PIS account for NRIs: SEBI/RBI framework, 10% per company cap, and the abolished old PIS regime

The Portfolio Investment Scheme, or PIS, is the only legal route through which a non-resident Indian can buy and sell listed Indian equities on a repatriable basis. It is not a SEBI product. It is an exchange-control gateway built into the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, notified on 17 October 2019 and administered by the Reserve Bank of India through authorised dealer (AD) Category-I banks.

Until 2017, every PIS account required a separate RBI permission letter and reporting was daily. RBI Circular A.P. (DIR Series) No. 38 dated 03 August 2017 abolished case-by-case PIS approval and moved reporting to a monthly cycle, making the designated bank, not the central bank, the day-to-day compliance officer. The per-company and aggregate limits, however, remain hard-coded into Schedule III.

With the new capital gains regime that took effect from 23 July 2024, the post-PIS tax bill on equities was also redrawn. Short-term gains under Section 111A now attract 20% and long-term gains under Section 112A attract 12.5% above the Rs 1.25 lakh threshold, with TDS deducted at source under Section 195. This piece walks through the FEMA gateway, the SEBI conduct rules, the post-2024 tax matrix, and the repatriation plumbing that holds the structure together.

FEMA / DTAA Position

PIS sits in Schedule III of the FEMA (Non-debt Instruments) Rules 2019, the rulebook for portfolio investment by NRIs and Overseas Citizens of India (OCIs). It authorises an NRI or OCI to purchase or sell shares and convertible debentures of an Indian listed company, but only through a designated branch of an AD Cat-I bank and only on delivery basis. Short-selling and uncovered F&O positions are not permitted under PIS; cash-settled F&O and intraday squaring-off without delivery are barred for NRI clients by SEBI broker policy applied uniformly since the NSE-BSE Joint Circular dated 06 November 2020.

The schedule fixes the per-investor and aggregate caps that every PIS broker must monitor in real time. Rule 2 of Schedule III is summarised below.

The 10% aggregate ceiling is the figure that triggers the RBI 'red flag' on its FII/NRI monitoring list. Once aggregate NRI holding in a scrip crosses 8%, RBI issues a caution notice; at 10% a ban on further NRI purchases comes into effect until the company passes a board resolution followed by a special resolution to widen the cap to 24%.

On the DTAA side, the PIS route does not by itself create any treaty entitlement. The treaty position attaches to the income, not the conduit. For an NRI in the United States, the India-USA DTAA notified on 12 September 1991 lets India tax capital gains on Indian shares at its domestic rate (Article 13 paragraph 5), which is 12.5% for LTCG under Section 112A. For dividends, Article 10 caps the Indian withholding at 15% for portfolio holdings below 10% of voting capital, against the domestic rate of 20% under Section 195. The treaty rate is available only on production of a Tax Residency Certificate and a Form 10F filed on the e-filing portal, fully digital from 01 April 2023 per CBDT Notification 03/2022.

Tax Treatment in India

The tax architecture for PIS gains pivots on whether the security is held for more than 12 months and whether Securities Transaction Tax (STT) has been paid on both legs of the trade. The 23 July 2024 Finance Bill rewrote the headline rates, and the new figures apply to transfers on or after that date.

Three mechanical points matter for the PIS investor. First, the surcharge on long-term gains is capped at 15% under the proviso to Section 2 of the Finance Act 2024, with the overall new-regime surcharge for NRIs capped at 25%. Second, the Rs 1.25 lakh exemption under Section 112A is per assessee per financial year and is applied at source only for resident clients; for an NRI, the broker deducts 12.5% on the full gain and the threshold benefit is claimed in the return of income under Section 139(1).

Third, dividend received from an Indian company no longer enjoys the Section 10(34) shield, which was repealed by the Finance Act 2020 from FY 2020-21 and is taxed in the hands of the NRI at 20% under Section 195 with surcharge and cess. The 5% concessional rate under Section 196D applies only to FPIs, not to PIS investors. NRIs can model the surcharge cap and cess interaction using the NRI tax calculator on Oquilia.

There is also a procedural quirk. The designated AD bank issues a yearly Form 26AS-linked TDS certificate, but it must be cross-verified against broker contract notes because the broker deducts under Section 195/112A while the bank reports the foreign-exchange leg under FEMA returns. A mismatch shows up in the Annual Information Statement and delays the refund. The CBDT's portal at incometax.gov.in publishes a quarterly utility for NRIs to reconcile AIS with 26AS.

Tax Treatment Abroad

When the PIS capital gain or dividend is repatriated to the country of residence, the home-country authority taxes the same income subject to a foreign tax credit (FTC) for the Indian tax paid. The mechanics differ by treaty but the broad pattern is consistent across the six major NRI destinations.

The key point is that India never gives up its taxing right on capital gains under PIS. The treaty does not waive Indian tax; it preserves the domestic rate and gives the resident country the obligation to credit the Indian tax. For an NRI in Dubai, the Indian 12.5% LTCG is the final tax because the UAE does not tax personal capital gains. For a US-resident NRI, the 12.5% Indian tax becomes a credit against the federal 15% or 20% LTCG bill, leaving a residual of up to 7.5% payable to the IRS.

