NRI and OCI Stock Investing: Repatriable PIS Route vs Non-Repatriable Domestic Route Under FEMA

For a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) card holder, the single question that decides everything about an Indian equity portfolio is settled before the first trade: repatriable or non-repatriable. That one choice, made when the demat and bank accounts are opened, governs which regulatory schedule applies, whether the 10 per cent aggregate holding ceiling bites, and whether sale proceeds can ever be sent abroad. Under the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 and the Reserve Bank of India's FED Master Direction No. 11/2017-18 (last updated 15 June 2026), the two routes are the Portfolio Investment Scheme under Schedule III and the domestic-treatment route under Schedule IV. This guide sets out the FEMA position, the Income-tax Act treatment at rates confirmed for FY 2025-26, and the mechanics of moving money out.

The distinction is not academic. An NRI in Dubai who buys Reliance shares on a repatriation basis is capped at 5 per cent of that company's paid-up capital individually and shares a 10 per cent aggregate ceiling with every other NRI and OCI on the register; the same person investing on a non-repatriation basis is treated exactly like a resident and faces no such cap. The tax on the eventual gain, however, is identical either way at 12.5 per cent long-term under Section 112A, so the trade-off is purely one of exit flexibility versus regulatory freedom.

FEMA / DTAA Position

Section 6 of the Foreign Exchange Management Act 1999 is the anchor: a capital-account transaction by a non-resident needs RBI permission unless it is specifically permitted. Equity investment by NRIs and OCIs is permitted, but only through the two windows carved out by the FEM (Non-Debt Instruments) Rules 2019. Schedule III, popularly the Portfolio Investment Scheme (PIS), allows purchase of listed equity on a repatriation basis. Schedule IV allows purchase of shares and convertible debentures on a non-repatriation basis, where the investment is deemed domestic.

Under the Schedule III PIS route, trading must be routed through a single designated branch of one authorised dealer bank that reports each transaction to the RBI. The individual holding of any NRI or OCI is capped at 5 per cent of the paid-up capital of the company, and the aggregate holding of all NRIs and OCIs together cannot exceed 10 per cent of paid-up capital. That aggregate ceiling can be raised to 24 per cent only if the company passes a special resolution of its general body, per the RBI Master Direction. When the aggregate NRI holding approaches the trigger threshold, the RBI publishes a caution list and can halt further NRI purchases in that scrip.

Schedule IV is the mirror image. Because the investment is on a non-repatriation basis, it is treated as domestic investment at par with resident holdings, and the 5 per cent and 10 per cent caps of Schedule III simply do not apply. The price of that freedom is that the principal invested cannot be sent abroad; only the current income (dividends) and, subject to conditions, net sale proceeds can move to an NRO account but not out of India as of right.

On the treaty side, the Double Taxation Avoidance Agreement (DTAA) determines where the gain is finally taxed and at what ceiling rate. A recurring error is to describe treaty capital gains as "exempt" in India. They are not: for the United States, the United Kingdom and the United Arab Emirates alike, India retains the right to tax long-term capital gains on shares of an Indian company at 12.5 per cent, and the UAE treaty note (effective 22 September 1993) states expressly that capital gains on shares of an Indian company are taxable in India. See our DTAA glossary entry for how the article-by-article allocation works.

Tax Treatment in India

Residential status under Section 6 of the Income-tax Act 1961 is the gate; once an individual is a non-resident, capital gains on listed Indian equity are taxed under the special-rate provisions regardless of which FEMA schedule funded the purchase. Two sections do the heavy lifting. Section 111A taxes short-term capital gains on STT-paid listed equity at 20 per cent (raised from 15 per cent by the Finance Act 2024). Section 112A taxes long-term capital gains above a Rs 1.25 lakh annual exemption at 12.5 per cent, a rate and threshold effective from 23 July 2024. Holding period for equity to qualify as long-term is more than 12 months.

Dividends are taxed differently. Since the abolition of the Dividend Distribution Tax, dividends are taxed in the shareholder's hands at slab rates for residents, but for a non-resident the company deducts tax at source under Section 195, which mandates withholding at the DTAA rate or the Income-tax Act rate, whichever is lower. This is where a valid Tax Residency Certificate and Form 10F matter, because without them the payer defaults to the higher domestic rate. Our NRI tax calculator models the slab-versus-special-rate interaction for a mixed portfolio.

Surcharge and cess sit on top of the base tax. For FY 2025-26 the surcharge in the new regime is capped at 25 per cent for total income above Rs 5 crore (the old-regime 37 per cent top rate does not apply in the new regime), with intermediate bands of 10 per cent (Rs 50 lakh to Rs 1 crore), 15 per cent (Rs 1 crore to Rs 2 crore) and 25 per cent (Rs 2 crore to Rs 5 crore). A health and education cess of 4 per cent applies on tax plus surcharge. Note that the surcharge on capital gains under Sections 111A and 112A is itself capped at 15 per cent regardless of income level.

The Section 87A rebate, now Rs 60,000 in the new regime for FY 2025-26, is generally unavailable to non-residents, so an NRI cannot shelter small gains behind it in the way a resident can. This makes the Rs 1.25 lakh Section 112A exemption the primary annual shield for an NRI equity investor.

Tax Treatment Abroad

Being taxed in India does not end the story; the country of residence usually taxes the same gain and then grants relief. Under Article 24 of the India-US treaty (effective 12 September 1991), the United States gives a foreign tax credit for Indian tax paid, so an NRI in New Jersey who pays 12.5 per cent LTCG in India offsets that against US capital-gains liability rather than paying twice. The credit is limited to the US tax attributable to the same income, so if the US rate is lower than 12.5 per cent, the excess Indian tax is not refunded but may be carried over subject to US rules. Our foreign tax credit calculator illustrates the netting.

