Non-Resident Indian (NRI)

A Non-Resident Indian (NRI) is an Indian citizen who is resident outside India as defined under the Foreign Exchange Management Act, 1999 (FEMA). In the context of Indian capital markets, NRI status determines the accounts through which an investor may hold rupee funds and securities in India, the regulatory permissions required to invest in equity, and the repatriation rights on investment proceeds. NRIs occupy a distinctive position in the investor-category framework of the Indian primary market: they are eligible to subscribe to Initial Public Offerings (IPOs) but are subject to exchange-control conditions that differ materially from those applicable to resident Indian investors, including restrictions on the use of UPI ASBA and conditions tied to whether the investment is made on a repatriation or non-repatriation basis.

This article covers the FEMA definition of an NRI, the two principal bank account types available to NRIs (NRO and NRE), the Portfolio Investment Scheme (PIS) and non-PIS modes of secondary market investment, the constraints applicable to NRI participation in IPOs, and the segment restrictions that apply to NRI accounts on Indian stock exchanges.

FEMA definition of a Non-Resident Indian

FEMA defines “persons resident outside India” in Section 2(w) as persons who are not “persons resident in India.” Section 2(v) defines a person resident in India as: (a) a person residing in India for more than 182 days during the preceding financial year, with exceptions for persons who left India for employment, business, or vocation outside India; and (b) persons who have come to India for the purpose of taking up employment, carrying on business, or for any other purpose indicating an intention to stay for an uncertain period.

The RBI has clarified, through various circulars under FEMA, that an Indian citizen who has gone abroad for employment, education, or business and stays outside India for more than 182 days in a financial year qualifies as an NRI for exchange-control purposes. Day-counting uses the Indian financial year (1 April to 31 March). A person may shift between resident and NRI status from one financial year to another depending on physical presence, which creates transitional situations, particularly for persons on short-term overseas assignments, that require careful review.

Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) are treated as NRIs for many capital-market purposes under FEMA notifications, though the precise scope of their entitlements varies by instrument and RBI notification. OCIs, in particular, hold a lifetime visa status conferring many privileges of NRIs and are generally treated as NRIs for the purpose of the foreign exchange facilities discussed in this article.

NRO and NRE bank accounts

An NRI may hold two types of rupee-denominated bank accounts in India: the Non-Resident Ordinary Rupee Account (NRO) and the Non-Resident (External) Rupee Account (NRE). The distinction is fundamental to understanding how NRIs participate in the Indian primary market.

NRO account

An NRO account is a rupee-denominated savings or current account held by an NRI in India for the purpose of collecting India-sourced income, such as rental income, dividends, pension payments, and sale proceeds from assets in India. Key features:

• Repatriation. Funds in an NRO account are not freely repatriable. An NRI may repatriate up to USD 1 million per financial year from an NRO account, after payment of applicable taxes, subject to RBI conditions.
• Interest. Interest income on NRO accounts is taxable in India at 30 per cent (plus surcharge and cess) for NRIs, unless a double-taxation avoidance agreement (DTAA) between India and the NRI’s country of residence provides for a lower withholding rate.
• Source of funds. NRO accounts may be credited from Indian-source income as well as from inward remittances and transfers from other NRO accounts. They may not be freely credited from foreign currency earnings in the way NRE accounts can.
• Joint holding. NRO accounts can be held jointly with a resident Indian.

NRE account

An NRE account is a rupee-denominated savings or current account held by an NRI in India for the purpose of parking foreign earnings remitted into India. Key features:

• Repatriation. Both the principal and interest in an NRE account are freely repatriable without RBI approval. There is no annual cap.
• Interest. Interest income on NRE savings accounts is exempt from Indian income tax under Section 10(4) of the Income Tax Act, 1961, for the period the account holder maintains NRI status.
• Source of funds. NRE accounts must be funded from foreign currency earnings remitted from outside India or from transfers from other NRE/FCNR(B) accounts. Credits from NRO accounts or from Indian-source income are not permitted.
• Joint holding. NRE accounts may be held jointly only with another NRI; joint holding with a resident Indian is not permitted.

