How NRIs Invest in Indian Shares: The Portfolio Investment Scheme and Its 5% / 10% Ceilings

For a Non-Resident Indian who wants to own a slice of Reliance, HDFC Bank or Infosys directly on the exchange, the gateway is the Portfolio Investment Scheme (PIS). It is not an open door: the Reserve Bank of India frames NRI secondary-market buying inside the Foreign Exchange Management Act, 1999 (FEMA), and every purchase is metered against two hard ceilings — a 5% individual cap and a 10% aggregate cap. This 2026 guide walks through the FEMA architecture, the exact rates at which India taxes the gains under sections 111A and 112A, how your country of residence treats the same income under the tax treaty, and how the money flows back out. Every figure below is traced to the RBI master circular, the Income Tax Act, or the relevant Double Taxation Avoidance Agreement (DTAA).

FEMA / DTAA Position

The statutory anchor is Section 6 of FEMA, 1999, which treats the purchase of Indian shares by a non-resident as a capital-account transaction that needs RBI permission unless it is specifically permitted. The Portfolio Investment Scheme is that specific permission. Under the RBI Master Circular on Foreign Investment in India, an NRI may buy shares and convertible debentures of listed Indian companies on a recognised stock exchange, on a repatriation and/or non-repatriation basis, through a designated branch of an Authorised Dealer (AD) Category-I bank via a single designated NRE or NRO account.

The scheme is built around two ceilings that you must respect on every trade. The individual ceiling limits a single NRI to 5% of the paid-up capital of a company, and to 5% of the paid-up value of each series of debentures. The aggregate ceiling limits all NRIs taken together to 10% of the company's paid-up capital. That aggregate 10% is not immovable: a company may raise it to 24% by passing a Board resolution followed by a special resolution of its general body, and then intimating the RBI. Understanding your paid-up value is therefore the first step before placing a large order.

Two practical consequences follow from these numbers. First, because the 10% aggregate cap is monitored daily by the RBI through the designated AD banks, exchanges publish a "ban list" of scrips where NRI headroom is exhausted, and fresh NRI purchases in those names are blocked until room reopens. Second, the "single designated account" rule means you cannot spread PIS trades across multiple banks; one AD Category-I branch routes all your secondary-market equity, which is why the choice of PIS bank in 2026 is a decision worth making carefully. The DTAA position — covered in full in the Tax Treatment Abroad section — never renders the resulting capital gains exempt in India; across the United States, United Kingdom and United Arab Emirates treaties, India retains the right to tax long-term gains on Indian shares at 12.5%.

Tax Treatment in India

Once you hold the shares, India taxes the returns in three separate buckets: short-term capital gains, long-term capital gains, and dividends. The dividing line for listed equity is a holding period of 12 months, defined in the Income Tax Act, 1961 (see incometax.gov.in): sell on or before 12 months and the gain is short-term; sell after 12 months and it is long-term.

Short-term capital gains on Securities Transaction Tax (STT)-paid equity are taxed under Section 111A. Budget 2024 raised this rate from 15% to 20% with effect from 23 July 2024, so an NRI who books a short-term capital gain of Rs 5,00,000 in FY 2025-26 faces base tax of Rs 1,00,000 before surcharge and cess. Long-term capital gains on the same STT-paid equity are taxed under Section 112A. The same Budget 2024, again from 23 July 2024, moved this to 12.5% on gains above an annual exemption of Rs 1,25,000 (raised from the earlier 10% above Rs 1,00,000). A long-term capital gain of Rs 3,25,000 in a year is therefore taxed on Rs 2,00,000, giving base tax of Rs 25,000 at 12.5%.

Dividends are the third bucket, and the rule changed fundamentally in 2020. Section 10(34), which had exempted dividends in the shareholder's hands, was repealed by the Finance Act 2020, so from FY 2020-21 dividends are taxable at the recipient's slab rate. For a non-resident, the paying company deducts tax at source under Section 195, and Section 195 requires withholding at the DTAA rate or the Income Tax Act rate, whichever is lower — the mechanism that lets a treaty cap your Indian dividend withholding, discussed below. A quick pass through the NRI tax calculator will show how these three buckets stack for your own numbers.

Surcharge and cess sit on top of the base rates above. A 4% health and education cess applies to the tax plus surcharge on every assessee. Surcharge is levied 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% between Rs 2 crore and Rs 5 crore. Above Rs 5 crore the surcharge in the new tax regime is capped at 25% (it is 37% only in the old regime), so an NRI with very large gains does not face a runaway top rate under the default regime. The surcharge that applies to you depends on your total Indian income for the year, not on the capital gains alone.

Tax Treatment Abroad

Because you are resident somewhere else, the same PIS gains and dividends are usually taxable a second time in your country of residence, and the DTAA is what stops the same rupee being taxed twice at full rates. The central point for capital gains is blunt: none of the three major treaties treats gains on Indian shares as exempt in India. The India-USA, India-UK and India-UAE agreements all leave India with taxing rights, and India's domestic long-term rate on those shares is 12.5%. The treaty's job is to give you a credit at home, not to zero out the Indian charge.

