NRIs Investing in Indian Shares: How Repatriation-Basis and Non-Repatriation-Basis Equity Investment Differ Under FEMA

An NRI or OCI who wants to own Indian listed shares faces a choice that the Reserve Bank of India made explicit in Master Direction No. 11/2017-18 on Foreign Investment in India (updated 15 June 2026): buy on a repatriation basis under Section 6.3, or on a non-repatriation basis under Section 6.4. The two routes look identical on a trading screen, but they differ on the single question that matters most to a cross-border investor: whether the sale proceeds can leave India, and through which bank account the money must flow.

This guide sets out the FEMA position under the 2017-18 Master Direction, the Indian tax treatment of equity gains after the 23 July 2024 Budget changes, how your country of residence taxes the same gain under the relevant Double Taxation Avoidance Agreement, and the mechanics of actually moving the money out. Every figure below is drawn from the RBI Master Direction, the Income-tax Act 1961, or the treaty text, so you can act on it rather than guess.

FEMA / DTAA Position

The governing instrument is the RBI FEMA framework as consolidated in Master Direction No. 11/2017-18. Section 6.3 permits an NRI or OCI to purchase and sell equity instruments of a listed Indian company on a recognised stock exchange on a repatriation basis. Section 6.4 permits an NRI or OCI to acquire equity instruments of an Indian company, or to contribute to the capital of an LLP, partnership firm or proprietary concern, on a non-repatriation basis. Section 6 of FEMA 1999 is the parent provision: a capital-account transaction needs RBI permission unless it is specifically permitted, and these two sub-routes are the permissions that cover share purchases.

The defining difference is repatriability. On a repatriation basis, the after-tax sale proceeds can be remitted abroad without a separate annual cap. On a non-repatriation basis, the investment is treated as domestic money that stays within India, and remittance abroad is only possible later through the general USD 1 million per financial year route out of an NRO account. Under the Non-Debt Instrument Rules, a non-repatriation investment under Schedule IV is even counted as domestic rather than foreign investment, a point we explain in our note on why non-repatriation investment counts as domestic.

A second structural consequence follows from the funding account. Because a Section 6.3 purchase draws on NRE funds that arrived as foreign currency, the capital has already cleared the inbound FEMA test, and the outbound journey of the proceeds is correspondingly light. A Section 6.4 purchase draws on rupee balances that FEMA treats as Indian money, so the proceeds must queue behind the USD 1 million per financial year gate when they want to leave. The choice made at the broking stage is really a choice about the exit, and it cannot be undone after the trade is booked under Master Direction 11/2017-18.

Note the one thing a DTAA can never do here: exempt the capital gain. Every Indian treaty we checked, including the 1991 India-US treaty effective 12 September 1991, preserves India's right to tax capital gains on shares of an Indian company. The treaty only caps the rate, and we return to that under Tax Treatment Abroad.

Tax Treatment in India

The route under FEMA does not change the income-tax position on the gain itself; both routes are taxed identically in India under the Income-tax Act 1961. What the route changes is the bank account, and therefore the mechanics of TDS collection.

For listed equity on which Securities Transaction Tax has been paid, two sections apply. Section 111A taxes short-term capital gains (holding period of 12 months or less) at 20%, raised from 15% by the Budget of 23 July 2024. Section 112A taxes long-term capital gains (held more than 12 months) at 12.5% on the amount exceeding the Rs 1.25 lakh annual exemption, changed from the earlier 10%-above-Rs-1-lakh rule by the same 23 July 2024 Budget (see incometax.gov.in).

On top of the base rate come surcharge and the 4% health-and-education cess. Surcharge is levied in slabs on the base tax: 10% where total income is between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% above Rs 2 crore. Note that the top surcharge rate in the new regime is capped at 25%, not the 37% that applied in the old regime above Rs 5 crore, so an NRI should confirm the exact surcharge applicable to capital gains on the incometax.gov.in utility rather than assume the headline slab.

Because the investor is a non-resident, tax is collected at source under Section 195, which requires withholding at the DTAA rate or the Income-tax Act rate, whichever is lower. On a non-repatriation (NRO) holding, the bank or buyer typically deducts TDS before the net proceeds reach the NRO account; on a repatriation (NRE-linked) holding, the same section governs but the proceeds are credited to a repatriable account. An NRI can model the net figure on our NRI tax calculator before filing. If the NRI also earns Indian rental income, the parallel withholding under Section 195 is explained on our rental income tax calculator.

Tax Treatment Abroad

India taxes first because the shares are of an Indian company; the country of residence then taxes the same gain and grants a foreign tax credit. The exact credit mechanism and the treaty rate ceiling depend on the applicable DTAA. The critical point, repeated because it is so often misstated, is that no treaty makes the capital gain exempt: India retains the taxing right at 12.5% on long-term equity gains across every treaty below.

