Schedule III NDI Rules opened to all foreign individuals in June 2026: what changes for NRI and OCI portfolio investors

On 12 June 2026 the Central Government notified the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 as S.O. 3030(E), and on 15 June 2026 the Reserve Bank of India put the change into operation through A.P. (DIR Series) Circular No. 14 (RBI/2026-27/114). The effect is simple to state: Schedule III of the Non-debt Instruments (NDI) Rules, 2019, which for years allowed only Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to buy listed Indian shares on a stock exchange as individuals, now admits all individual persons resident outside India, "with enhanced investment limits", in the RBI's words.

This explainer sets out what the 15 June 2026 circular actually says, what it leaves unchanged for NRIs and OCIs, and how the 2026 change sits beside India's capital gains rules under Sections 111A and 112A of the Income-tax Act, 1961, the treaty rates in four common residence countries, and the repatriation framework under the Foreign Exchange Management Act, 1999.

FEMA / DTAA Position

What changed on 15 June 2026

The RBI circular is short, five paragraphs in all, and it was issued under Sections 10(4) and 11(1) of FEMA, 1999. The table below lists each operative instrument and its date, so readers can trace every element to its source.

Before 12 June 2026, a foreign national with no Indian origin who wanted to hold listed Indian shares in their own name generally had to come in through a registered foreign portfolio investor structure rather than through Schedule III. After the amendment, such an individual uses the same Schedule III route that NRIs and OCIs have used, with reporting and limit monitoring done "in the same manner as is presently followed for investments by NRIs/OCIs", per paragraph 2 of the circular.

The FEMA side

Section 6 of FEMA, 1999 governs capital account transactions, and the NDI Rules, 2019, first notified on 17 October 2019, are the Central Government's rules for non-debt instruments such as equity shares. Schedule III of those Rules is the individual portfolio route. The 2026 Third Amendment widens who may use it; the RBI circular of 15 June 2026 does not restate the new numerical limits, so investors should read the amended Schedule III itself, published as S.O. 3030(E), before sizing a position.

Three operational points in the circular matter to existing NRI and OCI investors:

1. Same reporting method. Paragraph 2 says reporting and limit monitoring for the new foreign-individual class follow the existing NRI/OCI method, so the designated-bank workflow that NRIs know from the PIS account structure remains the template.
2. Reclassification on breach. If a Schedule III holding crosses the prescribed limits, it is reclassified from foreign portfolio investment to foreign direct investment under the framework in A.P. (DIR Series) Circular No. 19 of 11 November 2024, the same framework used for FPIs.
3. Bank due diligence. Paragraph 3 requires AD Category-I banks to put "appropriate systems and procedures" in place and allows them to ask for documents and disclosures to check compliance with the Rules, the Regulations and SEBI regulations.

The circular took effect "with immediate effect" on 15 June 2026, so there was no transition window for banks.

The DTAA side

Nothing in the 2026 amendment changes a Double Taxation Avoidance Agreement. Treaties set the ceiling India may charge at source and decide which country gives credit. For a DTAA claim, the investor's country of residence matters, not whether they are an NRI, an OCI or a foreign national with no Indian link. The table below shows the rates Oquilia's treaty data records for four common residence countries.

Two notes from the treaty data deserve emphasis. Under Article 10 of the India-US treaty, the 15% dividend rate applies only where the recipient holds at least 10% of the voting stock; every portfolio holder falls into the 25% bucket. Under the 2017 Protocol to the India-Singapore treaty, capital gains on shares acquired from 1 April 2017 are taxable in India, and a limitation-of-benefits clause requires substantial economic presence in Singapore. Readers can model a treaty claim with Oquilia's DTAA benefit calculator.

Tax Treatment in India

Capital gains

For a non-resident individual, gains on listed equity sold on a recognised exchange with Securities Transaction Tax paid are taxed under the same two sections that apply to residents, as amended by Budget 2024 with effect from 23 July 2024:

Before 23 July 2024 these rates were 15% for short-term gains and 10% for long-term gains above Rs 1 lakh. A foreign individual entering through Schedule III after 15 June 2026 starts on the post-July 2024 rates from day one. See the glossary entries for LTCG and STCG for the holding-period definitions.

A worked example: an investor resident in the UAE sells listed shares held for more than 12 months and realises a gain of Rs 5,00,000. Under Section 112A, the first Rs 1,25,000 is not taxed, leaving Rs 3,75,000 at 12.5%, or Rs 46,875 before cess. Adding 4% health and education cess gives Rs 48,750. The same gain held short-term would attract 20% on the full Rs 5,00,000, or Rs 1,00,000 before cess and Rs 1,04,000 after it.

Surcharge and cess

Health and education cess of 4% applies on tax plus surcharge. The general surcharge schedule for individuals in the current Finance Act, as recorded in Oquilia's rate configuration, is set out below; capital gains under Sections 111A and 112A carry their own lower cap in the Finance Act, so investors with large gains should check the First Schedule rather than apply the general rates mechanically.

The new tax regime caps the top surcharge at 25%, as the last row shows. Oquilia's surcharge glossary entry explains marginal relief at each band edge.