Relevance to IPO applications

An NRI applying in a mainboard IPO must designate whether the investment is on a repatriation basis (using NRE account funds, giving the right to repatriate sale proceeds freely) or a non-repatriation basis (using NRO account funds, with repatriation subject to the USD 1 million annual cap). This designation affects the category in which the NRI is treated:

• An NRI applying on a non-repatriation basis with a bid value up to ₹2,00,000 may be treated as a Retail Individual Investor (RII) and participate in the 35 per cent retail quota, provided the application is otherwise valid and the SCSB accepts the NRO account for blocking. In practice, some SCSBs and registrars route all NRI applications to the NII category regardless of bid value; the treatment may vary by issue.
• An NRI applying on a repatriation basis (from NRE account) is generally classified as an Non-Institutional Investor (NII) regardless of bid size, because the repatriation basis is associated with foreign investment, and SEBI’s framework treats repatriation-basis investment as distinct from resident retail investment.

Issuers specify in their Red Herring Prospectus (RHP) the conditions under which NRIs may apply and which investor category they fall into. NRIs should review the RHP carefully before applying.

Portfolio Investment Scheme (PIS) and non-PIS modes

The Reserve Bank of India (RBI) regulates NRI investment in Indian shares through Schedule 3 of the FEMA (Non-Debt Instruments) Rules, 2019, which provides for the Portfolio Investment Scheme. PIS is relevant primarily to secondary market transactions, but its architecture also shapes NRI IPO participation.

PIS mode

Under PIS, an NRI designates one bank in India as the authorised PIS bank. The NRI holds either an NRO or NRE PIS account with this bank, through which all secondary market purchase and sale transactions are routed. The NRI’s stockbroker executes the trades, but settlement passes through the PIS account at the designated bank.

Key PIS constraints:

• Only one bank can serve as the PIS bank for a given NRI’s portfolio at any time; the NRI cannot split PIS transactions across multiple banks.
• The NRI’s aggregate holding (across PIS and non-PIS) in any listed Indian company is subject to individual and aggregate sectoral caps under FEMA. The individual cap is generally 5 per cent of the paid-up equity capital of the Indian company; the aggregate NRI cap is 10 per cent, extendable to 24 per cent with board resolution and SEBI/RBI approval.
• PIS accounts cannot be used for futures and options (F&O) trading. This is the key segment restriction on NRI accounts.

Non-PIS mode

An NRI may also hold Indian shares acquired through non-PIS routes, for example, shares received as inheritance, shares acquired before becoming an NRI, or shares allotted in IPOs, in a non-PIS demat account. These shares may be sold in the secondary market without routing through the PIS account, though the NRI must ensure that sale proceeds are credited to the NRO account and that capital gains tax is deducted at source (TDS) by the broker at the applicable rate (15 per cent for short-term gains on listed equity, 10 per cent for long-term gains above ₹1 lakh per year, as of mid-2026).

Shares allotted in an IPO are generally considered to be acquired through the non-PIS route (since there is no secondary market purchase involved). The NRI may hold IPO allotted shares in either a PIS or non-PIS demat account, depending on their account structure and the conditions specified in the RHP.

NRI participation in IPOs: operational mechanics

Bank ASBA as the applicable route

NRIs applying in Indian IPOs must use the bank ASBA route through an SCSB. NRI accounts are not linked to Indian UPI handles in the manner required for UPI ASBA, and SCSBs do not issue UPI VPAs to NRO or NRE accounts in the standard retail UPI framework. The reason is structural: UPI mandates require the payer’s bank to honour an instant payment instruction within the UPI ecosystem, which is built on IMPS rails and designed for resident Indian accounts. NRO and NRE accounts, while held in Indian banks, are subject to exchange-control conditions that require additional verification before funds can be blocked or debited for capital-market transactions, and the UPI infrastructure does not incorporate those checks.

As a result, NRIs cannot use broker-intermediated UPI ASBA for IPO applications, regardless of bid amount. Their sole route is bank ASBA through the NRI’s SCSB, accessing the IPO application through the bank’s NetBanking interface or physical form submission.

Not all SCSBs accept NRO or NRE accounts for ASBA blocking. SEBI maintains an updated list of SCSBs and the account types they accept for ASBA. NRIs should confirm with their bank before an issue opens whether their specific account type (NRO savings, NRE savings, NRO current) is ASBA-eligible.

