In this article
Legal and regulatory position reviewed: 23 October 2026. Includes the June 2026 FEMA amendments and the Income-tax Act, 2025.
Yes. Non-resident Indians (NRIs) and eligible Overseas Citizens of India (OCIs) can invest in shares of Indian companies, subject to FEMA, RBI and securities-market regulations.
For ordinary listed-share investments, the investor generally needs an appropriate bank account, a trading account and a demat account. The investment must also follow the applicable repatriation or non-repatriation route.
Opening a demat account does not, by itself, establish that every investment is permitted or that the eventual sale proceeds can be sent abroad.
The source of funds, the route through which shares are purchased and the regulatory classification of the investment can all affect what happens when those shares are sold.
Can NRIs and OCIs buy shares in Indian companies?
An Indian citizen living overseas does not automatically lose the right to invest in Indian shares. Nor does an eligible OCI need to become an Indian resident merely to hold permitted Indian securities.
However, eligibility must be determined under the Foreign Exchange Management Act, 1999 (FEMA) and the applicable investment framework.
Indian income-tax residential status and FEMA residence are separate classifications. A person’s description as an NRI in a bank account does not, by itself, resolve the applicable investment permissions.
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended, regulate the relevant investments.
What changed in June 2026?
The Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, notified on 12 June 2026, expanded the Schedule III route for investments in equity instruments of listed Indian companies on recognised Indian stock exchanges.
Previously framed for NRIs and OCIs, the amended route now extends to eligible individual persons resident outside India, including NRIs and OCIs.
The prescribed individual holding ceiling was increased from the earlier 5% limit to less than 10% of the relevant fully diluted equity capital or applicable series of instruments. The aggregate ceiling under the schedule is 24%, subject to its prescribed conditions.
These are limits on shareholding under the specified investment route. They should not be confused with a universal rupee limit on an NRI’s investment portfolio.
The amendment also prescribes consequences for exceeding the individual limit.
Where the prescribed ceiling is breached, the rules provide five trading days from settlement of the relevant transactions for divestment. If the breach is not cured, the entire holding in the concerned company is treated as foreign direct investment, with consequential regulatory requirements. The amended framework also prescribes intimation to the depositories and the company within seven trading days of the relevant settlement date.
Separate prior government approval conditions may apply where the investment results in a transfer of ownership or control to specified persons or entities connected with countries sharing a land border with India, including the beneficial-ownership circumstances described in the rules.
Expanded eligibility must therefore not be interpreted as unrestricted permission for every investor or transaction.
Which accounts does an NRI need for Indian share investments?
Three accounts generally perform different functions.
1. Bank account: where the money is held and transferred
NRE and NRO accounts are different types of non-resident banking facilities.
An NRE account operates under the non-resident external account framework. An NRO account is commonly used for permitted rupee receipts and transactions in India.
But the investment question is more specific than whether an NRI holds an NRE or NRO account.
Which regulatory route permits the proposed purchase, and which account is authorised to fund that investment?
Under the amended Schedule III repatriation framework, consideration may be paid through inward remittance from abroad or an eligible repatriable deposit account.
The amended RBI regulations also require a designated repatriable rupee account for investments under this route.
Under Schedule IV, qualifying NRI/OCI investments on a non-repatriation basis may be funded through prescribed inward remittances or eligible NRE, FCNR(B) and NRO account balances.
The original banking route must therefore be considered alongside the classification of the proposed investment.
2. Trading account: where buy and sell orders are placed
A trading account is maintained with a securities intermediary registered for the relevant activity.
It is used to place permitted orders on a recognised stock exchange.
The broker must complete applicable investor classification, KYC and account-opening requirements. The trading facilities available can differ according to the investor’s status and the regulatory route.
A broker’s willingness to offer an NRI account does not mean every securities product or trading activity is permitted through that account.
3. Demat account: where the shares are held
A demat account holds securities electronically through a Depository Participant associated with a recognised depository, such as NSDL or CDSL.
A demat statement identifies the securities credited to the account. It does not ordinarily establish the complete history of the source of funds, the original FEMA permissions or the eventual repatriation entitlement.
That distinction is particularly important where shares were acquired before migration, received through inheritance, or purchased through different permitted routes.
| Account | Principal function | What it does not establish by itself |
|---|---|---|
| Bank account | Holds and transfers eligible funds | Whether every proposed share purchase is permitted |
| Trading account | Executes permitted securities transactions | Whether eventual proceeds qualify for outward remittance |
| Demat account | Holds securities electronically | Whether the investment was acquired on a repatriation or non-repatriation basis |
The accounts are connected operationally, but they do not replace the underlying legal permissions.
