NRI and OCI Investment in Indian Shares: Repatriation Basis vs Non-Repatriation Basis

For a non-resident Indian (NRI) or an Overseas Citizen of India (OCI), the single most consequential decision when buying Indian listed equity is not which share to buy but on what basis to hold it. The Reserve Bank of India's Master Direction - Foreign Investment in India splits every rupee an NRI or OCI brings in into two channels: a repatriation basis under the Portfolio Investment Scheme (Section 6.3) and a non-repatriation basis (Section 6.4). The channel you choose is fixed at the point of investment and dictates whether the sale proceeds can ever leave India. This NRI Corner explainer sets out the FEMA position, the tax treatment in India and abroad, and the repatriation mechanics that follow from each route.

FEMA / DTAA Position

The starting point is Section 6 of the Foreign Exchange Management Act, 1999 (FEMA), which treats a capital-account transaction by a person resident outside India as prohibited unless the RBI specifically permits it. The Master Direction - Foreign Investment in India is that permission, and it draws a hard line between two regimes. Under Section 6.3, an NRI or OCI may purchase and sell listed equity of an Indian company on a recognised stock exchange on a repatriation basis, through the Portfolio Investment Scheme (PIS) routed via a single designated bank branch. Under Section 6.4, the same investor may instead put money into equity instruments, LLPs, partnership firms or proprietary concerns on a non-repatriation basis, which FEMA treats almost on a par with domestic resident investment.

The practical difference is where the exit money sits. Repatriation-basis proceeds may be remitted abroad; non-repatriation-basis proceeds must stay in the investor's NRO account and are then subject to the standard FEMA remittance limits that apply to any resident-origin funds. That distinction is why the two routes carry different account plumbing, different reporting, and different ceilings on getting money out.

A double-taxation avoidance agreement (DTAA) does not change the FEMA channel, but it governs the tax cost of using it. India's treaties preserve India's right to tax capital gains on shares of an Indian company: the India-UAE treaty (in force since 22 September 1993) states expressly that such gains are taxable in India, and the India-USA (in force 12 September 1991) and India-UK (in force 26 October 1993) treaties operate to the same effect. No major Indian treaty makes listed-equity capital gains "exempt" in India; India retains a taxing right at 12.5% on long-term gains.

Tax Treatment in India

Since the abolition of the dividend distribution tax in FY 2020-21, an NRI or OCI faces Indian tax at three separate points: on capital gains when shares are sold, on dividends when they are paid, and on interest earned in the linked bank account. Each is deducted at source before the money reaches the investor.

On capital gains, the rates set by Budget 2024 (effective 23 July 2024) apply identically to residents and non-residents. Long-term capital gains on listed equity - shares held for more than 12 months under section 2(42A) of the Income-tax Act, 1961 - are taxed at 12.5% on gains above the annual exemption of Rs 1,25,000 under section 112A. Short-term capital gains under section 111A are taxed at 20%. For an NRI selling through the PIS route, the designated bank deducts tax at source under section 195 on the net gain before crediting the account, so the repatriable amount is already net of tax.

On dividends, the payout is taxable in the shareholder's hands and the company deducts TDS under section 195 before remitting. The applicable treaty rate then caps the deduction where it is lower than the domestic rate. On interest, the treatment turns on the account: interest on an NRE account is generally exempt in the hands of a person who qualifies as an NRI under FEMA, while NRO interest is fully taxable with TDS. Our companion piece on how interest on NRE versus NRO accounts is treated works through where a DTAA helps.

Above the base rates, a surcharge applies on the income-tax computed - 10% for total income between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% between Rs 2 crore and Rs 5 crore - followed by a 4% health and education cess on the tax-plus-surcharge figure. The NRI income tax calculator applies these slabs so you can see the effective cost on a given gain. If part of your Indian income is rental rather than market income, the NRI rental income tax calculator handles the section 24 and TDS mechanics separately.

Because tax is collected at source on both routes, the difference between repatriation and non-repatriation basis is not the tax rate - it is identical - but what you can do with the after-tax money, which is a FEMA question, not an Income-tax Act one.

Tax Treatment Abroad

Indian tax is only half the picture. An NRI resident in a taxing country is generally taxed again there on the same Indian-source income, and the DTAA's function is to relieve that overlap through a foreign tax credit (FTC). The credit mechanism, and the treaty ceiling on each income type, differ by country of residence.

For a US-resident NRI, Article 24 of the India-USA treaty gives a foreign tax credit in the United States for Indian tax paid, so the Indian 12.5% on long-term gains is set against the US liability on the same gain rather than stacked on top. The treaty dividend rate is 25% for an ordinary portfolio holder, dropping to 15% only where the recipient holds at least 10% of the voting stock under Article 10 - a threshold a retail PIS investor will rarely meet.

