeds of units may be remitted outside India or credited to any account maintained under the deposit regulations at the investor's option. The same schedule covers subscription to the National Pension System by NRIs and OCIs, who can pay from abroad or from foreign currency, rupee or NRO accounts.
What is a PIS account, and how do you open one?
Under the Portfolio Investment Scheme (PIS), an NRI buys and sells listed shares through a branch of an authorised dealer bank designated for the purpose. The practical set-up has three parts:
- Bank account. An NRE account (for repatriation) or an NRO account (for non-repatriation), with the bank branch designated for PIS.
- Demat and trading accounts with a SEBI-registered depository participant and broker, completing NRI know-your-customer (KYC) with passport, overseas address and PAN. See PAN, TAN and Aadhaar for NRIs.
- PIS permission from the designated branch, which reports the trades to RBI. Earlier RBI regulations also required delivery-based trades, with the investor taking and giving delivery, so check how your bank and broker treat intraday trades.
Many NRIs keep two sets of accounts: a repatriable set paid from NRE funds and a non-repatriable set paid from NRO funds. Your bank explains how it links them.
What changed in June 2026?
The Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, notified on June 12, 2026 according to law-firm summaries, replaced the references to "NRI or OCI" in Schedule III with "an individual person resident outside India including an NRI or an OCI". The RBI's regulations now use that wording. Law firm commentary on the rules reports that the per-investor holding limit in a listed company moved from 5% to less than 10% of paid-up equity on a fully diluted basis, and the aggregate limit for all such individual investors in a company from 10% to 24%. Breaching the limit requires divestment within five trading days or the holding is treated as foreign direct investment, and approval is needed where ownership or control passes to entities or citizens of land-border countries. These are technical points, so rely on your designated bank and broker for the numbers that apply to a particular company.
How are NRI investments taxed in India?
Taxes are the same whichever route you use. Under sections 196, 197 and 198 of the Income-tax Act, 2025, and the corresponding provisions of the 1961 Act for FY 2025-26:
| Income | Rate |
|---|---|
| Short-term gain on listed shares and equity-oriented fund units (STT paid) | 20% |
| Long-term gain on those assets | 12.5% on gains above ₹1,25,000 a year |
| Long-term gain on unlisted shares and other assets | 12.5% |
| Short-term gain on other assets | Slab rates |
| Dividends | 20% for non-residents, with tax deducted at source |
Surcharge and 4% cess are added. Debt-oriented funds follow different rules from equity funds, so confirm the category of each fund. Brokers and fund houses deduct tax at source as the Act requires; you recover any excess by filing a return. Details are in capital gains for NRIs and NRI income taxable in India.
Which mutual funds will accept NRIs?
RBI's rules allow NRIs to hold units; each fund house decides whom it will accept. Many Indian fund houses restrict or decline investors who are resident in the United States or Canada because of the extra reporting burdens they face under U.S. and Canadian rules. If you live in Aurora, Naperville or elsewhere in Illinois, ask each fund house in advance whether it accepts your residence, whether it needs additional documents, and whether it supports repatriation. Exchange-traded funds bought through a PIS demat account, and NPS, may be alternatives where a fund house refuses.
Documents you need
- Passport, overseas address proof and visa or green card
- PAN and NRI KYC forms
- NRE or NRO account details and PIS application
- Foreign tax residency self-certification (FATCA/CRS)
- Power of attorney papers if a relative in Hyderabad or Bengaluru will assist; the scope is limited
A worked example
Arjun lives in Naperville and has family in Hyderabad. He invests ₹30 lakh in equity-oriented mutual funds from his NRE account on a repatriation basis, and ₹20 lakh in listed shares from his NRO account on a non-repatriation basis. Two years later he redeems the funds with a gain of ₹4 lakh. The gain is long-term, so tax is 12.5% on the amount above ₹1,25,000, or 12.5% of ₹2,75,000 = ₹34,375, plus cess, and the proceeds can go to his US bank. When he sells the NRO shares, the proceeds are credited only to his NRO account; moving it abroad later falls under the USD 1 million NRO limit in NRE, NRO and FCNR accounts.
Mistakes to avoid
- Paying for a repatriable investment from an NRO account, which can make the position non-repatriable.
- Skipping the fund house's residence, FATCA and CRS updates when you move country.
- Forgetting to update the bank when you become resident or change country; see India residency rules.
- Ignoring U.S. reporting for Indian funds and demat accounts.
U.S. side
For a U.S. person, an Indian demat or brokerage account is a foreign financial account for FBAR once aggregate foreign accounts exceed $10,000 at any time in the year, and an Indian mutual fund is generally a passive foreign investment company (PFIC) because it meets the PFIC income or asset tests. PFIC rules can tax gains and distributions at a punitive default rate and require Form 8621 each year. Elections may soften this, but they depend on the fund and on timing. See Form 8621 PFIC step by step, FBAR and U.S. taxpayers with India income and assets. If you are in Canada instead, see the T1135 guide.
How we can help
Before you buy, our Aurora, Illinois CPA firm can review the tax and reporting effects of an Indian portfolio, reports PFIC income, FBAR and Form 8938 correctly, and works with your Indian CA, who handles Indian tax on gains. We do not give investment advice or file Indian returns. See foreign account and asset reporting and startup and equity tax planning. Other guides in the series are on the India hub.
Frequently asked questions
Can an NRI buy shares directly on the Indian stock exchanges?
Yes, through a designated bank branch, a demat account and a trading account, on a repatriation or a non-repatriation basis.
Can an NRI invest in the National Pension System?
Yes. RBI's regulations let NRIs and OCIs subscribe to NPS from abroad or from foreign currency, rupee or NRO accounts.
Where do sale proceeds go?
On the repatriation route they can be remitted or credited to a designated rupee account; mutual fund proceeds go to any permitted account. On the non-repatriation route they go to NRO only.
Does an OCI card holder have the same rights?
Yes, for these routes. RBI's schedules name NRIs and OCIs together.
Are Indian mutual funds a problem for U.S. taxpayers?
Often, yes. They are usually PFICs, so default U.S. tax can be heavy and Form 8621 applies.
Official sources
- RBI: Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, amended up to June 13, 2026 (Schedules III and IV)
- RBI: Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016 (earlier PIS conditions)
- RBI: FAQs on accounts in India by non-residents
- Income Tax Department: Income-tax Act, 2025, sections 196-198 (as amended by the Finance Act, 2026)
- IRS: Instructions for Form 8621 (PFIC)
- IRS: Report of Foreign Bank and Financial Accounts (FBAR)
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.