NRI Stock-Market Investing Under FEMA: Repatriation (PIS) vs Non-Repatriation Routes and the 5% / 10% Caps

A non-resident Indian who wants to buy shares on the NSE or BSE has to choose a route before placing the first order, and that choice decides three things for years afterwards: how much of any one company the investor may own, which bank account the money must move through, and whether the sale proceeds can ever leave India. The Reserve Bank of India sets these rules through its Master Direction on foreign investment in India (published at rbi.org.in), issued under the Foreign Exchange Management Act, 1999 (FEMA).

This guide sets out the two routes, the 5% and 10% ownership caps that apply to only one of them, and how Indian capital gains tax under the Income-tax Act, 1961 interacts with treaties signed with six common countries of residence. All tax figures below reflect the post-Budget 2024 rates that took effect on 23 July 2024.

FEMA / DTAA Position

Section 6 of FEMA 1999 is the starting point: a capital account transaction by a person resident outside India needs RBI permission unless it is specifically permitted. The Portfolio Investment Scheme (PIS) framework is that specific permission for listed shares, and it is split into two schedules with very different consequences.

Schedule 3: the repatriation route

Under Schedule 3, an NRI may buy and sell shares, convertible preference shares, convertible debentures, warrants and units on a recognised stock exchange in India, provided the trades are routed through a designated Authorised Dealer (AD) bank branch. Money for these purchases runs through an NRE account designated for PIS, and the investment is treated as foreign investment. Our earlier report on A.P. (DIR) Circular No. 14 of 2026 covers the 2026 change that opened this route, once reserved for NRIs and OCIs, to all non-resident individuals.

Because Schedule 3 holdings count as foreign investment, they are capped. The ceilings are set out below for a listed company with 10 crore paid-up equity shares.

The aggregate 10% limit can be raised to 24% only if the company's shareholders pass a special resolution. For most retail investors the 5% individual limit is academic; the aggregate limit is the one that can bind.

Schedule 4: the non-repatriation route

Schedule 4 works differently. There is no ceiling on investment in company securities, units or contributions to the capital of an LLP made on a non-repatriation basis, because RBI treats such investment as domestic investment, on the same footing as an investment by a resident. The purchase may be paid from an inward remittance or from an NRE, FCNR or NRO account.

The price of that freedom is on the exit side. Sale proceeds of a Schedule 4 investment can be credited only to an NRO account, and the briefing position from the Master Direction is that they cannot be repatriated as such. Any later movement abroad has to fit within whatever separate NRO outflow facility applies at the time.

Sectors closed under both routes

The briefing notes list five activities in which NRI investment is prohibited regardless of route: a Nidhi company, agricultural or plantation activities, real estate business, construction of farm houses, and trading in Transferable Development Rights (TDR). An investor should check a company's principal business against these five before buying, since the restriction is on the investee's activity rather than on the share itself.

Where the treaty enters

Each of India's Double Taxation Avoidance Agreements (DTAA) allocates taxing rights between India and the investor's country of residence. For capital gains on shares of an Indian company, the treaty data held by Oquilia's research desk shows India keeping its right to tax long-term gains at 12.5% under every one of the six treaties covered here. The Canada treaty note records this explicitly under Article 13, and the UAE note states that capital gains on shares of an Indian company are taxable in India. For Singapore, the 2017 Protocol made gains on shares acquired on or after 1 April 2017 taxable in India.

Two dividend notes matter for US and Canadian residents. Under Article 10 of both treaties, the lower 15% dividend rate applies only where the recipient holds at least 10% of the voting stock (US) or controls at least 10% of the voting power (Canada). A portfolio investor buying through Schedule 3 is capped at 5% of a company in any case, so in practice the 25% portfolio rate is the relevant treaty ceiling.

Tax Treatment in India

Indian tax does not depend on whether shares were bought under Schedule 3 or Schedule 4. Both routes produce the same capital gains computation; the route changes only where the money lands afterwards.

Capital gains rates

Section 111A taxes short-term capital gains on STT-paid listed equity at 20%, raised from 15% by Budget 2024. Section 112A taxes long-term gains at 12.5% on the amount above Rs 1.25 lakh in a financial year, changed from 10% above Rs 1 lakh with effect from 23 July 2024. Health and education cess of 4% is added to tax plus surcharge. See our glossary entries for STCG and LTCG for the holding-period definitions.

The example assumes total income below Rs 50 lakh, so no surcharge applies. Above that level, the surcharge schedule in Oquilia's rate configuration starts at 10% for income between Rs 50 lakh and Rs 1 crore and rises to 15% between Rs 1 crore and Rs 2 crore. Equity gains under Sections 111A and 112A carry their own lower surcharge cap under the Finance Act, so an investor with large gains should confirm the applicable surcharge before relying on the general slab table.

TDS on sale proceeds

For an NRI, the bank or broker deducts TDS under Section 195 at the time of sale. The research desk's brief on Section 195 is that withholding applies at the DTAA rate or the rate under the Income-tax Act, whichever is lower. On equity capital gains, all six treaties above leave the Indian rate of 12.5% for long-term gains in place, so the treaty does not reduce TDS on gains for these countries.