Bid limits and investor category

An NRI applying on a non-repatriation basis through an NRO account with a bid value up to ₹2,00,000 may potentially qualify as an RII, subject to the specific RHP terms of the issue. As noted above, some issuers and registrars treat all NRI applications as NII regardless of bid value. Where an NRI is treated as an RII, they receive the same one-lot lottery entitlement and the same cut-off price option as resident retail investors.

An NRI applying on a repatriation basis through an NRE account is typically treated as an NII, with proportionate allotment and the requirement to bid at a specific price within the price band (not cut-off).

Aggregate NRI limits per company

FEMA limits the aggregate NRI holding in a single listed Indian company to 10 per cent of paid-up equity capital (extendable to 24 per cent). When aggregate NRI demand in the IPO of a particular company approaches or would breach this limit, the registrar must prorate allotments to NRI applicants to ensure compliance. In practice, this limit is rarely triggered in IPO allotments of large-cap issuers because NRI demand, while meaningful, is typically a small fraction of total QIB and NII demand.

Segment restrictions on NRI accounts

The most significant operational limitation for NRIs investing in India through the PIS route is the prohibition on Futures and Options (F&O) trading. NRI PIS accounts cannot be used to trade in:

• equity index futures (Nifty 50 futures, Bank Nifty futures, etc.);
• equity index options;
• individual stock futures and options on Indian listed equities.

This prohibition arises from RBI’s conditions under the PIS: the scheme is designed for portfolio (delivery-based) equity investment, not speculative derivatives trading. An NRI wishing to hedge an equity portfolio with index options, or to trade stock futures as part of a derivatives strategy, cannot do so through their Indian brokerage account if funded through PIS.

The restriction is specific to Indian equities. NRIs who have brokerage accounts in their country of residence can trade derivatives on Indian equity indices or ETFs listed in their jurisdiction (such as iShares MSCI India ETF on US exchanges) without FEMA restrictions, since those are offshore instruments.

NRI accounts are also restricted from participating in certain other exchange-traded segments:

• Currency futures and options. NRIs are not permitted to trade in currency derivatives on Indian exchanges (NSE, BSE, MSE) under the RBI’s exchange-control framework.
• Commodity derivatives. NRI participation in commodity futures and options on SEBI-regulated commodity exchanges (MCX, NCDEX) is restricted; specific RBI permissions are required.
• Intraday equity trading (MIS/BO/CO). Brokers in India typically do not permit intraday (MIS, Margin Intraday Square-off) positions in NRI accounts because intraday trades create temporary short positions that are inconsistent with the delivery-based PIS framework. NRIs are expected to transact on a delivery basis in the cash equity segment.

Taxation of NRI IPO investments

NRIs are taxed in India on capital gains from the sale of IPO-allotted shares as follows (rates as of mid-2026):

• Short-term capital gains (holding period under 12 months). Tax rate of 15 per cent under Section 111A of the Income Tax Act, 1961, applicable to gains from sale of listed equity shares on which Securities Transaction Tax (STT) has been paid. TDS at 15 per cent is deducted at source by the broker on sale.
• Long-term capital gains (holding period 12 months or more). Tax rate of 10 per cent on gains exceeding ₹1 lakh per year under Section 112A, applicable to listed equity shares acquired after 31 January 2018. TDS at 10 per cent applies for NRI sellers.
• DTAA relief. If the NRI’s country of residence has a double-taxation avoidance agreement with India, the NRI may be eligible for a lower withholding rate on capital gains. The NRI must submit a Tax Residency Certificate (TRC) from their country of residence to the broker to claim DTAA benefits.

Dividends received by NRIs from Indian companies are taxed in India at 20 per cent (plus applicable surcharge and cess) under Section 115A, subject to DTAA relief. TDS at 20 per cent (or lower DTAA rate) is deducted by the company before remitting dividends.

Repatriation of IPO proceeds

For NRIs who invested on a repatriation basis through an NRE account:

• Sale proceeds and dividends are credited to the NRE account and are freely repatriable without any annual cap or RBI approval.
• The NRI’s bank (as custodian of the NRE PIS or non-PIS account) handles the conversion of rupee proceeds to foreign currency at the prevailing exchange rate.