What do PIS and Non-PIS mean under the current NRI investment framework?
PIS stands for Portfolio Investment Scheme. PIS and Non-PIS remain familiar terms in NRI banking and brokerage arrangements.
However, an investor should not treat these labels as substitutes for the operative FEMA provisions.
For direct investments in Indian equity instruments, an important distinction is between Schedule III investments on a repatriation basis and qualifying Schedule IV investments made on a non-repatriation basis.
Shares purchased on a repatriation basis
Schedule III governs specified investment in listed Indian equity instruments by eligible individual persons resident outside India, including NRIs and OCIs.
The investment must comply with applicable eligibility, holding limits, payment arrangements, designated accounts, reporting and other regulatory conditions.
Under RBI’s June 2026 payment framework, eligible sale proceeds of equity instruments, net of taxes, may be remitted abroad or credited to the designated rupee account.
That permission depends on the investment and sale complying with the applicable framework.
Shares purchased on a non-repatriation basis
Schedule IV provides a separate route for qualifying NRIs and OCIs.
Its prescribed funding methods include inward remittances and eligible NRE, FCNR(B) and NRO funds.
However, the RBI payment regulations require the net proceeds from specified equity investments under this route to be credited to the investor’s NRO account, irrespective of the permitted account used to fund the original purchase.
The framework separately restricts repatriation of the invested capital and appreciation.
There is also a general RBI remittance-of-assets framework dealing with certain eligible assets and NRO balances. It must be considered independently and cannot be assumed to override the investment-specific non-repatriation restriction.
PIS and Non-PIS: the practical distinction
| Question | Repatriation basis | Non-repatriation basis |
|---|---|---|
| Principal investment framework | Schedule III | Schedule IV |
| Investor eligibility | Eligible individual person resident outside India, including NRI/OCI | Qualifying NRI/OCI |
| Funding | Prescribed inward remittance or eligible repatriable deposit account | Prescribed inward remittance or eligible NRE, FCNR(B), NRO funds |
| Sale proceeds | Conditional remittance abroad or credit to designated rupee account | Specified proceeds credited to NRO |
| Capital and appreciation | Repatriation governed by the applicable route | Investment-specific non-repatriation restriction |
| Holding limits | Prescribed Schedule III limits | Separate Schedule IV conditions |
| Common banking terminology | PIS-related descriptions | NRO Non-PIS descriptions |
The precise account nomenclature and operating procedures must be confirmed against current bank, RBI and intermediary requirements.
The label on the broker’s account is not the controlling legal provision.
Consider a simple hypothetical.
An eligible OCI uses money from an NRE account to purchase shares under the Schedule IV non-repatriation route.
The money originally came through an NRE account. But the investment was made on a non-repatriation basis.
When the shares are sold, the prescribed net proceeds must be credited to NRO.
The funding account does not automatically change the legal character of the investment.
Before drawing conclusions about tax or remittance, the transaction must be identified under the correct legal and banking route.
How does an NRI open and operate a demat and trading account?
The standard process begins with eligibility and the intended investment route, not merely a comparison of brokerage charges.
The principal steps are:
- Establish investor status. Identify FEMA residence, nationality or OCI status where relevant, and the nature of the proposed investment.
- Determine the investment route. Distinguish the applicable repatriation or non-repatriation framework.
- Arrange the prescribed banking facility. Use an eligible bank account and designated authorised dealer arrangement where required.
- Complete securities-market KYC. Provide the relevant PAN, identity, residence, banking and other required declarations.
- Open appropriately classified trading and demat accounts. Ensure the account arrangements match the proposed regulatory route.
- Fund and execute permitted transactions. Preserve bank records, contract notes and demat statements.
- Retain evidence for future transactions. Record the acquisition date, cost, original funding route, income, subsequent changes and taxes.
Typical documentary categories include a passport, OCI documentation where applicable, evidence of residence abroad, PAN, bank statements and securities-market KYC records.
The precise requirements can vary by investor classification, applicable SEBI instructions, account route and intermediary.
For an investor who already holds Indian shares, the correct action may involve an account classification change rather than opening an entirely new investment portfolio.
Can NRIs invest in IPOs, ETFs and derivatives?
An NRI’s ability to invest in listed shares does not automatically confer permission to undertake every type of securities transaction.
IPOs
Eligible NRIs and OCIs may participate in qualifying Indian public issues, subject to applicable issue conditions, FEMA rules and permitted payment routes.
