NRI and OCI Stock Investing in India: Repatriable vs Non-Repatriable Routes Under the Foreign Investment Master Direction

For a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) cardholder, buying shares on the Bombay Stock Exchange or the National Stock Exchange is not a single decision but two. The Reserve Bank of India (RBI), in Master Direction No. 11/2017-18 on Foreign Investment in India (RBI/FED/2017-18/60, dated 4 January 2018 and last updated 20 January 2025), draws a hard line between investing on a repatriation basis (Annex 3) and a non-repatriation basis (Annex 4). The route you pick at the moment of opening your trading account determines whether your sale proceeds can ever leave India, which bank account they settle into, and how the Income Tax Act, 1961 treats the gain. This guide walks through both routes, the tax that bites in India, the foreign-tax-credit interaction abroad, and the precise mechanics of moving money out.

The distinction matters because it cannot be reversed mid-stream. Shares bought under Annex 3 settle through a Non-Resident External (NRE) linked Portfolio Investment Scheme (PIS) account; shares bought under Annex 4 settle through a Non-Resident Ordinary (NRO) account. The two cannot be co-mingled, and a 12.5% long-term capital gains rate under Section 112A applies to both, so the choice is about liquidity and repatriation freedom, not about saving tax at the gain stage.

FEMA / DTAA Position

Under the RBI Master Direction No. 11/2017-18, an NRI or OCI may purchase and sell equity instruments of listed Indian companies on a recognised stock exchange. On the repatriation basis set out in Annex 3, the sale or maturity proceeds, net of applicable taxes, are eligible to be repatriated outside India. On the non-repatriation basis in Annex 4, the same instruments are treated on par with domestic investment, and the sale or maturity proceeds are not eligible to be repatriated outside India.

The Master Direction also caps the individual shareholding. A single NRI or OCI may hold up to 5% of the paid-up value of each series of equity instruments of a listed Indian company on a repatriation basis, while the aggregate ceiling for all NRIs and OCIs taken together is 10% of the total paid-up value, which can be raised to 24% only if the company passes a special resolution of its general body. Gift transfers add a further constraint: a person resident in India may gift equity instruments to a person resident outside India only up to a value of USD 50,000 per financial year and not exceeding 5% of the paid-up capital of the investee company.

The route is operationalised through the Portfolio Investment Scheme, under which each NRI or OCI designates a single bank branch to route all secondary-market trades. The same person cannot run two repatriable PIS accounts simultaneously, and the designated bank reports every buy and sell to the RBI so that the 5% individual and 10% aggregate ceilings are monitored in real time. This is why the repatriation character is fixed when the account is designated under Annex 3 or Annex 4, not at the point of any later sale.

For the Double Taxation Avoidance Agreement (DTAA) overlay, the residence country of the NRI sets the treaty rates. India retains the right to tax capital gains arising on shares of an Indian company in every major treaty; none of them grants an exemption. The India-United States treaty has been in force since 12 September 1991, the India-United Kingdom treaty since 26 October 1993, and the India-United Arab Emirates treaty since 22 September 1993. The UAE protocol expressly records that capital gains on shares of an Indian company remain taxable in India, which forecloses the popular assumption that a Gulf-based NRI escapes Indian capital-gains tax.

Tax Treatment in India

In India, the gain on listed equity is taxed under two heads regardless of which FEMA route funded the purchase. Short-term capital gain under Section 111A (holding period of 12 months or less) is taxed at 20%, raised from 15% by the Finance (No. 2) Act, 2024 with effect from 23 July 2024. Long-term capital gain under Section 112A (holding period above 12 months) is taxed at 12.5%, with the first Rs 1,25,000 of aggregate long-term equity gain exempt in a financial year.

Surcharge then layers on top of the base tax. The standard surcharge slabs are 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. For income above Rs 5 crore the surcharge is capped at 25% in the new tax regime. Critically, the surcharge on capital gains taxed under Sections 111A and 112A is itself restricted to a maximum of 15%, so a high-income NRI does not suffer the 25% enhanced surcharge on the equity gain itself. A health and education cess of 4% then applies to the sum of tax and surcharge.

Tax is collected at source before the money reaches you. Section 195 of the Income Tax Act obliges the deductor, the broker or the bank operating the PIS account, to withhold tax on the capital gain of a non-resident at the time of sale. On non-repatriable NRO holdings the bank deducts at the Section 111A and 112A rates plus surcharge and cess. You can model the after-tax position before you trade using Oquilia's NRI tax calculator, and if you also hold let-out property the NRI rental income tax calculator handles the separate house-property head.

Tax Treatment Abroad

Because the NRI is, by definition, tax-resident somewhere else, the same gain may be taxed again in the country of residence. The DTAA resolves the double charge through a foreign tax credit (FTC) rather than an exemption. Article 24 of the India-US treaty, in force since 12 September 1991, grants a resident of the United States a credit in the US for the income tax paid in India, subject to US domestic limitations. The mechanism is mirrored in the UK and UAE treaties.

