Before diving into where and how NRIs can invest in India, it’s important to understand the law that governs it all i.e. FEMA. The Foreign Exchange Management Act, or FEMA, came into force in 2000 and gave the Reserve Bank of India the authority to regulate all foreign exchange transactions in the country.
Simply put, FEMA is what makes the RBI the gatekeeper of NRI investments. Whether it’s buying property, investing in mutual funds, or sending money back home, everything an NRI does with money across borders falls under FEMA’s radar.
So if you’re an NRI planning to invest or repatriate money, you’re not just dealing with market rules but you’re working under a legal framework that demands accuracy, proper documentation, and full compliance with FEMA.
FEMA: The Legal Framework Behind RBI Rules
The Foreign Exchange Management Act, 1999 (FEMA) vests RBI with authority to regulate all foreign exchange transactions. The RBI regulates all foreign exchange transactions, including NRI investments and repatriation, under the Foreign Exchange Management Act (FEMA). RBI defines permissible and prohibited investments, mandates reporting standards for repatriation and ownership, and enforces caps on asset classes and sectors. All NRI investments are governed by FEMA and RBI directions.
Who Qualifies as an NRI Under FEMA?
Under FEMA, you qualify as an NRI from the day you leave the country with such intent. This could be for working outside India, running a business abroad, studying in a foreign university, or staying abroad long term. Being an NRI under FEMA means you can open an NRE bank account in India and can deposit your foreign income in it.
NRI Definition: FEMA vs. Income Tax Act
While the Foreign Exchange Management Act (FEMA) and the Income Tax Act both define non-resident Indians (NRIs), their criteria differ and have distinct implications.
In the FEMA Act, the definition of non-resident is derived from the intention of the individual to live abroad. Whereas, the Income Tax Act sees the individual as a resident or non-resident based on the number of days they spend in India vs. abroad over multiple financial years.
Income Tax Act rules are retrospective and primarily look at how many days you have stayed in India to determine your resident or non-resident tax status for that financial year. There are two broad rules of thumb you can keep in mind to qualify as an NRI. If your Indian income is less than 15 lakhs in a year, then you should have spent less than 182 days in India. But if your Indian income is more than 15 lakhs in a year, then you should have spent less than 120 days in India to be an NRI.
Also, the FEMA Act largely deals with the compliance part of banking and capital markets. The Income Tax Act only deals with the taxation part of the compliance that the NRI needs to undertake.
Key Compliance Requirements for NRIs Under FEMA
To stay compliant with FEMA and RBI rules, NRIs must follow several important steps while investing or repatriating money in India:
Use RBI-Authorised Banks: All investments and remittances must be routed through banks specifically authorised by the RBI. This includes transactions made via PIS accounts, NRO/NRE accounts, or external remittance channels.
Maintain PAN and KYC Documentation: A valid Permanent Account Number (PAN) and up-to-date KYC (Know Your Customer) documents are mandatory for opening and operating investment accounts in India.
Account Re-designation After Return to India: Once an NRI returns and becomes a resident under Indian law, they must convert their NRE/FCNR accounts into resident rupee accounts to continue staying compliant with FEMA regulations.
Permitted Investment Avenues Under RBI Guidelines
1. Direct Equity Investment (Through Stock Market)
NRIs can invest in listed Indian equities and convertible debentures under the Portfolio Investment Scheme (PIS) or Non-PIS account. The PIS accounts allow for the full repatriation of the gains while non-PIS accounts restrict. There are only a few banks which are allowed to open PIS accounts.
Investment is prohibited in sectors like chit funds, Nidhi companies, agriculture or plantation businesses, and real estate trading (except residential and infrastructure development). All buy/sell transactions must be reported to RBI through authorized channels using filings like LEC-NRI (This form is used by banks or custodians to report NRI transactions in listed shares/debentures on a stock exchange to the Reserve Bank of India (RBI)) or FC-TRS (This form is filed when shares or debentures are transferred between a resident and a non-resident (or vice versa). It helps the RBI track cross-border ownership changes in Indian companies.
2. Mutual Funds
NRIs may invest in equity (except NRIs based in the US and Canada, who face restrictions due to FATCA regulations)and debt mutual funds or ETFs by routing funds through their NRE/NRO accounts. There is no RBI approval or PIS letter is required. The only limitation: proceeds credited to NRO accounts can be repatriated under the USD 1 million annual limit, alongside standard tax documentation.
3. Real Estate (Non-Agricultural Only)
NRIs are allowed to purchase residential and commercial properties in India, provided the transaction is routed through permissible banking channels using funds from NRE, NRO, or FCNR accounts. However, they are not permitted to buy agricultural land, plantation property, or farm houses unless they obtain specific approval from the RBI.
In cases of inheritance, NRIs can inherit any type of immovable property in India, including agricultural land or farmhouses, but they are only allowed to sell such inherited properties to Indian residents. All payments for property purchases must be made through inward remittances via banks.
