In this article
Legal period: India-side position for transactions from 1 April 2026. Earlier transactions require the Income-tax Act, 1961 and corresponding regulations applicable on their transaction dates.
An NRI can generally sell or transfer shares of an Indian private limited company through a permitted route. But a valid share transfer does not automatically establish compliance with FEMA, the correct Indian tax treatment or permission to send the sale proceeds abroad.
Three facts control the first part of the enquiry: how the shares were acquired, whether they are held on a repatriation or non-repatriation basis, and who will receive them. A shareholder who bought shares while living in India may be in a different regulatory position from an NRI who invested from Dubai under a repatriable foreign-investment route. This difference can affect FEMA pricing, Form FC-TRS and the account to which the proceeds may be credited.
Can an NRI sell shares of an Indian private company?
Generally, yes. The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules), issued by the Central Government, provide different routes for transfers of equity instruments of Indian companies. Depending on the transaction, an NRI may sell to a resident Indian, another NRI or OCI, or another eligible non-resident. A gift follows separate permissions and must not be treated as a sale for zero consideration.
First identify the shareholder’s status under FEMA. An NRI for this purpose is an Indian citizen who is a person resident outside India. OCI is a distinct status expressly covered by several investment provisions. The shareholder’s income-tax residential status is a separate question. Company-law restrictions and applicable investment-sector conditions must also be observed.
How were the shares originally acquired?
Shares acquired while resident in India
Suppose an Indian citizen acquired shares in a private Indian company while living in India and later moved to Dubai for employment. Section 6(5) of FEMA and the RBI’s Master Direction on Foreign Investment in India address continued ownership after a change of residence. RBI states that such retained investment is considered held on a non-repatriation basis. Moving abroad does not convert the old holding into a new repatriable investment.
The original acquisition documents, date, ownership evidence and residence history therefore matter. A retained pre-departure holding also should not automatically be described as a fresh investment made under Schedule IV of the NDI Rules. That distinction can matter particularly when examining its sale proceeds.
Shares acquired on a repatriation basis
For a conventional foreign direct investment in an unlisted Indian company, the usual repatriable framework is Schedule I of the NDI Rules, subject to entry route, sectoral restrictions, permissible funding and reporting. A qualifying investment under that route has a corresponding permitted treatment for net sale proceeds in the RBI’s payment regulations.
The rules for individual non-residents holding specified other securities under Schedule III should not be casually substituted for this unlisted-company FDI route.
Shares acquired on a non-repatriation basis
Schedule IV allows specified NRI/OCI investments on a non-repatriation basis. Such an investment is not made repatriable merely because its subscription money originally came from an NRE account or from overseas. The RBI payment regulations require qualifying Schedule IV sale proceeds, net of applicable tax, to be credited to NRO and expressly prohibit repatriating the amount invested and capital appreciation under that investment route.
| Holding history | What the exit enquiry starts with |
|---|---|
| Acquired as an Indian resident and retained after moving abroad | Section 6(5), change of residence, original holding history |
| Acquired under an eligible repatriable FDI route | Schedule I, applicable transfer rules and proceeds route |
| Acquired under an eligible NRI/OCI non-repatriation route | Schedule IV, relevant transfer exceptions and specific proceeds restriction |
The account through which the shares were purchased is evidence, but it does not replace the legal classification of the investment.
Who can receive the shares?
An Indian resident buys the shares
A sale by a person resident outside India to a resident ordinarily engages the transfer provisions in Rule 9 of the NDI Rules. But the rule distinguishes an investment held on a non-repatriation basis. For a qualifying sale of that holding to an Indian resident, the particular FEMA pricing, documentation and reporting conditions specified for the ordinary transfer do not apply.
The RBI’s reporting regulations likewise expressly exclude the qualifying non-repatriation-basis sale to a resident from Form FC-TRS. This does not remove company-law, taxation, contract or any other applicable requirement.
Another NRI or OCI buys the shares
Identify both parties and the buyer’s proposed holding basis. The NDI Rules provide a distinct route where an eligible NRI or OCI acquires qualifying non-repatriation-basis holdings and will continue to hold them on the permitted non-repatriation basis. If the acquirer instead seeks a repatriable holding, normal foreign-investment entry and other conditions may apply.