A practical consequence for Schedule 3 investors is that the AD bank sees each sale through the PIS account and deducts tax transaction by transaction. Where TDS exceeds final liability for the year, the investor recovers the excess by filing an Indian return on the incometax.gov.in portal for that assessment year.

Dividends

Dividends from Indian companies are taxable in India in the hands of the shareholder. The Section 195 principle again applies: the payer withholds at the lower of the domestic rate and the treaty rate, provided the NRI furnishes the documents the payer asks for, normally including a Tax Residency Certificate. For a UAE resident, the treaty rate shown is 10%; for a UK, Singapore or Australia resident, 15%; for a US or Canada portfolio holder, 25%. The UAE treaty note adds that a TRC there requires proof of UAE establishment.

Use the NRI income tax calculator to model total Indian tax across salary, rent and gains, and the DTAA benefit calculator to compare domestic and treaty withholding.

Tax Treatment Abroad

Indian tax is usually only half of the bill. Every country of residence covered here also taxes its residents on worldwide income, and relief comes from a foreign tax credit (FTC) for the Indian tax paid.

The mechanics differ by treaty, as the research desk's notes record:

The general principle under a credit system is that the residence country gives credit only up to its own tax on the same income. Take the Rs 46,875 long-term gains tax from the worked example. If the residence country charges less than that on the same Rs 5,00,000 gain, the excess Indian tax is normally not refunded abroad; if it charges more, the investor pays the difference there. Timing also matters: India taxes on a financial year running from 1 April to 31 March, which may not match the tax year of the residence country.

Keep the Form 16A or broker TDS certificate and the Indian return acknowledgement for each year. Foreign tax authorities typically ask for proof of tax actually paid in India, and the TDS figure on the certificate is the starting number for most FTC claims. Our foreign tax credit calculator models the credit for a single gain.

Repatriation Mechanics

The route chosen at purchase decides the account trail, and the account trail decides repatriation. The table below follows a single Rs 10 lakh investment through each route.

Using the NRE (PIS) account

An NRE account holds money that is repatriable by design. Because Schedule 3 investment must be funded through an NRE PIS account, the full sale value, net of TDS, returns to the same repatriable pool. The PIS account entry in our glossary explains how the designated AD branch reports each transaction so that the 5% and 10% caps can be monitored.

Using the NRO account

An NRO account is the home of Schedule 4 proceeds. The briefing position under the Master Direction is direct: sale proceeds credited to NRO under Schedule 4 cannot be repatriated as such. An investor who later wants money out of NRO must rely on a separate outflow facility, which is outside the PIS framework and has its own documentation. Our repatriation calculator and the NRO to NRE transfer calculator show the steps and costs involved.

FCNR as a funding source

An FCNR deposit may fund Schedule 4 purchases, according to the briefing notes. It is not listed as a funding account for Schedule 3, which runs through the NRE PIS account.

Choosing a route

The decision tends to follow intent. An investor who expects to bring the money back abroad within the next 5 to 10 years, and who will hold well under 5% of any company, gets nothing from Schedule 4 and loses repatriability. An investor who already holds rupee income in NRO, such as rent taxed under the rules in our rental income tax calculator, and expects to spend it in India, may prefer Schedule 4 because it uses NRO money directly and carries no ownership ceiling.

FAQ

Is the 5% cap per company or across my whole portfolio?

The 5% limit applies per company: no single NRI may hold more than 5% of the paid-up equity of any one listed company on the repatriation route. Across a portfolio there is no overall limit. The 10% figure, raisable to 24% by special resolution, is the combined limit for all NRIs in that company.

Does Schedule 4 have any ownership ceiling at all?

No. The briefing notes from the RBI Master Direction state that there is no ceiling on investment in company securities, units or LLP contributions on a non-repatriation basis, because it is treated as domestic investment. The five prohibited activities, from Nidhi companies to TDR trading, still apply.

Is the capital gains tax rate different under the two routes?

No. Indian tax is the same under both routes: 20% under Section 111A for short-term gains on STT-paid equity and 12.5% under Section 112A for long-term gains above Rs 1.25 lakh a year, plus 4% cess and any applicable surcharge.

Can a DTAA reduce Indian tax on my share gains?

Not for the six treaties covered here. The research desk's treaty data shows India keeping the right to tax long-term gains on Indian company shares at 12.5% under the US, UK, UAE, Singapore, Canada and Australia treaties. Relief comes instead through a foreign tax credit in the country of residence.

Can I move Schedule 4 sale proceeds to my NRE account?

Not as sale proceeds of that route. Under the Master Direction, Schedule 4 proceeds are credited only to NRO and cannot be repatriated as such. Any later outflow must use a separate NRO facility outside the PIS framework.

Why does my bank deduct TDS on every share sale?

Section 195 requires the payer to withhold tax on payments to a non-resident, at the DTAA rate or the Income-tax Act rate, whichever is lower. An NRI whose TDS exceeds final liability can claim the excess by filing a return on incometax.gov.in.

This article explains rules as set out in the RBI Master Direction on foreign investment and the Income-tax Act, 1961, as at 25 October 2026. It is general information, not tax or legal advice. Confirm current limits with your AD bank before trading.