NRI Investment Guide — What You Can and Cannot Invest In

India presents a compelling investment opportunity for Non-Resident Indians, with a growing economy, a deepening capital market, and a regulatory framework that, while complex, is designed to facilitate NRI participation. The key to successful NRI investing lies in understanding both the opportunities and the constraints that differentiate NRI investors from resident investors.

Mutual funds remain one of the most popular investment vehicles for NRIs, offering professional management, diversification, and relatively easy access. NRIs can invest in most equity and debt mutual fund schemes through SIP (Systematic Investment Plans) or lump-sum investments. The process involves completing KYC with a KRA, providing FATCA self-declaration, and routing investments through an NRE (for repatriable investments) or NRO (for non-repatriable investments) account. However, NRIs from the United States and Canada face significant hurdles: many Indian AMCs refuse to accept applications from US/Canada residents due to FATCA compliance costs, and those that do require extensive additional documentation. More critically, Indian mutual funds are classified as PFICs under US tax law, making them tax-inefficient for US-based NRIs.

Direct equity investment through the Portfolio Investment Scheme (PIS) is the alternative for NRIs who want exposure to Indian stocks. The PIS route requires opening a designated bank account, a demat account, and a trading account with an NRI-friendly broker. All purchases and sales are reported to the RBI through the designated bank. NRIs can invest on both repatriation (NRE-linked) and non-repatriation (NRO-linked) basis. The 10% individual cap and 24% aggregate cap per company must be respected. For US NRIs, direct equity avoids the PFIC problem entirely, making it the preferred route.

The National Pension System (NPS) is accessible to NRIs and offers an additional retirement savings vehicle with tax benefits under Section 80CCD. NRIs can contribute to NPS through their NRE or NRO accounts. OCI holders are not eligible for NPS. The scheme offers the same fund choices and tier structure as for residents. On maturity, 60% of the corpus can be withdrawn as a lump sum (partially tax-free), and the remaining 40% must be used to purchase an annuity.

Real estate investment is covered in detail in our dedicated NRI Real Estate guide, but in summary: NRIs can buy residential and commercial property but not agricultural land, farmhouse, or plantation. Tax implications include TDS at source on both purchase (for TDS compliance) and sale (12.5% to 30% of sale consideration). Repatriation of sale proceeds follows specific rules based on the original source of funds.

Government securities, corporate bonds, and REITs/InvITs offer additional avenues for NRI investors. Sovereign Gold Bonds (SGBs) are available on the secondary market through demat accounts, though primary issuance is restricted to residents. Corporate bonds and debentures can be bought on both repatriation and non-repatriation basis. REITs and InvITs provide exposure to India's real estate and infrastructure sectors with lower investment minimums and better liquidity than direct property investment.

The tax treatment of NRI investments follows the same broad structure as for residents, but with higher TDS rates (typically 30% on most income types) and no basic exemption limit for certain income heads. DTAA benefits can reduce the effective tax rate depending on the country of residence. NRIs should maintain meticulous records of all investments, TDS certificates, and filed returns to claim Foreign Tax Credits in their country of residence and avoid double taxation. Our NRI Tax Calculator helps model these scenarios with country-specific DTAA rates.