Another non-resident buys the shares
A different non-resident purchaser may be eligible, but the sector, beneficial ownership, entry route and required government approvals must be checked. Foreign residence alone is not a universal permission. A company buyback, capital reduction or merger is not the same transaction as a sale to a third-party shareholder and may require another legal route.
Can an NRI gift private-company shares?
Yes, in situations authorised by the NDI Rules, but the conditions depend on the parties and the basis on which the shares are held. Rule 13 distinguishes certain gifts to persons resident outside India requiring prior RBI approval from specified permitted gifts by an eligible NRI/OCI to another eligible NRI/OCI who will retain the investment on a non-repatriation basis.
The RBI-approval route has conditions concerning the recipient, relationship, limits on the holding being gifted, applicable sectoral restrictions and aggregate value. They cannot be applied as a universal checklist to every gift between NRIs.
A gift must independently satisfy the company’s share-transfer conditions. Indian income-tax treatment for both donor and recipient also needs a separate review. The absence of a selling price does not by itself prove an exemption.
What must the Indian private company do?
Examine the Articles and contractual rights
The Articles of Association and applicable enforceable contractual arrangements, including any shareholders’ agreement, may contain rights of first refusal, pre-emption rights, consent provisions or other restrictions. A contractual promise and the company’s statutory duty to register the transfer are not necessarily the same question. Sections 56 and 58 of the Companies Act, 2013 are relevant.
Establish whether shares must be dematerialised
Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 applies to specified private companies, with exclusions and date-based obligations. Where the transfer restrictions under that rule apply, the holder must dematerialise the securities before transferring them. The company’s actual classification and operative compliance date must therefore be established; a physical share certificate does not automatically establish that a physical transfer can still be used.
Where a lawful physical transfer remains available, Section 56 provides for the prescribed, executed, dated and stamped transfer instrument and its statutory delivery period. A depository transfer follows the relevant demat mechanism instead. The company must then complete the legally required recognition or recording of the transfer.
Stamp duty and corporate records remain relevant even where FEMA Form FC-TRS is unnecessary.
When are FEMA valuation requirements and Form FC-TRS relevant?
The direction of transfer and the holding basis both matter. Where the ordinary FEMA pricing provisions apply, a sale of unlisted shares by a repatriation-basis non-resident to an Indian resident is generally subject to a price ceiling linked to the prescribed arm’s-length valuation. A resident selling to a non-resident under the corresponding investment route generally faces the opposite price direction. Specific exceptions must be considered before requesting a FEMA valuation certificate.
The RBI Master Direction states that the ordinary pricing guidelines do not apply to investments held by persons resident outside India on a non-repatriation basis. Deferred consideration, escrow and indemnity terms can trigger additional FEMA conditions where those rules apply.
Form FC-TRS is not required for every NRI share sale. Under Regulation 4(3) of the RBI’s Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019, it applies to specified transfers between repatriation-basis non-residents and residents or non-repatriation-basis non-residents. An expressly identified qualifying sale of non-repatriation-basis shares to a resident does not require FC-TRS.
Where FC-TRS applies, the regulation specifies filing within 60 days of the transfer or receipt/remittance of funds, whichever is earlier. The reporting obligation falls on the party designated under the regulations, not automatically on the NRI seller.
Does a FEMA-compliant price settle the Indian income tax?
No. FEMA pricing and Indian income-tax fair market value are different legal tests. Even a transfer exempt from the ordinary FEMA pricing rule may require a valuation for income-tax purposes.
Seller-side deemed consideration
For transfers governed by the Income-tax Act, 2025, Section 79 can deem prescribed fair market value to be the consideration for transferring a share other than a quoted share when actual consideration is lower, subject to its exceptions. For transactions governed by the Income-tax Act, 1961, the corresponding provision was Section 50CA.
