India continues to be an attractive destination for the investors, including non-resident Indians (NRIs). Investments made by NRIs are generally treated as ‘foreign investment’ from the Indian foreign exchange regulations perspective. These regulations have been liberalized over the years and have facilitated remittances from overseas, making India one of the top recipients of foreign remittances from its diaspora.

A few of the popular investment options generally exercised by the NRIs are discussed below:

Bank deposits

There are predominately three forms of bank accounts that may be opened by NRIs in India. These are:

  • Non-Resident (External) Rupee Account Scheme (NRE Account);
  • Non-Resident Ordinary Rupee Account (NRO Account); and
  • Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR Account).

NRE accounts are primarily operated by the NRIs with an intent to park their foreign earnings/savings in Indian rupees. The account may be maintained in the form of savings, current, recurring, or fixed deposit account, and designated as Non-Resident Rupee Account. The ease of deposit and repatriation of funds from this account and interest being exempt from tax in India makes NRE Accounts a preferred option to park funds in India.

NRO account is preferred in cases where NRIs intend to park only the Indian-sourced income such as rent, pension, dividend, etc. earned and received in India. Remittances outside India from NRO Accounts are permitted up to $1 million per year under the automatic route. Repatriation of an amount exceeding $1 million requires prior approval from the Reserve Bank of India (RBI).

It is pertinent to note that unlike NRE Account, interest earned in the NRO Account is taxable in India. The interest income is added to the total income of the individual and taxed as per the applicable tax slab rates i.e. in India, tax is charged at different rates on the range of income falling under different tax slabs.

FCNR account is designated in foreign currency i.e. funds in this account can be maintained in any permitted currency, which is freely convertible and inter-alia includes US dollar, pound sterling, euro, Japanese yen, Australian dollar, Canadian dollar, etc. FCNR accounts thus provide ease of repatriation of funds as they are maintained in the designated foreign currencies, and protect from foreign exchange rate fluctuations. It is important to note that FCNR accounts can be maintained only in the form of fixed deposit accounts.

The bank accounts mentioned above can be held by the NRI jointly with a resident relative on former or survivor basis. The resident relative can also operate the account as a Power of Attorney holder for specified payments.

Equity investments

Being a fast-growing large economy, investment into equity shares of Indian companies offers an attractive opportunity for investors. NRIs can invest in equity shares of both listed and unlisted companies, subject to certain conditions, sectoral restrictions, and other parameters.

An NRI can invest up to 5% of the paid-up value of the shares of the listed company through a recognized stock exchange in India on repatriation basis, which is further subject to an overall limit of 10% for investments by all NRIs and Overseas Citizens of India (OCIs) put together, in case the company has investments from more than one NRI/ OCI. The 10% limit can be increased to 24% through a special resolution passed by the company. Such investment is treated as ‘foreign portfolio investment’ as per the foreign exchange regulations.

Investment in an unlisted company by an NRI on repatriation basis is treated as ‘foreign direct investment’ which is subject to stricter valuation/pricing norms, sectoral restrictions and reporting requirements.

However, NRIs can purchase equity instruments issued by a company without any limit either on stock exchange or outside it on a non-repatriation basis, subject to certain sectoral restrictions.

As investments under different schemes/options could be made on repatriable or non-repatriable basis, it is important to understand the distinction between the two modes. ‘Investment on repatriation basis’ means investment where the subsequent sale or maturity proceeds (net of taxes) are eligible to be repatriated outside India. On the contrary, the ‘investment on non-repatriation basis’ means its sale or maturity proceeds cannot be repatriated outside India and such investment is treated akin to a domestic investment made by an Indian resident.

Besides capital appreciation, the equity instrument provides recurring return in the form of dividends. Earlier, dividend was subject to Dividend Distribution Tax (DDT) in India which was payable by the Indian company and therefore, dividend was not taxable in the hands of shareholders. DDT has been abolished with effect from 1 April 2020 and dividend is now taxable in the hands of shareholders. The present rate of tax is 20% for non-residents. Such tax is required to be withheld by the company while making payment of dividend, subject to the provisions of the respective Double Taxation Avoidance Agreement (tax treaty), as applicable.

The silver lining is that non-residents may be eligible to take credit for tax withheld by the Indian company on dividends paid to the non-resident, in the country where they are resident, subject to local laws of the resident country/tax treaty, which was a challenge earlier under the DDT regime.

On transfer of shares, NRIs are required to pay capital gains tax in India. The rate of tax depends on the period for which the shares were held by the NRI before transfer and whether the shares are listed or unlisted. Listed shares held for more than 12 months are subject to long-term capital gains tax at the rate of 10% and those held for up to 12 months give rise to short-term capital gains, which are subject to tax at 15%.

In the case of unlisted shares, the holding period should be more than 24 months to qualify as long-term capital gains, and the tax rate is same as listed shares i.e. 10%. However, short-term capital gains on sale of unlisted shares are taxable at the applicable slab rates.

Mutual funds

Broadly, the NRIs are allowed to purchase units of mutual funds without restrictions irrespective of the type of Mutual fund i.e. whether equity-oriented or debt-oriented.

Similar to equity, return from investment in mutual funds is primarily in the form of dividends and governed by the similar taxing principles, as equity dividends.

Transfer/redemption of units of equity-oriented mutual funds held for a period exceeding 12 months are classified as long-term capital gains which are subject to tax at 10% and those held for up to 12 months are classified as short-term capital gains which are taxable at 15%.

In case of debt-oriented mutual funds, the holding period should be more than 36 months to qualify as long-term capital gains, which are taxable at 20%, whereas those held for up to 36 months are classified as short-term capital gains and are taxable at applicable slab rates.

In addition to the above, NRIs are also permitted to invest in government securities, treasury bills, exchange traded funds, bonds issued by public sector undertakings and infrastructure debt funds, listed non-convertible debentures, redeemable preference shares, debentures, national plan/saving certificates, debt instruments issued by banks etc. either on repatriation basis or non-repatriation basis. The tax implications would vary with the type of instruments.

Also, investment into real estate is another popular investment avenue with the NRIs, as they generally want to have a base/connect with India.

The current pandemic and the lock downs have severely impacted the global economy and India is not an exception. However, considering the potential of the Indian economy and likely growth in near future, the above instruments, along with other investment options, still remain attractive for the NRIs to continue remitting funds and investing in India.


The tax rates mentioned in this article are exclusive of applicable surcharge and education cess, as applicable. This should be taken into account to compute the actual/effective rate of tax. Further, NRIs can avail of the benefit of lower tax rates under the Double Tax Avoidance Agreement between India and the country of their residence, as applicable.

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  1. Chandani says:

    NRIs need not pay double taxes. There is a provision called DTAA (Double Taxation Avoidance Treaty). If the DTAA is signed between India and the country of residence of the NRI, the NRI will not be paying double taxes on the same source of income. NRIs will however need to pay differential taxes. (For example: If for a certain investment, taxes are 30% in India and 40% in the USA, NRIs from the USA need to pay the remaining 10% to US.)

  2. Radhika Arora says:

    I was running some SIP through my savings account before I became NRI Now I have settled in US and does not have any income in US . But my SIP are still running from my savings account in India , will there be any tax implications if I decide to redeem them ?
    Also if I decide to leave them as it is n continue to run them through my savings account is it fine?


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March 2024