Dividends are where the treaty visibly cuts your Indian bill. Under Article 10 of the India-USA treaty the portfolio dividend rate is 25%, and it drops to 15% only where the recipient holds at least 10% of the voting stock — a threshold a portfolio investor almost never meets, so the 25% cap is the relevant one. The India-UK treaty caps portfolio dividends at 15% and the India-UAE treaty at 10%. Because Section 195 applies the lower of the treaty rate and the domestic rate, a UAE-resident NRI can have Indian dividend withholding capped at 10%, provided the paperwork is in order. Modelling this is exactly what the DTAA benefit calculator is for.

To claim the treaty rate rather than the higher domestic default, an NRI must give the Indian payer a valid Tax Residency Certificate (TRC) from the country of residence plus Form 10F; the India-UAE notes specifically require proof of a UAE establishment behind the TRC. On the residence side, relief comes through the foreign tax credit: Article 24 of the India-USA treaty, for example, makes the tax paid in India creditable against the US liability on the same income, which is how genuine double taxation is avoided rather than merely reduced. Running the numbers through the foreign tax credit calculator shows how much of your Indian tax actually offsets the bill back home, and the wider mechanics of a treaty are set out under DTAA in the glossary.

Repatriation Mechanics

Repatriation is decided at the moment you open the PIS route, because the scheme runs on two mutually exclusive tracks. On the repatriation track you buy through your designated NRE account, and both the capital and the gains can be sent abroad freely once Indian taxes are settled. On the non-repatriation track you buy through your NRO account, and — as the RBI master circular states — income on non-repatriation investments is credited to the NRO account. The NRE account is the repatriable channel; the NRO account is the domestic one.

Money sitting in an NRO account is not trapped, but it moves under a defined window rather than freely. An NRI may repatriate up to USD 1 million per financial year out of NRO balances, and the outward remittance needs a chartered accountant's certificate in Form 15CB together with Form 15CA confirming that the applicable Indian tax has been paid. This USD 1 million rule is the single most important number for anyone whose PIS holdings were bought on the non-repatriation track; the repatriation calculator helps you plan a multi-year draw-down against that annual cap.

Two further account rules complete the picture. First, the sale proceeds of PIS shares must flow back through the same designated PIS account they were bought from, so an NRE-route sale credits the NRE account and stays repatriable, while an NRO-route sale credits the NRO account and falls under the USD 1 million window. Second, when you eventually return to India for good, the residual balances and any Foreign Currency Non-Resident deposits are re-characterised, and the tax residency that governs the next year's gains is determined by your residential status under the Income Tax Act. Before any large sale, confirm that the tax deducted at source is correct, because an over-deduction under TDS can only be recovered by filing an Indian return.

The practical sequence for a repatriable exit therefore looks like this: sell on the exchange through the PIS-designated NRE account; let the broker settle the trade; ensure the AD bank deducts the correct capital-gains TDS under Section 195 at the lower of the treaty and domestic rate; obtain Form 15CB and file Form 15CA; and remit. For a non-repatriation exit the same steps apply, except the credit lands in the NRO account and the outward leg is drawn against the USD 1 million annual ceiling.

FAQ

Can an NRI buy Indian shares without using the Portfolio Investment Scheme?

For secondary-market purchases of listed shares on a recognised stock exchange, the Portfolio Investment Scheme is the designated route under the RBI master circular, operated through a single designated NRE or NRO account at an AD Category-I bank. PIS is what keeps your buying inside the 5% individual and 10% aggregate ceilings, so listed secondary-market equity is bought through it rather than around it.

What is the difference between the 5% and 10% PIS ceilings?

The 5% ceiling is individual: any single NRI may hold up to 5% of a company's paid-up capital, and 5% of each series of its debentures. The 10% ceiling is collective: all NRIs together may hold up to 10% of the company's paid-up capital. That aggregate 10% can be raised to 24% if the company passes a Board resolution and a special resolution of the general body and intimates the RBI.

How much tax will I pay in India on selling PIS shares in FY 2025-26?

Listed equity held for 12 months or less is taxed at 20% as short-term capital gains under Section 111A. Held for more than 12 months, the gain is long-term under Section 112A and taxed at 12.5% on the amount above the Rs 1,25,000 annual exemption. Both rates took effect from 23 July 2024 under Budget 2024, and a 4% cess plus any applicable surcharge is added on top.

Are my Indian share gains exempt under the DTAA?

No. India retains the right to tax capital gains on Indian shares under the USA, UK and UAE treaties, and the domestic long-term rate is 12.5%. What the DTAA provides is a foreign tax credit in your country of residence — for example, under Article 24 of the India-USA treaty — so the same gain is not taxed twice at full rates. Treating treaty capital gains as "exempt" in India is incorrect.

What rate of tax applies to dividends from my PIS shares?

Since Section 10(34) was repealed by the Finance Act 2020, dividends are taxable from FY 2020-21, and for a non-resident the company withholds tax under Section 195 at the DTAA rate or the domestic rate, whichever is lower. Treaty portfolio-dividend caps are 25% for the USA, 15% for the UK and 10% for the UAE, claimable with a valid TRC and Form 10F.

How much can I repatriate if I bought shares on a non-repatriation basis?

NRO-route proceeds fall under the USD 1 million per financial year repatriation window, supported by a chartered accountant's Form 15CB and a Form 15CA declaration that Indian tax has been paid. Shares bought on the repatriation basis through the NRE account are freely repatriable once taxes are settled, without counting against the USD 1 million limit.