Under the notified Income-tax Rules, 2026, Rule 57, read with Rule 56, supplies the prescribed valuation framework for unquoted equity shares. Rule 58 contains specified exceptions. The full valuation calculation is not identical to every FEMA valuation method.
Buyer-side below-value acquisition
A buyer may also face a separate income-tax issue. Under Section 92(2)(m)(iii)(B) of the Income-tax Act, 2025, where qualifying property other than immovable property, including shares, is received for consideration below its prescribed aggregate fair market value by more than ₹50,000, the relevant difference may be taxable as income from other sources. The statutory exceptions in Section 92(3) and Rule 58 must also be considered. The corresponding earlier provision was Section 56(2)(x) of the 1961 Act.
A low-price transfer can therefore require two income-tax enquiries: deemed consideration for the seller and possible income for the buyer. Neither result can be decided solely from a FEMA valuation certificate.
What Indian capital-gains tax applies to the NRI seller?
Where shares are capital assets, Indian capital gains depend on the period of holding, acquisition cost, permitted expenses, consideration as determined under the relevant law, and any special statutory or treaty provisions.
For ordinary unlisted equity shares, a holding period exceeding 24 months generally gives long-term classification. Relevant special holding-period and cost rules, including for gifts or inheritance, may change the computation.
For transactions from 1 April 2026, Section 197 of the Income-tax Act, 2025 provides a general 12.5% base rate on qualifying long-term capital gains. For non-residents transferring unlisted securities or shares of a closely held company, Section 197(4) contains a specific computation restriction. Applicable surcharge and cess are additional. Ordinary short-term gains generally follow the relevant taxpayer rates unless a specific provision applies. Capital gains rates and computations for earlier years must be determined under the 1961 Act, including the changes effective from 23 July 2024.
A treaty can modify the Indian tax result where its requirements are satisfied. It must be checked treaty by treaty, including any protocol and the seller’s treaty residence. An India-UAE, India-UK or India-US treaty claim cannot be inferred merely from the seller’s overseas address.
The shareholder’s country of tax residence may separately tax or require reporting of the disposal. That foreign-country position requires review by an appropriately qualified professional there.
Must an Indian purchaser deduct tax before paying the NRI?
The purchaser must examine non-resident withholding before payment or credit. For payments from 1 April 2026, the relevant general non-resident framework is in Section 393(2) of the Income-tax Act, 2025. Earlier transactions were governed, as applicable, by Section 195 of the Income-tax Act, 1961.
The underlying question is the amount chargeable under Indian law, the applicable rates in force and the relevant procedure. The seller’s eventual tax liability and the purchaser’s amount to withhold are not automatically identical. Section 395 of the 2025 Act contains certificate and determination mechanisms where the statutory conditions are met. A treaty claim does not dispense automatically with withholding or documentary requirements.
Withholding is separate from the decision whether the transfer requires FC-TRS.
Can the NRI send the share-sale proceeds abroad?
This requires a fresh FEMA analysis after establishing that the shares were lawfully transferred and the Indian tax requirements were addressed.
Repatriable Schedule I investments
For qualifying Schedule I investments held on a repatriation basis, the RBI payment regulations permit net sale proceeds to be remitted outside India or credited to an eligible repatriable account, subject to the conditions of the relevant investment and payment rules.
Schedule IV non-repatriation investments
For qualifying Schedule IV investments, the RBI regulations expressly require net sale proceeds to be credited only to the NRO account and say that the investment amount and capital appreciation shall not be repatriated abroad under that route.
The RBI separately has a Master Direction on Remittance of Assets that permits authorised dealers to allow eligible NRIs/PIOs to remit up to US$1 million per financial year out of specified NRO balances and other eligible assets, subject to supporting evidence and conditions.
Do not assume that this general US$1 million facility overrides the specific Schedule IV prohibition. The publicly available texts do not expressly settle that interaction for proceeds traceable to a Schedule IV investment. Accordingly, such proceeds must not be described as freely remittable merely after transfer to an NRO account. The precise legal basis would need confirmation with the authorised-dealer bank and, where necessary, RBI permission or clarification.
