investing in india as a non-resident indian is not the same as investing as a resident. the rules are different. the accounts are different. the tax treatment is different.
getting the basics right matters. a mistake in account type or compliance can lead to penalties. here is what a beginner needs to know.
first. check your residency status
for tax purposes, residency is not about citizenship. it is about how many days were spent in india during a financial year .
an individual is considered a resident if they stay in india for 182 days or more in a financial year. or if they stay for 60 days or more in the current year and 365 days or more across the preceding four years .
for nris or persons of indian origin visiting india, the 60-day period extends to 120 days if the total indian income exceeds ₹15 lakh .
getting this status wrong affects the entire tax calculation. if classified as resident, global income becomes taxable in india .
the right bank accounts. nre vs nro
before any investment, the bank accounts need to be set up correctly .
nre account (non-resident external). for foreign earnings converted to rupees. interest is tax-free. both principal and interest are fully repatriable. this is the preferred account for sending money from abroad into india .
nro account (non-resident ordinary). for income earned in india. rent. dividends. pensions. interest is taxable. repatriation is limited to usd 1 million per financial year, subject to compliance .
nre vs nro. key differences.
| feature | nre account | nro account |
|---|---|---|
| source of funds | foreign earnings | indian income |
| tax on interest | tax-free | taxable |
| repatriation | fully repatriable | up to usd 1 million/year |
| best for | investing foreign savings | managing indian income |
one rule. when an indian resident becomes an nri, existing resident accounts must be converted to nro/nre accounts within a reasonable time. continuing to use a resident account as an nri is a fema violation .
how nris invest in stocks. the pis account
for buying and selling indian stocks, nris need a portfolio investment scheme account .
pis accounts are linked to nre accounts for fully repatriable investments. non-pis accounts are linked to nro accounts for investments where repatriation is not a priority .
under the 2026 fema amendments, the individual investment limit for overseas individuals under pis has been increased from 5% to 10% of a company’s paid-up capital. the aggregate limit for all such individuals has increased from 10% to 24% .
nris can invest only in the delivery segment. equity intraday, currency trading, and commodity trading are not allowed. but futures and options are permitted through nro non-pis accounts .
investing in mutual funds. the simpler route
nris do not need a demat account to invest in mutual funds. they can invest through nre or nro accounts .
the process involves three steps:
step 1. complete kyc. required documents include a valid passport, pan card, proof of foreign address or nri status, and an nre/nro account statement. in-person verification can be done through video kyc, at an indian embassy or consulate, or through authorised kyc agencies .
step 2. open a mutual fund folio. register with a registrar and transfer agent like cams or kfintech. a fatca declaration may be required depending on the country of residence .
step 3. start investing. lump sum or sip. both are available. sips start from as low as ₹500 .
some asset management companies do not accept investments from us and canada-based nris due to fatca compliance requirements .
tax implications for nri investments
tax on mutual funds.
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equity funds held for more than 12 months: ltcg at 12.5% on gains above ₹1.25 lakh.
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equity funds held for less than 12 months: stcg at 20%.
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debt funds: all gains taxed at slab rate. no indexation benefit for units bought after april 1, 2023 .
tds on nri redemptions.
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equity ltcg: tds at 12.5% on gains above ₹1.25 lakh.
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equity stcg: tds at 20%.
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debt funds: tds at 30% .
tds is deducted before the proceeds are credited to the nre/nro account. if the actual tax liability is lower than the tds deducted, a refund can be claimed by filing an itr .
double taxation avoidance agreement. india has dtaas with over 90 countries. under these, if income is taxed in india, credit can be claimed in the country of residence .
common compliance mistakes
continuing to hold a resident savings account after becoming nri. this is a fema violation and attracts penalties .
not informing the bank about the change in residential status. banks are required to monitor status changes and can freeze accounts .
mixing nre and nro credits. nre accounts should only receive foreign earnings. indian income like rent should go to nro accounts .
ignoring foreign asset reporting. if total earnings exceed ₹50 lakh, assets and liabilities in india must be reported in the itr .
FAQs
1. can an nri invest in mutual funds in india ?
yes. through nre or nro accounts. kyc is mandatory. nris from us and canada may face restrictions with some amcs due to fatca requirements .
2. what is the difference between nre and nro accounts ?
nre accounts hold foreign earnings. interest is tax-free. funds are fully repatriable. nro accounts hold indian income. interest is taxable. repatriation is limited to usd 1 million per year .
3. what itr form should an nri file ?
itr-2 for most nris. itr-3 for those with business income. itr-1 and itr-4 cannot be used by nris .
4. are nris taxed on foreign income in india ?
no. nris are taxed only on income that accrues or arises in india. foreign salary is not taxable in india .
5. what is the pis account and is it mandatory ?
pis is the portfolio investment scheme for nris to trade in indian stocks. it is mandatory for trading on a repatriable basis. non-pis accounts are used for non-repatriable investments .