Dividends from Indian companies follow Article 10 of the relevant DTAA. The India-USA treaty caps Indian withholding at 15% for portfolio holdings, below the domestic 20%, so the NRI saves 5 percentage points after filing Form 10F and a TRC. The same 15% cap applies in the India-UK and India-Singapore treaties; the India-UAE treaty caps dividend withholding at 10% under Article 10(2)(b), the lowest in the Indian network.

For a deeper look at how the UAE treaty mechanics interact with PIS dividends, see the India-UAE DTAA 10% dividend rate explainer. For US-resident NRIs holding salary alongside PIS gains, the FTC claim interacts with the 183-day test, covered in the India-USA DTAA Article 15 piece.

Repatriation Mechanics

The PIS account is bifurcated by intent. An NRI who wants to take sale proceeds back in convertible foreign exchange opens an NRE-PIS account; one content to keep proceeds in Indian rupees opens an NRO-PIS account. The choice determines the source of funds for the buy leg and the route for the sale proceeds, and the bank cannot mix the two.

The USD 1 million per financial year cap on NRO repatriation comes from the Foreign Exchange Management (Remittance of Assets) Regulations 2016, regulation 4. Repatriation above this requires RBI approval, granted only in narrow cases such as immovable property inheritance. The Oquilia repatriation calculator models the year-by-year drawdown including TDS and bank-charge friction.

There is also a procedural step that is often missed. To remit sale proceeds out of the NRO-PIS account, the bank requires Form 15CA filed online and Form 15CB signed by a chartered accountant for each tranche above Rs 5 lakh in a financial year. This comes from Rule 37BB of the Income-tax Rules 1962, last amended by CBDT Notification 67/2023 dated 24 August 2023, which moved the entire filing to the e-filing portal.

For NRIs who also earn rental income from Indian property and route it through the NRO-PIS account, the interaction with Section 195 TDS on rent (10% under Section 194-IB read with Section 195) is layered. The USD 1 million cap applies across all NRO sources, not per source, so a year of high rental plus PIS realisation needs careful sequencing. The NRI rental income tax calculator handles the combined arithmetic.

A final note on the abolished old PIS regime. Until 03 August 2017, an NRI could hold only one PIS bank in India, and a daily report had to flow from that bank to RBI Mumbai for every buy and sell. The post-2017 regime allows multiple demat accounts but still only one designated PIS bank, with monthly reporting under FIRS and the LEC (NRI) return. The relevant master direction is RBI Master Direction on Reporting under FEMA, last updated on 12 May 2025, available on rbi.org.in.

FAQ

Can an NRI invest in Indian mutual funds through the PIS account?

No. PIS is only for direct equity and convertible debentures listed on a recognised stock exchange. Mutual fund investment by NRIs is governed by Schedule V of the FEMA NDI Rules 2019 and uses the regular NRE or NRO savings account, not a PIS designated account. SEBI's 2024 KYC Master Circular requires the NRI to complete the FATCA-CRS declaration with the AMC or RTA directly.

What is the tax rate on intra-day equity trades by an NRI?

Intra-day trades, where there is no delivery, are treated as speculative business income under Section 43(5) of the Income-tax Act 1961. For an NRI, the income is taxed at slab rates plus surcharge (capped at 25% in the new regime) plus 4% cess. PIS rules require delivery, so most brokers do not allow intra-day for NRI clients; trading outside the PIS gateway risks a contravention notice under Section 13 of FEMA 1999.

Does the Rs 1.25 lakh LTCG exemption under Section 112A apply to NRIs?

Yes. The exemption is per assessee per financial year and applies regardless of residential status. The broker deducting TDS under Section 195 read with Section 112A does not apply the exemption at source for an NRI; the threshold benefit is claimed in the return of income under Section 139(1). For FY 2025-26, the exemption stays at Rs 1.25 lakh, unchanged from the Finance (No. 2) Act 2024.

Can an OCI hold 10% in a single Indian listed company through PIS?

The individual ceiling for an OCI under Schedule III is 5% on a repatriable basis through PIS. The 10% figure that often appears in commentary refers to the separate OCI window for non-repatriable investment under Schedule IV, which does not count against the FII/NRI aggregate. An OCI who wishes to cross 5% on a single scrip must use the Schedule IV non-repatriable route.

How is dividend from an Indian listed company taxed for a PIS investor?

Under Section 56(2)(i) read with Section 195, dividend paid to an NRI is taxed at 20% with applicable surcharge (capped at 15% on dividend income) and 4% cess. Section 10(34) was repealed by the Finance Act 2020 from FY 2020-21. The DTAA may reduce the rate to 10% (UAE) or 15% (USA, UK, Singapore, Canada) on production of a TRC and Form 10F.

What happens if NRI aggregate holding crosses the 10% ceiling?

RBI issues a caution at 8% and a ban on further NRI purchases at 10%. The company can raise the ceiling to 24% by passing a board resolution followed by a special resolution in general meeting, after which the AD bank notifies RBI under Regulation 21 of the FEMA NDI Rules. Until then, no NRI can buy the scrip on the exchange; existing holdings can be sold but not added to.

Is the old PIS permission letter from before 2017 still valid?

Yes for continuity of account, but the designated bank now monitors compliance under the post-2017 framework. The old letter does not need to be surrendered, and no fresh permission is required to open additional demat accounts under the same designated PIS bank. The NRI must, however, give an undertaking under the bank's revised PIS terms incorporating the August 2017 changes.