An IPO subscription should not automatically be treated as the same regulatory transaction as a secondary-market purchase under Schedule III. The applicable acquisition, payment, allotment and reporting conditions may differ.
Exchange-traded funds
Certain exchange-traded funds may be available to eligible non-resident investors.
However, the regulatory and tax classification of an ETF depends on the nature of the instrument and the applicable conditions. It should not be assumed that every ETF is treated identically to an ordinary listed equity share.
Intraday trading and derivatives
Cash-market delivery transactions, intraday positions and derivatives are different activities.
Exchange guidance for NRI cash-market trading describes delivery-based trading restrictions and limitations on intraday dealing and short selling. Derivatives can be subject to distinct eligibility, funding, margin and settlement rules.
An account described as NRO Non-PIS should not be interpreted as universal authorisation to undertake intraday trading or every derivatives transaction. The rules applicable to the actual investor and account arrangement control the position.
How are Indian shares taxed when the investor is an NRI?
Buying shares and earning income from those shares are different events.
The principal Indian tax questions arise when dividends are received or shares are transferred.
The applicable income-tax law also depends on the relevant period. The Income-tax Act, 1961 governs the earlier periods through 31 March 2026. The Income-tax Act, 2025 applies from 1 April 2026, subject to its commencement and transitional provisions.
Capital gains on listed equity shares
For qualifying listed-equity transactions, the distinction between short-term and long-term gains depends on the applicable statutory holding-period test.
Under the ordinary specified listed-equity regime, shares held for more than 12 months generally qualify as long-term assets. The actual transaction and applicable exceptions must still be considered.
For the Income-tax Act, 2025 period:
| Provision | General treatment |
|---|---|
| Section 196 | Qualifying short-term capital gains on specified STT-covered transactions: 20% |
| Section 198 | Qualifying long-term capital gains exceeding ₹1,25,000: 12.5%, subject to statutory conditions |
| Other gains | Applicable ordinary or special provisions must be examined separately |
These are base statutory rates. Applicable surcharge and cess, acquisition conditions, securities transaction tax, statutory exceptions and treaty entitlement must be considered separately.
For periods governed by the Income-tax Act, 1961, the corresponding ordinary listed-equity provisions include sections 111A and 112A, subject to the rates and conditions applicable to the actual transfer date.
But this is not the complete income-tax analysis for every NRI holding Indian-company shares.
The special provisions for certain NRI investments
The Income-tax Act, 2025 also contains a separate regime for certain non-resident Indians holding qualifying foreign-exchange assets.
Under section 212, shares in an Indian company can be specified assets. To qualify as foreign-exchange assets, the applicable conditions must be satisfied, including acquisition, purchase or subscription using convertible foreign exchange.
Section 214 prescribes treatment for qualifying investment income and long-term capital gains. Section 215 also contains conditional reinvestment relief provisions, including requirements concerning eligible replacement assets, timing and subsequent transfers.
However, the special regime does not necessarily determine the final tax treatment in every case.
Section 217(2) permits a non-resident Indian to elect not to be governed by sections 212 to 216 for a particular tax year. The election is made through a declaration in the income-tax return under section 263. When exercised, the other applicable provisions govern the computation and taxation of income for that year.
There is a further distinction for returning Indians.
Section 217(1) provides for specified continuation of benefits after an NRI becomes resident in India, subject to its conditions. However, this continuation provision expressly excludes shares in an Indian company.
The relevant tax treatment therefore turns on the investor’s status, asset classification, original funding and acquisition, transaction date and any statutory election.
The account used to fund the shares does not, by itself, settle the income-tax regime.
Dividends, withholding and Indian income-tax returns
Dividends from Indian companies may be taxable in India in the hands of a non-resident shareholder. The applicable withholding provisions must also be considered.
Capital gains and dividend income are different income categories. The deduction made by a payer or intermediary is not necessarily the investor’s final Indian income-tax liability.
Under section 393 of the Income-tax Act, 2025, relevant payments to non-residents may attract withholding at applicable rates, subject to the nature of the payment, statutory conditions and treaty entitlement.
Section 216 also contains a conditional return-filing exception for certain NRIs whose income consists only of specified investment income or long-term capital gains and from whose income the required tax has been deducted.
That exception does not mean every NRI investor is exempt from filing an Indian return.
Indian income-tax liability, withholding and return-filing obligations must each be determined under the relevant provisions.
What happens when an NRI sells Indian shares?
Selling shares involves three questions.