For NRIs who invested on a non-repatriation basis through an NRO account:

• Sale proceeds are credited to the NRO account. Repatriation is subject to the USD 1 million annual cap.
• The NRI must obtain a Chartered Accountant’s certificate (Form 15CB) and submit Form 15CA to the Income Tax Department before remitting funds abroad, certifying that applicable taxes have been paid.

Historical evolution of NRI investment regulations

NRI investment in Indian capital markets has been regulated by successive foreign exchange statutes. The predecessor statute, the Foreign Exchange Regulation Act, 1973 (FERA), was far more restrictive: FERA treated NRIs as foreign exchange holders and imposed severe penalties for unauthorised foreign exchange transactions. FEMA, which replaced FERA in June 2000, shifted the framework from criminal enforcement to civil contraventions, making it substantially easier for NRIs to invest in India.

The introduction of the PIS by the RBI in the 1990s, initially under FERA and then continued under FEMA, was a deliberate policy measure to attract the diaspora’s savings into the Indian capital market without treating diaspora investment as foreign direct investment. The PIS framework, with its 5 per cent individual and 10 per cent aggregate caps, was designed to prevent NRI investors from acquiring controlling stakes in Indian companies through portfolio routes while still encouraging participation.

The progressive liberalisation of NRE account repatriation, culminating in fully free repatriation of NRE funds under the FEMA (Non-Debt Instruments) Rules, 2019, has made NRE-route investment increasingly popular among NRIs, since it eliminates the paperwork and caps associated with NRO repatriation.

Common issues and edge cases

SCSB not accepting NRI accounts. If the NRI’s bank is not an SCSB, or if the specific NRI account type (e.g., NRO current account) is not on the SCSB’s approved list for ASBA blocking, the NRI cannot apply in that IPO through that bank. The NRI must either open an account with an SCSB that accepts NRI ASBA applications or apply through a physical form.

TDS on application amount. Unlike resident retail investors, where no TDS applies to the application amount during the blocking period (since no income is earned), NRIs may encounter banks that apply TDS to dividend equivalents or other amounts credited to the NRO account during the blocking period. This is rare and typically not applicable to the application amount itself, but NRIs should confirm with their bank.

Resident returnee transitional status. A person who was an NRI and has returned to India to take up permanent residence may apply as a resident investor once their status has converted under FEMA. However, shares held in NRE or NRO demat accounts before the return may need to be reclassified as resident holdings, and the PIS account must be closed. The transition involves paperwork with the depository participant and the designated PIS bank.

Joint applications with resident Indians. An NRI may not apply jointly with a resident Indian in an IPO if the application is made through an NRI bank account (NRO/NRE), as the accounts are individual and subject to exchange-control conditions. A resident co-applicant would complicate the FEMA compliance framework.

See also

• Retail Individual Investor
• Non-Institutional Investor
• Qualified Institutional Buyer
• Initial Public Offering
• Basis of allotment
• ASBA
• FEMA
• Reserve Bank of India
• SEBI ICDR Regulations, 2018
• Permanent Account Number

References

1. Reserve Bank of India. Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, Schedule 3, Portfolio Investment Scheme for NRIs. Available at rbi.org.in.
2. Foreign Exchange Management Act, 1999, Sections 2(v) and 2(w), definition of person resident in India and person resident outside India. Gazette of India Extraordinary, 29 December 1999.
3. Securities and Exchange Board of India. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Regulations 2(vv) and 2(zd), RII and QIB definitions, and their intersection with NRI applicants. Gazette of India, 11 September 2018.
4. Securities and Exchange Board of India. Circular CIR/CFD/POLICYCELL/11/2015, 10 November 2015, ASBA as sole payment mode, including NRI ASBA conditions.
5. Reserve Bank of India. Master Direction on Non-Resident Indian (NRI) and Person of Indian Origin (PIO), account types, PIS conditions, segment restrictions. RBI/2015-16/15 Master Direction No. 7, updated periodically.
6. Income Tax Act, 1961, Sections 111A, 112A, 115A, capital gains and dividend tax rates for NRIs.
7. National Payments Corporation of India. UPI operational guidelines, resident Indian account eligibility criteria; NRI account exclusions.
8. Securities and Exchange Board of India. FAQ on NRI participation in Indian capital markets. Available at sebi.gov.in.