PIS rules NRIs must know before investing in Indian stocks

Investing in the Indian stock market as a non-resident Indian (NRI) comes with a set of rules, and navigating them isn’t always straightforward. A Portfolio Investment Scheme (PIS) provides a structured approach for Non-Resident Indians (NRIs) to buy and sell stocks while adhering to the Reserve Bank of India (RBI) regulations.

According to current regulations, PIS is permitted only on a repatriation basis, meaning that both the investment and any returns, such as dividends or capital gains, must be made through repatriable funds that can be transferred abroad.

Understanding how PIS works can help you invest with confidence, avoid compliance issues, and manage your funds smoothly.

This article will break down eligibility, taxation, and key rules to help you better understand the process and make informed investment decisions.

What is PIS? The key to NRIs investing in India

When NRIs invest in Indian stocks, their transactions involve cross-border fund flows, which must be monitored for regulatory compliance. Without a structured system, tracking these investments would be difficult. PIS ensures that your stock market transactions follow a regulated process while allowing investments in listed Indian equities.

Types of accounts –

Since this is the only RBI-approved route for direct equity investments by NRIs, it ensures that transactions are transparent, regulated, and compliant with Indian financial laws.

Who regulates PIS for NRI investments?
 

Since NRIs investing in India must follow specific guidelines, multiple regulators oversee the scheme to ensure compliance and proper transaction monitoring. These authorities set investment limits, regulate stock market transactions, and handle tax implications.

Key regulators –

These regulators work together to ensure NRI investments through PIS remain structured, compliant, and tax-efficient.

RBI’s role in PIS: Policies & investment limits
 

RBI regulates these NRI investment accounts under FEMA, 1999. It sets investment limits, monitors transactions, and ensures NRIs investing in India follow structured guidelines. These rules help prevent unauthorised investments and maintain transparency in NRI banking.

Key RBI guidelines –

1. Eligibility

a. Investments must be made through a designated bank authorised by RBI

b. NRIs must hold separate accounts for repatriable (NRE) and non-repatriable (NRO) investments

2. Investment limits

a. An individual NRI, through repatriation, can invest up to 5% of a company’s paid-up capital (the total value of shares that have been issued and fully paid for by shareholders)

b. The combined investment by all NRIs in a company cannot exceed 10% (extendable to 24% with shareholder approval)

3. Permitted vs. restricted investments

a. Allowed – Listed equity shares and convertible debentures.

b. Not allowed – Intraday trading, derivatives (Futures & Options), initial public offerings (IPOs), Real Estate Investment Trusts (REITs), exchange-traded funds (ETFs), bonds, and mutual funds.

By regulating investments, the RBI ensures that NRI banking remains secure, compliant, and aligned with India's financial policies and regulations.

SEBI’s role: Trading & compliance rules for NRIs
 

SEBI regulates stock market transactions for NRIs investing in India through the scheme. SEBI’s rules ensure that NRI banking and investments follow structured guidelines, preventing speculative trading and maintaining market integrity.

Key SEBI rules – only for NRE. For NRO, there is no PIS applicable; only Income tax guidelines apply.

1. Single PIS account rule
 

a. You can invest in Indian stocks only through one designated bank

b. PIS and NRO-PIS must be with the same bank

2. Trading restrictions for NRIs
 

a. Only delivery-based trades are permitted – You must purchase stocks and hold them before being able to sell.

b. Intraday trading is not allowed – Buying and selling the same stock within a day is prohibited.

c. Short-selling is not permitted – You cannot sell stocks without owning them, either through intraday trading or by taking positions in the derivatives (F&O) market.

3. Disclosure norms for large investments
 

a. If your shareholding in a company exceeds 1% of a company’s total paid-up equity capital, you must notify SEBI

b. SEBI may impose additional disclosure requirements for significant holdings

By enforcing these rules, SEBI ensures fair trading practices, prevents excessive speculation, and protects investors in the Indian stock market.

Role of authorised banks in PIS transactions
 

Authorised Dealers Category-I (AD Category-I) banks play a crucial role in NRI banking under the scheme, ensuring that all transactions comply with RBI guidelines. They facilitate stock investments, manage fund repatriation, and report transactions to regulators.

Key responsibilities of banks –

1. Opening NRE/NRO bank accounts before activation – Before applying for approval, you need to first open an NRE or NRO savings account with an authorised bank.

2. Open NRE PIS/ NRO settlement account: A limited purpose linked with NRE Savings/ NRO savings account to carry out the settlement of trade.

3. Obtaining RBI permission for transactions – Once your NRE/NRO account is set up, the bank will apply for permission from RBI on your behalf, enabling stock market transactions under the scheme.

4. Managing accounts, including repatriation –

a. If you invest using foreign income, your NRE-PIS account allows full repatriation of both principal and earnings

b. If you invest using Indian earnings, your NRO-settlement account allows for the limited repatriation of investment proceeds, such as profits from stock sales, up to USD 1 million per financial year (April-March) after applicable taxes

5. Linking accounts with trading and demat accounts – You must link your account to a demat and trading account with a SEBI-registered broker to buy and sell stocks.