TDS at source

Section 195 requires tax to be withheld on payments to non-residents, and the withholding is at the DTAA rate or the Income-tax Act rate, whichever is lower. For a Schedule III investor this applies to dividends paid by the Indian company and to capital gains on sale, which the intermediary handles through the designated bank. To get the treaty rate, the investor generally provides a Tax Residency Certificate; the UAE treaty note in Oquilia's data records that a UAE TRC requires proof of establishment in the UAE. The TDS glossary entry covers the credit mechanics, and the NRI tax calculator estimates the India-side liability.

Tax Treatment Abroad

The 2026 NDI amendment is an Indian foreign-exchange change; it does not alter how any other country taxes its residents. What it does is put a new group of investors, foreign individuals with no Indian origin, into the same position NRIs have long faced: Indian tax at source, then a home-country return.

For a US resident, Article 24 of the India-US treaty, in force since 12 September 1991, provides that the country of residence gives credit for tax paid in India. In practice the US investor reports the Indian gain or dividend and claims credit for the Indian tax, up to the US tax on that income. Oquilia's foreign tax credit calculator shows how the credit offsets home-country tax.

US-based NRIs face one more layer recorded in Oquilia's country data: Indian mutual funds can be treated as Passive Foreign Investment Companies, which attract punitive US treatment, so direct equity through the portfolio route has generally been the cleaner choice. The widening of Schedule III on 12 June 2026 extends that same direct-equity option to US residents who are neither NRIs nor OCIs. US residents also face FBAR filing once aggregate foreign accounts exceed USD 10,000 at any point in the year, a rule that applies equally to the new repatriable INR account.

For a UK resident, the treaty in force since 26 October 1993 caps Indian tax on portfolio dividends at 15%, and Article 4 resolves dual residence for anyone who spends time in both countries.

Repatriation Mechanics

The 15 June 2026 circular adds one new account type and leaves the NRI account structure as it was.

For NRIs, the familiar rule set continues. An NRE account is fully repatriable, while an NRO account allows remittance of up to USD 1 million per financial year after tax. Shares bought from NRE funds can have sale proceeds credited back to the NRE account; shares bought from NRO funds stay inside the USD 1 million NRO cap. Oquilia's repatriation calculator estimates the net amount after TDS.

For the new class of foreign individuals, paragraph 2 of the circular lets AD Category-I banks open a "repatriable INR account" under the FEM (Deposit) Regulations, 2016 specifically to facilitate Schedule III investment. The circular does not name the account or set a separate cap, so the terms are those the bank applies under the 2016 Regulations.

Paperwork follows the existing pattern. Under the rules recorded in Oquilia's NRI data, payments to non-residents above Rs 5,00,000 in a financial year need Part C of Form 15CA with a chartered accountant's certificate in Form 15CB; below that, Part A of Form 15CA is enough.

One risk is new for foreign individuals and not new for NRIs: if a holding breaches the Schedule III limit, it is reclassified as FDI under the 11 November 2024 framework. That can change the reporting obligations attached to the holding, so investors near a limit should ask their designated bank how it monitors the cap.

FAQ

Who can now invest under Schedule III of the NDI Rules?

Since the Third Amendment Rules, S.O. 3030(E) of 12 June 2026, all individual persons resident outside India may buy equity instruments of a listed Indian company on a recognised stock exchange. Before that date the route was limited to NRIs and OCIs, per RBI Circular No. 14 of 15 June 2026.

Does the 2026 amendment change anything for existing NRI investors?

The RBI circular states that reporting and limit monitoring continue "in the same manner as is presently followed for investments by NRIs/OCIs". The amendment refers to "enhanced investment limits", so NRIs should read the amended Schedule III to see the revised numbers; the circular itself does not restate them.

How are a non-resident's gains on listed Indian shares taxed?

Short-term gains on STT-paid equity are taxed at 20% under Section 111A, and long-term gains at 12.5% above the first Rs 1.25 lakh a year under Section 112A, both since 23 July 2024. Health and education cess of 4% applies on top.

Does a DTAA remove Indian tax on capital gains from shares?

No. Under the US, UK and UAE treaties India retains taxing rights on these gains at the 12.5% LTCG rate, and under the India-Singapore 2017 Protocol gains on shares acquired from 1 April 2017 are taxable in India. Relief comes as a foreign tax credit in the country of residence.

What dividend withholding rate applies to a US portfolio investor?

25%. Under Article 10 of the India-US treaty the 15% rate applies only to holders of at least 10% of the voting stock. Section 195 lets the payer withhold at the lower of the treaty rate and the Income-tax Act rate.

Can a foreign individual repatriate sale proceeds?

Yes. Paragraph 2 of the 15 June 2026 circular allows AD Category-I banks to open a repatriable INR account under the FEM (Deposit) Regulations, 2016 for this purpose. Form 15CA, and Form 15CB above Rs 5 lakh, still apply to the outward payment.

What happens if a Schedule III investor crosses the investment limit?

The holding is reclassified from foreign portfolio investment to foreign direct investment under A.P. (DIR Series) Circular No. 19 dated 11 November 2024, the same framework used for FPIs.

This explainer is general information based on RBI A.P. (DIR Series) Circular No. 14 of 15 June 2026 and the Income-tax Act, 1961 as amended to date. It is not tax or investment advice. Check the amended Schedule III and current Finance Act, available on India Code and the Income Tax Department portal, before acting.