Form LEC (IFI): RBI's new reporting form for NRI and OCI share purchases on Indian stock exchanges, and the designated account rule

On 13 June 2026 the Reserve Bank of India issued Notification No. FEMA 395(4)/2026-RB, the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026. It is the fourth amendment to the principal regulations, FEMA 395/2019-RB, after FEMA 395(1)/2020-RB of 15 June 2020, FEMA 395(2)/2024-RB of 19 April 2024 and FEMA 395(3)/2025-RB of 15 January 2025. For a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) who buys shares on an Indian stock exchange, the amendment does two things: it names a reporting form, Form LEC (IFI), and it ties every such purchase to a single designated repatriable rupee account.

This explainer sets out what the 2026 text says, how the gains on those shares are taxed in India under Sections 111A and 112A of the Income-tax Act, 1961, how the treaty with your country of residence interacts with that tax, and how the money moves back out. It keeps to the notification's own wording. Where the text is silent, so is this article.

FEMA / DTAA Position

What Regulation 4(9) now says

Paragraph 3 of the June 2026 notification substitutes sub-regulation (9) of Regulation 4 of FEMA 395/2019-RB. The substituted text reads: "LEC (Individual Foreign Investor - IFI): The designated Authorised Dealer Category I banks shall report to the Reserve Bank in Form LEC (IFI) the purchase / transfer of equity instruments by an individual person resident outside India including Non-Resident Indians or Overseas Citizens of India on stock exchanges in India." The full text is on the RBI's FEMA notifications page at rbi.org.in.

Three points follow from those 60-odd words. First, the reporting duty sits with the designated Authorised Dealer Category I (AD Cat-I) bank, not with the investor. Second, it covers both "purchase" and "transfer" of equity instruments. Third, the class of investor is wider than NRIs alone: the text says "an individual person resident outside India including" NRIs and OCIs, so the label "Individual Foreign Investor" is deliberately broad.

The designated account rule under Schedule III

The same notification revised the mode-of-payment rules in Schedule III, which governs these stock-exchange purchases. The revised text sets out 3 conditions:

1. Payment must come by inward remittance from abroad, or from a repatriable deposit account.
2. The individual must designate one repatriable rupee account, and that account must be used exclusively for Schedule III investments.
3. Sale proceeds of equity, net of taxes, may be remitted abroad or credited to the designated rupee account.

In plain terms, the designated account becomes the single pipe through which every listed-share purchase and sale passes. That is what lets one AD Cat-I bank see, and report in Form LEC (IFI), the whole trail for one investor. Readers who want the background on which accounts are repatriable can start with our NRE account and NRO account glossary entries, and the earlier explainer on repatriation vs non-repatriation routes and the 5% / 10% caps.

Schedule XI: shares listed on international exchanges

The notification also substitutes Schedule XI, which covers equity shares of Indian companies listed on international exchanges and held by permissible holders. Under the new text, payment may be made through the Indian company's foreign currency account or by inward remittance or from a repatriable account. Sale proceeds, net of taxes, may be remitted abroad or credited to the holder's account maintained under the Deposit Regulations.

Where the DTAA comes in

FEMA governs how the money moves; it does not decide who taxes the gain. That is the job of the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence, read with the Income-tax Act, 1961. On capital gains from shares of an Indian company, India retains its right to tax. The treaty data held for this desk records an LTCG rate of 12.5% in India for the United States (treaty effective 12 September 1991), the United Kingdom (effective 26 October 1993) and the United Arab Emirates (effective 22 September 1993). The India-UAE entry adds, in terms, that capital gains on shares of an Indian company are taxable in India. See our DTAA glossary entry for the general framework.

Tax Treatment in India

Section 111A and Section 112A rates

Form LEC (IFI) changes the reporting, not the tax. Once a listed share bought under Schedule III is sold, the gain is taxed in India under the same provisions that apply to any other seller, with rates revised by Budget 2024 from 23 July 2024.

On top of the rate, a 4% health and education cess applies on tax plus surcharge. Surcharge depends on total income, with the general slabs at 10% (Rs 50 lakh to Rs 1 crore), 15% (Rs 1 crore to Rs 2 crore) and 25% (Rs 2 crore to Rs 5 crore). Gains under Sections 111A and 112A carry a lower surcharge ceiling set by the Finance Act, so confirm the applicable cap for your year against the Income Tax Department's guidance at incometax.gov.in rather than applying the general slab.

A worked example

Suppose an OCI in London buys listed shares for Rs 10,00,000 through the designated account and sells them for Rs 13,00,000 more than 12 months later. The long-term gain is Rs 3,00,000. Under Section 112A, the first Rs 1,25,000 is exempt, leaving Rs 1,75,000 taxable at 12.5%, or Rs 21,875. Adding 4% cess of Rs 875 gives Rs 22,750, before any surcharge.

If the same shares were sold within 12 months, the full Rs 3,00,000 would be short-term gain at 20% under Section 111A, or Rs 60,000, plus 4% cess of Rs 2,400, for Rs 62,400 before surcharge. The holding period alone moves the bill by Rs 39,650 on this example. Run your own figures through the NRI tax calculator, and see our LTCG and STCG entries for definitions.