To actually claim the Indian tax as a credit, most residence countries require documentary proof of the tax paid in India, typically the Section 195 TDS certificate and the Indian return acknowledgement. Indian residents claiming an FTC in the reverse direction file Form 67 before the return due date; an NRI claiming credit abroad follows the analogous form prescribed by the residence jurisdiction. The credit is always limited to the lower of the Indian tax suffered and the residence-country tax on the same income, so a treaty never produces a refund of excess Indian tax, only relief from double taxation.

The treaty rate cap matters most for dividend and interest income, which an equity investor also receives. The table below sets out the maximum rate India may charge at source under each treaty, drawn from the operative articles of the agreements notified by the Central Board of Direct Taxes.

A practical trap sits inside the US dividend column. Under Article 10 of the India-US treaty the 15% concessional rate applies only where the recipient holds at least 10% of the voting stock of the paying company; for an ordinary portfolio holder the treaty rate is 25%. A UAE-resident NRI, by contrast, faces a 10% treaty cap on dividends but must produce a valid Tax Residency Certificate evidencing a UAE establishment to claim it, as the treaty notes require.

Repatriation Mechanics

The repatriation question is where the NRE/NRO/FCNR architecture finally bites. Funds held in an NRE account are fully and freely repatriable, both principal and interest, which is why Annex 3 repatriable equity settles there. An FCNR(B) deposit, held in foreign currency, is likewise fully repatriable and shields the holder from rupee depreciation over the deposit term. These are the channels for money that must be free to leave India.

The NRO account is the constrained one. Balances in an NRO account, including the non-repatriable Annex 4 sale proceeds and rupee income such as rent or dividends, may be remitted abroad only up to USD 1 million per financial year, across all NRO accounts, under the RBI facility. The remittance requires a chartered accountant's certificate in Form 15CB and an online declaration in Form 15CA confirming that the applicable Indian tax has been paid. Oquilia's NRI repatriation calculator helps you track that USD 1 million envelope across multiple remittances in a year.

A common sequencing error is to sell Annex 4 shares expecting free repatriation. The proceeds land in the NRO account and immediately count against the USD 1 million annual ceiling; there is no separate carve-out for equity proceeds. By contrast, Annex 3 proceeds credited to the NRE account face no such limit. The repatriation freedom was therefore decided years earlier, at the point the PIS account was designated, not at the point of sale.

For an NRI weighing the two routes, the practical takeaway is to map the destination of the money before opening the account. If the capital was earned abroad and must eventually return abroad, the NRE-linked repatriable PIS route under Annex 3 preserves that freedom without the USD 1 million constraint. If the capital is rupee income already in India that will be spent or reinvested in India, the non-repatriable NRO route under Annex 4 is simpler and equally tax-efficient at the 12.5% long-term rate. The tax outcome is identical at the gain stage; only the liquidity differs.

FAQ

Can an NRI hold both repatriable and non-repatriable shares in the same company?

Yes. The two are tracked through different settlement accounts, an NRE-linked PIS account for the repatriable Annex 3 holding and an NRO account for the non-repatriable Annex 4 holding. They are reported separately and cannot be moved between routes without selling and re-buying, which would crystallise the capital gain under Sections 111A or 112A.

Is a UAE-based NRI exempt from Indian capital gains tax on listed shares?

No. The India-UAE DTAA, in force since 22 September 1993, records that capital gains on shares of an Indian company remain taxable in India. Long-term gains above Rs 1,25,000 are taxed at 12.5% under Section 112A. The treaty never describes these gains as exempt; it allocates the taxing right to India.

What is the maximum I can repatriate from my NRO account each year?

USD 1 million per financial year, across all your NRO accounts taken together, under the RBI facility. The remittance must be supported by Form 15CA and Form 15CB confirming that Indian tax has been paid on the underlying income, which can include Annex 4 equity sale proceeds, rent and dividends.

What rate of TDS applies when I sell listed shares as an NRI?

The deductor withholds under Section 195 at the substantive rates: 20% on short-term gains under Section 111A for transfers on or after 23 July 2024, and 12.5% on long-term gains under Section 112A above the Rs 1,25,000 annual exemption, plus surcharge capped at 15% on such gains and a 4% cess.

Does the surcharge on my equity gains go up to 25% if my income exceeds Rs 5 crore?

No. While the standard surcharge for income above Rs 5 crore is 25% in the new regime, the surcharge on capital gains taxed under Sections 111A and 112A is separately capped at 15%. The enhanced surcharge does not apply to the listed-equity gain itself.

How much can be gifted as shares to a non-resident relative?

A person resident in India may gift equity instruments to a person resident outside India up to USD 50,000 per financial year, and the gift must not exceed 5% of the paid-up capital of the investee company, per the RBI Master Direction No. 11/2017-18.