6. Processing stock transactions – Every share purchase and sale you make must be routed through your designated bank, ensuring compliance with RBI regulations.

7. Reporting transactions to RBI – Your bank submits regular reports to RBI to track your investments and ensure adherence to foreign investment limits.

Since banks are the bridge between you and the Indian stock market, choosing a bank with strong PIS services can make investing in India much easier.

Role of the Income Tax Department: Taxation on PIS investments
 

The Income Tax Department regulates tax implications for NRIs investing in India. Since NRIs earn capital gains and dividend income, they are subject to TDS on these earnings.

Tax rules

1. Capital gains and dividend tax rates – Your bank deducts taxes at source (TDS) directly from your capital gains or dividends. The applicable rates depend on the type of income and how long you’ve held the investment. Here's how it works for limited equity investments.

a. NRIs must pay tax on every rupee of capital gains since there are no basic exemptions or deductions

b. NRIs cannot adjust the purchase price of shares for inflation, as indexation benefits are not available for LTCG

c. NRIs can offset capital losses against capital gains under the same provisions that apply to resident Indian investors.
Set off losses with profits for the financial year (April to March).

Example: On 06/04/2025 for a sell trade, Ms. A incurred a capital loss of ₹50,000/- and on 08/04/2025 Ms A gains profit of ₹60,000/-; hence a set off of ₹60,000 - ₹50,000 = ₹10,000/- capital gains will be calculated.

Capital gain set off facility is offered as per the income tax guidelines –

1. Long term losses are adjusted with long term profit
2. Short term losses are adjusted with short term profit
3. Short term losses are adjusted with long term profit

Additionally, a pan-level set-off facility is available, i.e., losses of NRE can be adjusted with NRO and vice versa, provided that NRE PIS and NRO settlement are maintained with IDFC FIRST Bank.

DTAA relief

a. DTAA does not reduce TDS automatically – Banks deduct TDS at standard Indian rates unless you submit documentation.

b. Capital gains – Most DTAAs do not override India’s tax on share transactions, so STCG and LTCG taxes apply at the standard rates. You can claim relief while filing taxes in your resident country.

c. Dividends and interest income - Some DTAAs cap TDS at lower rates (e.g., 10% instead of 20%). To apply for the lower rate, submit a Tax Residency Certificate (TRC) and self-declaration to your bank.

d. Claiming a refund – If TDS was deducted at a higher rate than your DTAA allows, you must file a tax return in India to get a refund.

Understanding these tax rules enables you to plan your investments more effectively and avoid double taxation issues.

PIS route for NRI investments: Difference between NRE vs NRO accounts
 

NRIs can invest in the Indian stock market under the PIS, which ensures compliance with RBI regulations. Investments under this route must be made through designated NRE-PIS or NRO-PIS accounts. While PIS is the only route we support and recommend, it's essential to understand the distinction between NRE and NRO accounts when selecting an investment strategy. Key differences –

Under the PIS route, NRIs can invest in listed equity shares and convertible debentures on recognised Indian stock exchanges. The bank reports all transactions to the RBI and deducts the applicable tax deducted at source (TDS) on capital gains in accordance with prevailing tax laws.

Choosing between an NRE-PIS and NRO-PIS account depends on whether your investment funds are sourced from abroad or generated within India, and whether you need full repatriability.

How does the entire process work for an NRI -

Step 1 - Open NRE /NRO savings.

Step 2 - Open NRE PIS /NRO settlement account linked with a bank account. PIS permission is issued only for an NRE PIS account.

Pro tip: NRE accounts NRO settlement are zero balance accounts. However, any balance maintained in the account earns interest as per a savings account.

Step 3 - Open a Demat and Trading account linked with NRE PIS/NRO settlement account.

Step 4 - Broker intimation to bank for linking of NRE PIS/NRO settlement of customer with broker.

Step 5 - Bank will share customer’s NRE PIS/NRO settlement bank account balance intimation to the broker basis consent.  (NRE PIS/NRO settlement customer is not required to transfer funds to trade)

Step 6 - Broker basis balance file shared by the bank will provide the limit to trade to the customer.

Step 7 - On T+1 day, the bank settles the buy/sell from the customer to the broker’s account and vice versa with applicable TDS deductions.

Conclusion
 

For NRIs, PIS provides a regulated route to invest in the Indian stock market while ensuring compliance with RBI guidelines. However, navigating account structures, tax rules, and transaction restrictions requires careful planning.

Choosing a bank with a digital setup, instant approvals, and automated reporting can streamline the process. IDFC FIRST Bank offers an industry-first solution, providing paperless onboarding, real-time transaction tracking, and one-click capital gains reports, making investment management more efficient.

Consider NRI banking solutions from IDFC FIRST Bank to open a PIS-enabled account and invest in India with ease.