TDS under Section 195

For a non-resident, the payer withholds tax at source under Section 195. The rule recorded for this desk is that withholding applies at the DTAA rate or the rate in the Income-tax Act, whichever is lower. Because the India-USA, India-UK and India-UAE entries all show capital gains taxable in India at the domestic 12.5% LTCG rate, the treaty does not reduce the long-term rate for residents of those 3 countries. The deduction is what the "net of taxes" wording in Schedule III refers to: the money that reaches the designated account or goes abroad is the after-tax figure. See our TDS glossary entry.

Filing in India

Withholding does not always end the matter. If the TDS deducted exceeds the final liability, for example where the Rs 1.25 lakh exemption under Section 112A was not fully reflected, the only route to a refund is an Indian return filed on the e-filing portal at incometax.gov.in. Keep the contract notes, the designated account statement and Form 16A or the broker's TDS certificate for each financial year.

Tax Treatment Abroad

Foreign tax credit

Your country of residence will usually tax your worldwide income, including a gain on Indian shares. The DTAA then decides who gives way. The India-USA treaty data notes that Article 24 provides a foreign tax credit in the country of residence. In practice, if the investor in the worked example above lived in the US instead, the Rs 22,750 paid in India would be claimed as a credit against US tax on the same gain, subject to US limits. The foreign tax credit calculator models the arithmetic.

Country-by-country snapshot

Two practical points follow. A UK-and-India dual resident needs the Article 4 tie-breaker to settle residence before any credit is claimed. A UAE resident who wants treaty relief on other income, such as dividends at the 10% portfolio rate in the UAE entry, needs a Tax Residency Certificate (TRC); see our TRC glossary entry.

Dividends while you hold

Shares bought through the designated account will pay dividends while held. The treaty data shows portfolio dividend rates of 25% for the USA (15% applies only where the recipient holds 10% or more of the voting stock, under Article 10), 15% for the UK and 10% for the UAE. These are the caps India may charge under the treaty. Use the DTAA benefit calculator to compare the treaty rate with the domestic rate.

Repatriation Mechanics

The money trail under the 2026 rules

The revised Schedule III gives a clear sequence for a share purchase and sale:

1. Fund: send an inward remittance, or move money from a repatriable deposit account.
2. Designate: nominate one repatriable rupee account for Schedule III investments only.
3. Buy: purchase on an Indian stock exchange; the AD Cat-I bank reports in Form LEC (IFI).
4. Sell: the broker settles; tax is deducted under Section 195.
5. Receive: proceeds net of taxes go abroad or into the designated rupee account.

Because the designated account must be used "exclusively" for Schedule III investments, the 2026 text rules out mixing share settlements with rent, pension or other receipts in that account. Those flows belong in a separate account. Our glossary on the PIS account explains the older portfolio investment scheme label that many banks still use for this pipe.

NRE, NRO and FCNR(B) in this context

The notification uses the phrase "repatriable deposit account" and refers to the Deposit Regulations. It does not list account names. The table below summarises the general position, so check your bank's reading against the RBI master direction for your account type.

The 2026 amendment does not change NRO repatriation limits; see our repatriation calculator and FCNR deposit entry. If you also earn Indian rent, model it separately with the rental income tax calculator.

What to do before your next trade

Given the 13 June 2026 date, 4 checks make sense: confirm which account your bank has recorded as your designated Schedule III account; confirm that no non-investment credits land in it; keep each year's contract notes and TDS certificates for at least the period your country of residence requires; and ask the bank whether its Form LEC (IFI) reporting covers any shares you transfer in, since the text covers "purchase / transfer". For the wider rules on the government securities route, see our piece on NRIs and the Fully Accessible Route.

FAQ

What is Form LEC (IFI)?

It is the form in which designated AD Cat-I banks report to the RBI the purchase or transfer of equity instruments on Indian stock exchanges by an individual person resident outside India, including NRIs and OCIs. It was set out by substituting Regulation 4(9) of FEMA 395/2019-RB through FEMA 395(4)/2026-RB dated 13 June 2026.

Do I have to file Form LEC (IFI) myself?

No. The 2026 text places the duty on "the designated Authorised Dealer Category I banks". Your job is to route purchases and sales through the designated account so the bank has what it needs.

Can I use more than one account for stock-exchange purchases?

The revised Schedule III says a repatriable rupee account "must be designated by the individual and used exclusively" for Schedule III investments. The text speaks of one designated account. Payment may still arrive by inward remittance or from a repatriable deposit account.

Does the 2026 amendment change the tax I pay?

No. Tax on the gain is set by the Income-tax Act, 1961: 20% under Section 111A for short-term gains on STT-paid listed equity, and 12.5% under Section 112A for long-term gains above Rs 1.25 lakh a year, both plus 4% cess and any applicable surcharge.

Is my capital gain exempt under the DTAA?

No. The treaty data for the USA, UK and UAE records capital gains on Indian shares as taxable in India at 12.5% for long-term gains. Your country of residence may give a foreign tax credit, as Article 24 of the India-USA treaty provides.

Can sale proceeds go straight abroad?

Yes. Schedule III, as revised, allows equity sale proceeds "net of taxes" to be remitted abroad or credited to the designated rupee account.

Which earlier amendments does this one follow?

FEMA 395(1)/2020-RB of 15 June 2020, FEMA 395(2)/2024-RB of 19 April 2024 and FEMA 395(3)/2025-RB of 15 January 2025. The June 2026 notification is the fourth.

This article is general information based on RBI Notification FEMA 395(4)/2026-RB and the Income-tax Act, 1961. It is not investment or tax advice. Confirm your position with your AD Cat-I bank and a qualified adviser.