Dividend withholding is where treaty rates diverge sharply, and picking the correct rate at source is worth real money. The table below sets out the confirmed portfolio rates. For the United States the portfolio dividend rate is 25 per cent, dropping to 15 per cent only where the recipient holds at least 10 per cent of the voting stock (Article 10, parent-subsidiary case). The United Kingdom treaty (effective 26 October 1993) caps portfolio dividends at 15 per cent, and the UAE treaty at 10 per cent.

For Gulf-based NRIs the position is distinctive: the UAE levies no personal income tax, so there is no foreign tax to credit, and the Indian tax paid is the final tax. The treaty benefit for a UAE resident therefore lies not in a credit but in the reduced 10 per cent dividend withholding and the 12.5 per cent interest ceiling, both conditional on a Tax Residency Certificate proving a UAE establishment, per the treaty note. A resident of the UK or US, by contrast, extracts value chiefly through the Article 24 credit mechanism rather than the withholding rate.

Repatriation Mechanics

The plumbing of moving money is dictated by the account architecture, and this is the practical heart of the repatriable-versus-non-repatriable choice. A Schedule III PIS investment is funded from and credited back to an NRE (Non-Resident External) account, whose balances (principal plus gains) are freely and fully repatriable without any annual ceiling. This is the route for an investor who intends the capital to return abroad. See the NRE account glossary entry for the currency and taxability basics.

A Schedule IV domestic-basis investment routes through an NRO (Non-Resident Ordinary) account. NRO balances are subject to the USD 1 million per financial year remittance-of-assets ceiling under FEMA, and repatriation requires a chartered accountant's certificate in Form 15CB and an online Form 15CA declaration to the Income-tax Department. So while Schedule IV frees the investor from the 10 per cent holding cap, it re-imposes a USD 1 million annual gate on getting money out. Our repatriation calculator helps size a phased remittance against that ceiling.

A third account type, the FCNR(B) foreign-currency deposit, sits outside the equity discussion because it holds term deposits rather than shares, but it matters for parking repatriable funds between trades without exchange-rate risk. For an investor cycling between equity and cash, an NRE-linked PIS demat paired with an FCNR(B) deposit keeps the entire chain repatriable. The TDS glossary entry explains why NRO interest suffers withholding while NRE and FCNR(B) interest does not.

The compliance trigger on exit is Section 195 withholding on the capital gain itself. When an NRI sells listed equity, the buyer's bank withholds tax on the gain before crediting proceeds, and the investor reclaims any excess by filing an Indian return. A repatriable Schedule III exit through NRE carries no USD 1 million ceiling to document, whereas a Schedule IV exit through NRO must be squared against the annual cap.

FAQ

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

No. Once shares are purchased on a non-repatriation basis under Schedule IV, they retain that character; FEMA does not allow a unilateral conversion of the principal to repatriable status. The investor would have to sell in the domestic account and, subject to the USD 1 million per year NRO remittance ceiling, move funds out, then reinvest fresh money on a Schedule III repatriation basis. Plan the route before the first purchase.

Does the 10 per cent aggregate NRI ceiling apply to my personal holding?

The 10 per cent is an aggregate across all NRIs and OCIs on a company's register, not a personal limit; your personal cap under Schedule III is 5 per cent of paid-up capital. When aggregate NRI holding nears the trigger, the RBI places the scrip on a caution or ban list and can stop further NRI purchases, per Master Direction No. 11/2017-18. The 10 per cent can be lifted to 24 per cent only by a special resolution of the company.

Are long-term gains on Indian shares really taxable if I live in the UAE?

Yes. Despite the UAE levying no personal income tax, India retains the right to tax long-term capital gains on shares of an Indian company at 12.5 per cent under Section 112A, and the India-UAE treaty note confirms such gains are taxable in India. There is no "exempt" treatment; the Indian tax is simply the final tax because the UAE imposes none to credit against it.

What rate of TDS applies to my dividends as a US-resident NRI?

Under Section 195 the company withholds at the DTAA rate or the Income-tax Act rate, whichever is lower. For a US-resident portfolio investor the treaty portfolio-dividend rate is 25 per cent, falling to 15 per cent only if you hold at least 10 per cent of the voting stock. To claim the treaty rate rather than the domestic rate you must furnish a valid Tax Residency Certificate and Form 10F.

Can I use the resident LRS limit of USD 250,000 to invest?

No. The USD 250,000 per financial year Liberalised Remittance Scheme limit is for resident individuals sending money out of India; as an NRI you use the repatriation routes instead, funding equity through NRE or NRO accounts. Our companion piece on the LRS versus NRI repatriation route sets out why the two are distinct.

What is the exemption on long-term equity gains for an NRI?

Long-term capital gains on listed equity are taxed at 12.5 per cent under Section 112A only above an annual exemption of Rs 1.25 lakh, effective 23 July 2024. Unlike residents, non-residents generally cannot claim the Section 87A rebate (Rs 60,000 in the new regime for FY 2025-26), so this Rs 1.25 lakh exemption is the principal annual shield for NRI equity gains.

How does repatriation differ between the PIS and domestic routes?

A Schedule III PIS investment funded from an NRE account is fully repatriable with no annual ceiling. A Schedule IV domestic-basis investment through an NRO account can only be remitted within the USD 1 million per financial year limit and requires Form 15CA and a Form 15CB certificate from a chartered accountant. The repatriation calculator helps schedule remittances against that cap.