Two treaty mechanics deserve attention. Under the India-US treaty, Article 24 gives a foreign tax credit in the country of residence, so the 12.5% paid in India is creditable against US tax on the same gain; the 25% dividend rate in the table is the portfolio rate, and Article 10 reduces it to 15% only where the recipient holds at least 10% of the voting stock. Canada mirrors this: Article 13 confirms India retains taxing rights on gains from Indian-resident company shares, and the credit flows through Section 126 of Canada's Income Tax Act, with the 25% dividend rate again dropping to 15% only on a 10%-or-greater voting holding under Article 10.

The anti-avoidance clauses matter for residents of the UAE and Singapore. The India-UAE treaty, effective 22 September 1993, requires a Tax Residency Certificate supported by proof of a UAE establishment, and it confirms that capital gains on shares of an Indian company are taxable in India. The India-Singapore treaty, effective 27 May 1994, carries a 2017 Protocol under which capital gains on shares acquired after 1 April 2017 are taxable in India, backed by a Limitation of Benefits clause that requires substantial economic presence. In all five jurisdictions the 12.5% Indian long-term rate is the floor you should expect to pay before any residence-country credit is applied.

Repatriation Mechanics

This is where the Section 6.3 versus Section 6.4 choice becomes a banking reality. The three NRI accounts behave very differently, and the Master Direction 11/2017-18 route you picked at purchase dictates which account the proceeds land in.

A repatriation-basis holding under Section 6.3 is funded from an NRE account or a fresh inward remittance, usually routed through a bank-designated Portfolio Investment Scheme account. The after-tax sale proceeds are repatriable without an annual ceiling, because the principal entered India as foreign currency in the first place. A non-repatriation holding under Section 6.4 is funded from rupee balances in an NRO account, and the proceeds return to that NRO account; from there, remittance abroad is subject to the overall USD 1 million per financial year limit that RBI applies to NRO balances (rbi.org.in).

The FCNR(B) deposit is a foreign-currency term deposit rather than an equity-funding account, but it completes the picture because it is fully repatriable like the NRE account. For the actual numbers on moving proceeds out of an NRO account within the USD 1 million window, our repatriation calculator works the limit and the Form 15CA/15CB requirement. Investors who also hold foreign-currency insurance should read our explainer on foreign-currency insurance policies for NRIs under FEMA, and OCI holders unsure of their status should check what the March 2021 MHA notification permits.

A practical sequencing point: because Section 195 withholding happens before the money reaches either account, the repatriable or non-repatriable character attaches to the net proceeds. Choosing the repatriation route at purchase is therefore the cleaner path for an NRI who expects to need the capital abroad, since it avoids the USD 1 million per financial year gate entirely.

FAQ

Can an NRI switch a holding from non-repatriation to repatriation basis later?

No. The basis is fixed at the time of purchase under Master Direction 11/2017-18. Shares bought on a non-repatriation basis under Section 6.4 using NRO funds remain non-repatriable in character; their proceeds route back to the NRO account and can only leave India through the USD 1 million per financial year window. To hold on a repatriation basis you must buy afresh under Section 6.3 with NRE funds or a new inward remittance.

Is the capital gain exempt under any DTAA?

No. Across the India-US (effective 12 September 1991), India-UK, India-UAE, India-Singapore and India-Canada treaties, India retains the right to tax capital gains on shares of an Indian company. The long-term equity rate is 12.5% under Section 112A, and the treaty only provides a foreign tax credit in your country of residence, not an exemption.

What TDS rate applies when an NRI sells listed shares?

Under Section 195, tax is withheld at the DTAA rate or the Income-tax Act rate, whichever is lower. The Act rates for STT-paid listed equity are 20% short-term under Section 111A and 12.5% long-term under Section 112A on gains above the Rs 1.25 lakh annual exemption, plus applicable surcharge and 4% cess. You can estimate the net figure on the NRI tax calculator.

How much can I repatriate from my NRO account each year?

RBI permits remittance of up to USD 1 million per financial year from NRO balances, which covers sale proceeds of non-repatriation-basis shares. Repatriation also requires Form 15CA and, in most cases, a Form 15CB certificate from a chartered accountant. The repatriation calculator works through the limit.

Does non-repatriation investment count as foreign investment?

No. Under Schedule IV of the Non-Debt Instrument Rules, an NRI or OCI investment made on a non-repatriation basis is treated as domestic investment, not foreign investment. This is why it does not consume sectoral foreign-investment caps, as explained in our dedicated note.

Which account should fund a repatriation-basis purchase?

A repatriation-basis purchase under Section 6.3 must be funded from an NRE account or a fresh inward remittance, typically through a Portfolio Investment Scheme account designated by your bank. This keeps the after-tax proceeds fully repatriable without the USD 1 million per financial year NRO cap.

What surcharge applies on large equity gains?

Surcharge is levied on the base tax in slabs: 10% for total income between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% above Rs 2 crore, with the new-regime top rate capped at 25% rather than the old 37%. A 4% health-and-education cess then applies on tax plus surcharge. Confirm the exact surcharge on capital gains using the official utility at incometax.gov.in.