First, what is the Indian income-tax consequence? Gains must be classified and computed under the applicable provisions, considering the relevant tax year and any special NRI regime.
Second, where are the sale proceeds permitted to be credited? The investment’s regulatory classification and RBI payment rules determine the relevant account treatment.
Third, can the funds subsequently be transferred abroad? That is a separate FEMA and banking question.
For eligible Schedule III repatriation-basis investments, RBI’s amended regulations permit specified net sale proceeds to be remitted abroad or credited to the designated rupee account, subject to the governing conditions.
For specified Schedule IV non-repatriation investments, proceeds must be credited to NRO, with the investment-specific restrictions continuing to apply.
RBI also maintains a separate conditional framework for remittance of assets and eligible NRO balances, including a facility of up to USD 1 million per financial year in specified circumstances.
That facility must not be treated as automatic permission to repatriate investments restricted under Schedule IV. The controlling permission, character of the proceeds and relevant conditions determine the position.
A bank may require records identifying the original acquisition, source of funds, account route, applicable remittance permission and Indian tax compliance.
Having money available in an NRO account is therefore not conclusive evidence that the entire balance can be transferred abroad.
What happens to Indian shares purchased before moving overseas?
Some NRIs hold Indian shares that they originally purchased while resident in India.
After moving to Dubai, London, Singapore or the United States, they may continue to hold those securities.
Section 6(5) of FEMA permits a person resident outside India to continue holding, owning or transferring specified Indian assets acquired, held or owned while resident in India, or inherited from a person resident in India.
This holding permission must be distinguished from the rules governing new investment or repatriation of sale proceeds.
Shares purchased while resident in India do not automatically become repatriable investments merely because the owner later becomes non-resident or opens an NRE account.
The investor’s residence history, original acquisition, account classification and applicable transaction rules are relevant.
A subsequent return to India creates another change of circumstances. Indian income-tax residence, FEMA residence and banking classifications are not necessarily determined by the same legal tests.
What should an NRI preserve before buying or selling Indian shares?
A useful investment record should connect the person, the original funds and the securities transaction.
The principal evidence categories are the investor’s status at acquisition, bank funding records, permitted investment route, allotment or contract notes, demat holding records, acquisition cost, dividends, sale documents, tax deductions and subsequent remittance records.
Suppose a demat statement shows 500 Indian-company shares.
That statement may identify the securities and holding quantity. It may not reveal whether the shares were purchased before migration, acquired under Schedule III or Schedule IV, inherited or received through another permitted transaction.
Those facts may produce different tax and FEMA questions.
The country where the investor lives may also impose its own taxation or reporting requirements.
For example, a person resident in the United States may need to examine US taxation and foreign-asset reporting separately. Residents of the United Kingdom, UAE and other countries may face different foreign-law consequences.
Foreign-country tax, legal and reporting conclusions require consideration under the applicable law by an appropriately qualified professional in that country.
A Double Taxation Avoidance Agreement may modify the taxation of particular income where its conditions are met. A treaty does not automatically eliminate Indian withholding, provide foreign-country relief or confer FEMA permission to transfer money.
The distinction worth retaining
A demat account establishes where the shares are held.
The acquisition and banking records explain how they came to be held.
FEMA determines the permitted investment and money-movement route.
Indian income-tax law determines the relevant Indian tax consequences, while the country of residence may impose separate obligations.
These questions should be understood together, but they should never be treated as interchangeable.
Primary legal and regulatory references
- Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended, particularly the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, S.O. 3030(E), dated 12 June 2026 (Gazette ID CG-DL-E-12062026-273406). See the Ministry of Finance’s June 2026 announcement for regulatory context.
- RBI, Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, amended through 13 June 2026.
- RBI, Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026.
- RBI, Master Direction on Remittance of Assets, updated 29 June 2026.
- SEBI Investor Education, Accounts Required for Securities Trading.
- Income-tax Act, 2025, as amended by the Finance Act, 2026, particularly sections 196, 198, 212 to 217 and 393.
- NSE, NRI Trading Account FAQs. Interpret exchange guidance in light of later operative amendments and the relevant account route.
This article provides general educational information on India-side FEMA, banking, income-tax and securities-market regulations. It is not investment advice, a recommendation to buy, hold or sell any security, or an opinion on an individual’s investment eligibility, tax liability, transaction or repatriation entitlement. Applicable law, intermediary requirements and the relevant facts and documents must be checked before action. Foreign-country tax and reporting consequences require separate consideration under the law of the country concerned.
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