For a UAE-resident NRI, there is no personal income tax in the UAE, so the FTC question is largely moot, but the treaty's lower ceilings still bite in India: 10% on dividends and 12.5% on interest, provided a valid UAE Tax Residency Certificate establishing UAE residence is produced. For a UK-resident NRI, the India-UK treaty applies a 15% ceiling on both dividends and interest, and the tie-breaker rule in Article 4 resolves cases of dual residence before the credit is computed. In every case the credit abroad is limited to the treaty-permitted Indian tax, so claiming relief for more than the treaty allows will be disallowed. To claim any treaty benefit, an NRI must furnish a Tax Residency Certificate and file Form 10F, per incometax.gov.in guidance.

The one point common to all three treaties is that none exempts Indian listed-equity capital gains from Indian tax. India taxes the gain at 12.5% first; the country of residence then gives credit for that amount. Reading the treaty the other way - as an exemption - is the most common and most expensive error NRIs make.

Repatriation Mechanics

This is where the two FEMA channels finally diverge in a way the investor can feel. Money held on a repatriation basis through the PIS route is linked to an NRE account, and both the sale proceeds and the capital are freely remittable abroad once Indian tax has been deducted. There is no annual ceiling on sending PIS/NRE-origin equity proceeds out of India, which is the whole point of choosing the repatriation channel at the outset.

Money held on a non-repatriation basis under Section 6.4 lands in the NRO account, and NRO balances - being of resident-origin character - fall under the FEMA remittance-of-assets limit of USD 1 million per financial year, aggregated across all NRO remittances, under the RBI's remittance-of-assets framework. For context, a resident's own outbound remittances are governed by the separate Liberalised Remittance Scheme ceiling of USD 250,000 per financial year referenced in FEMA Section 6. The NRO route therefore is not a dead end - the money can still be sent abroad - but it is metered, and large exits must be planned across financial years.

Either way, moving money out of India requires a chartered accountant's certificate in Form 15CB and an online declaration in Form 15CA confirming that the applicable tax has been paid, before the authorised dealer bank will process the remittance. The NRI repatriation calculator helps you size how much can be sent in a given financial year against the USD 1 million NRO limit. For the account-eligibility rules that sit underneath all of this - who counts as an NRI, PIO or OCI in the first place - see our explainers on how FEMA defines your status and what an OCI cardholder can and cannot do.

The choice is strategic. An NRI who expects to bring capital home permanently gains nothing from the repatriation channel's freedom and may prefer the simpler non-repatriation route; an NRI who wants the option to pull capital back to the country of residence should insist on the repatriation basis before the first trade, because the basis cannot be retro-fitted after purchase.

FAQ

Can I switch shares from non-repatriation to repatriation basis later?

No. The basis is fixed at the point of purchase under the RBI Master Direction (Sections 6.3 and 6.4). Shares bought on a non-repatriation basis into an NRO-linked holding cannot be re-designated as repatriable; the proceeds stay within the USD 1 million per financial year NRO remittance limit. Decide the channel before you place the order.

Are capital gains on Indian shares exempt for an NRI under any DTAA?

No. India retains the right to tax capital gains on shares of an Indian company under every major treaty, and long-term gains are taxed at 12.5% under section 112A. The India-UAE treaty (in force 22 September 1993) states this expressly, and the India-USA and India-UK treaties operate the same way. Treating these gains as "exempt" in India is incorrect.

What TDS applies when I sell listed shares through the PIS route?

The designated bank deducts tax under section 195 on the net gain before crediting proceeds - 12.5% on long-term gains above Rs 1,25,000 (section 112A) and 20% on short-term gains (section 111A), as fixed by Budget 2024 with effect from 23 July 2024, plus applicable surcharge and 4% cess.

How is a dividend on my Indian shares taxed as an NRI?

Since FY 2020-21 the dividend is taxable in your hands and the company deducts TDS under section 195. A DTAA can lower the deduction: the treaty ceiling is 25% for a US portfolio holder (15% if you hold at least 10% of voting stock under Article 10), 10% for a UAE resident and 15% for a UK resident, provided you furnish a Tax Residency Certificate and Form 10F.

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

NRO balances fall under the RBI remittance-of-assets ceiling of USD 1 million per financial year, aggregated across all NRO remittances. Each remittance needs Form 15CA and a Form 15CB certificate confirming tax has been paid. NRE/PIS repatriation-basis equity proceeds face no such annual ceiling.

Do I get credit abroad for the Indian tax I pay?

Generally yes, where your country of residence taxes worldwide income. Article 24 of the India-USA treaty gives a US foreign tax credit for Indian tax paid; the India-UK treaty gives comparable relief. The UAE levies no personal income tax, so no credit is needed there, but a UAE Tax Residency Certificate is still required to claim the treaty's lower Indian rates.

This article is educational analysis, not personalised tax advice. Verify current provisions against incometax.gov.in, the RBI Master Direction on Foreign Investment and indiacode.nic.in before acting, and consult a qualified adviser on your own facts.