A holding originally acquired while the shareholder was resident in India and retained under FEMA Section 6(5) requires a distinct analysis. It is not automatically a new Schedule IV investment. The original source and holding history must be established before deciding the permitted treatment of the proceeds.
What about Forms 145 and 146?
For outward payments from 1 April 2026, the income-tax remittance reporting framework uses Form 145 and, where required, Form 146, corresponding to the former Forms 15CA and 15CB. Applicability depends on the payment, chargeability, amount, statutory exceptions and the relevant Income-tax Rules, 2026, including Rule 220.
Submitting Forms 145 or 146 does not itself make an outward remittance permissible under FEMA. Tax-remittance documentation cannot create a foreign-exchange permission where none exists.
What documents should the parties establish?
| Document or record | Why it matters |
|---|---|
| Original allotment, purchase and payment evidence | Acquisition date, title and route |
| Residence history and original FEMA classification | Whether the holding was retained after departure or acquired as a non-resident |
| Share certificate or demat statement | Quantity, recorded holder and permitted transfer method |
| Articles and applicable shareholders’ agreement | Transfer restrictions, consents and contractual rights |
| Buyer identity and ownership evidence | Recipient’s status and foreign-investment eligibility |
| Transfer agreement and valuation, where relevant | Terms, price, tax and regulatory tests |
| Tax records and acquisition cost | Seller’s gains, deemed consideration and withholding |
| Bank, reporting and remittance evidence | Payment route, FC-TRS where applicable and proceeds classification |
A gap in documentation does not automatically invalidate the transaction, but it may prevent a legally necessary conclusion from being supported.
Example: Shares bought before moving to Dubai
Assume an Indian citizen bought 1,000 shares of an Indian private company while living in India. The shareholder later moved to Dubai for employment, became a person resident outside India for FEMA purposes and now proposes selling those shares to an Indian resident.
The first issue is the original holding history, not the agreed price. If the retained shares qualify as non-repatriation-basis holdings, the ordinary FEMA pricing and FC-TRS treatment may differ from a sale of repatriable FDI shares. But the parties must still examine the company’s transfer rules, mandatory demat status, Indian capital gains, possible deemed value, buyer-side tax, withholding and receipt of proceeds.
If the seller then wishes to send the proceeds to Dubai, the correct remittance route cannot be inferred merely from the completed sale or from an NRO account credit. The fact that these shares were originally acquired while resident in India is material, and their treatment must be analysed on that basis rather than automatically as Schedule IV investments.
This is an illustration, not a conclusion about a real shareholder’s tax or remittance entitlement.
What should happen before completion?
The parties should first establish who owns the shares and on what FEMA basis. Next, identify the acquirer and transfer route, check the Articles and dematerialisation requirements, and apply the relevant pricing, income-tax and withholding rules. Then determine whether reporting is required, how consideration may be paid and credited, and whether a separate outward-remittance permission exists.
A correct answer under company law does not automatically answer the FEMA, tax or banking question.
A shareholder may have the right to sell the shares without automatically having the right to remit the resulting money abroad. Those questions must be answered separately.
Primary legal and regulatory sources
- RBI, Master Direction on Foreign Investment in India. Consult together with the Central Government’s Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended.
- RBI, Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, consolidated through 13 June 2026.
- RBI, Master Direction on Remittance of Assets, updated 29 June 2026.
- Companies Act, 2013, Sections 56 and 58; Companies (Prospectus and Allotment of Securities) Rules, 2014, Rule 9B, as applicable.
- Income-tax Act, 2025, as amended by the Finance Act, 2026, including Sections 79, 92, 197, 393 and 395.
- Notified Income-tax Rules, 2026, including Rules 56 to 58 and 220.
Educational and jurisdictional note: This India-side guide reflects identified materials reviewed on 23 October 2026. It does not decide any person’s FEMA residence or holding classification, specific transfer permission, share valuation, reporting duty, Indian tax or withholding amount, or right to remit the proceeds. The result turns on actual records, transaction date, counterparties and operative law. Foreign-country tax and reporting must be reviewed under the law of the relevant country by a qualified professional there.
Sources and review
Published