4. Fixed Deposits
NRIs can invest in NRE, FCNR(B) and GIFT City fixed deposits, which are fully repatriable and tax-free in India.
NRO fixed deposits, funded by India‑sourced income, are taxable per Indian income slabs, though both principal and interest can be repatriated up to USD 1 million per financial year, subject to tax compliance.
5. Government Bonds & NPS
NRIs have access to G-Secs via platforms like NDS-OM and can buy approved corporate bonds and debentures. They can also invest in NPS using NRE/NRO accounts, subject to existing repatriation and tax rules.
Account Types Required to Comply with RBI
- NRE Account: For foreign-earned funds, principal and interest are repatriable and tax-exempt.
- NRO Account: For India-generated income, repatriable up to USD 1 million/year, post taxation.
- FCNR(B) Account: Foreign currency deposits are fully repatriable and subject to the new post-2024 interest rate bands.
- GIFT City Fixed Deposit (FD): Available through IFSC Banking Units in GIFT City. Deposits can be made in foreign currency, offering attractive interest rates, full repatriability, and zero tax in India under Section 80LA (for non-residents).
You can compare GIFT City FD Rates with Belong's NRI FD Calculator.
Conversion of Accounts on Change of NRI Status
When an NRI becomes a non-resident, they need to convert their resident Indian savings account to an NRO account. The fixed deposits held as a resident get re-designated into NRO deposits.
When an NRI returns to India and becomes a resident again, RBI/FEMA require a formal conversion of bank accounts:
- NRE and FCNR(B) accounts must be closed or redesignated into Resident Rupee or RFC (Resident Foreign Currency) accounts.
- NRO accounts must be converted into normal resident savings or fixed deposit accounts.
Banks typically allow account redesignation without changing the account number and provide specific forms for this process.
Repatriation Rules: Sending Money Back Abroad
1. Properties bought with foreign currency (foreign remittance/NRE/FCNR):
Entire sale proceeds of up to two residential properties can be repatriated, there is no residency-based lock-in or minimum holding period. Excess funds are credited to NRO account.
2. Properties bought with rupee funds (NRO) or inherited:
Repatriation of proceeds (any number) is capped at USD 1 million per financial year.
3. Documentation required:
Sale deed; proof of acquisition (via banking channels); Form 15CA (self-declaration) plus Form 15CB (CA certificate); and an Income-Tax NOC.
Recent RBI Circulars and Changes (2023-2025)
1. November 2024 - Streamlined Reporting & Revised Sector Caps for Equity Investments
RBI increased the NRI shareholding limit in listed companies from 10% to 24% for sectors not under automatic route caps subject to board and shareholder approval. Additionally, LEC-NRI filings, which are used by banks to report your buy/sell transactions in Indian shares to the RBI, were simplified to avoid duplicate or delayed filings. This means you don’t have to worry about backend regulatory paperwork anymore, your bank handles it.
2. December 2024 - Higher FCNR(B) Interest Rates Linked to ARR
RBI allowed banks to offer up to ARR + 500 basis points on FCNR(B) deposits for tenures of 3-5 years. (ARR, or the Overnight Alternative Reference Rate, replaced LIBOR and reflects real-time currency lending rates globally.) This change allows NRIs to lock in higher returns on foreign currency deposits, especially in USD, GBP, and EUR, without taking INR exposure.
3. January 2025 - NRI Access to Listed Corporate Bonds Expanded
For the first time, RBI permitted NRI investment in listed corporate bonds through stock exchange platforms under repatriable routes. This means you can now use your NRE/FCNR(B) account to invest in debt securities of blue-chip Indian companies and receive interest income abroad and no prior RBI approval is needed. Earlier, such investments were largely routed via FPI or NRO accounts with limitations.
Practical Case Study: Examples
A. NRI Residential Property Sale
NRI bought a Mumbai flat via NRE funds; sold it after 3 years. The amount NRI initially invested in property is fully repatriable. The gains from selling the property is repatriable according to the RBI limits of $1 million in the person’s NRO account. For example - if the NRI purchases the flat for Rs. 1 Cr and sells it for 1.5 cr. They can easily repatriate the 1 cr abroad. For the gains they need to pay taxes and repatriate the remaining amount.
B. NRI Mutual Fund Redemption
Redemption credited to NRO/NRE account. NRI obtains Form 15CA/15CB and NOC, then repatriates under the USD 1 million annual limit.
To conclude, the RBI and FEMA regulations offer NRIs a broad and structured gateway to invest in India across equities, bonds, mutual funds, fixed deposits, and especially real estate. However, real estate investments require extra caution, especially around eligibility, mode of purchase, repatriation limits, and tax compliance.
For efficient financial planning and peace of mind, it's strongly advised to consult NRI specialised bank desks, chartered accountants, and legal advisors, whether you're buying a home, renting it out, or planning to sell and repatriate your funds.
