Investment Options for NRI/OCI on Repatriation Basis Under FEMA

As India continues to strengthen its position as a global investment destination, the Indian government and the Reserve Bank of India (RBI) have laid down structured pathways for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to participate in the country’s financial markets. One such regulated mechanism is investment on a repatriation basis, allowing capital and returns to be remitted abroad subject to specified conditions.

This article explores the investment avenues available to NRIs and OCIs on a repatriation basis, as outlined in Schedule III of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and related regulatory provisions.

1. Equity Instruments of Listed Indian Companies

NRIs and OCIs are permitted to invest in equity instruments of companies listed on recognized stock exchanges in India, subject to the following conditions:

• The purchase and sale must be routed through a branch designated by an Authorized Dealer (AD) bank, typically through an NRE (PIS) account.

• The individual holding limit for an NRI/OCI is restricted to 5% of the total paid-up equity capital of the company (on a fully diluted basis), or 5% of each series of debentures, preference shares, or share warrants.

• The aggregate holding limit for all NRIs/OCIs combined is 10% of the paid-up equity capital, which may be increased up to 24% through a special resolution passed by the Indian company's shareholders.

These rules ensure that while NRIs/OCIs can participate in Indian equity markets, their influence remains within controlled limits to preserve domestic investor interests.

2. Units of Domestic Mutual Funds

NRIs and OCIs may invest in units of Indian mutual funds without any monetary ceiling, provided the mutual fund invests more than 50% of its corpus in equity instruments of Indian companies.

Such investments may be made from:

• Inward remittance through normal banking channels, or

• Funds held in NRE or FCNR(B) accounts.

Redemption proceeds, net of applicable taxes, are fully repatriable.

3. Shares in Public Sector Enterprises (PSEs) Under Disinvestment

NRIs and OCIs are allowed to participate in the disinvestment of Public Sector Enterprises (PSEs) by the Government of India. These investments are permitted without any prescribed limit, provided:

• The acquisition is in accordance with the terms and conditions specified in the Notice Inviting Bids (NIB) issued by the government.

• The remittance of funds and repatriation of returns adhere to applicable RBI guidelines.

This is a key avenue, especially during strategic disinvestment drives where PSE shares may be available at attractive valuations.

4. Subscription to National Pension System (NPS)

NRIs and OCIs are permitted to subscribe to the National Pension System (NPS), governed by the Pension Fund Regulatory and Development Authority (PFRDA). The key features include:

• Investment may be made from inward remittances or from NRE/FCNR(B)/NRO accounts.

• The accumulated corpus and the annuity purchased on maturity are fully repatriable.

• Eligibility is governed under the PFRDA Act, 2013, and NPS norms.

This option enables long-term retirement planning with a structured, tax-efficient framework.

5. Investment in Proprietary Concerns and Partnership Firms

While this category is more restricted, NRIs can invest in Indian proprietary concerns and partnership firms on a repatriation basis, subject to prior approval from the Reserve Bank of India. Key conditions include:

• Approval is granted on a case-by-case basis, in consultation with the Government of India.

• Investment is not permitted in sectors such as:

  • Agriculture or plantation

  • Real estate business (excluding construction development)

  • Print media

This provision is generally used in limited circumstances, primarily when the business is considered strategically significant or is in a sector aligned with government priorities.

Mode of Payment and Repatriation

For all repatriation basis investments, the payment must be made through:

• Inward remittance via banking channels, or

• Funds held in NRE, FCNR(B), or NRO accounts, depending on the nature of investment.

The sale or maturity proceeds, net of applicable taxes, can be remitted abroad or credited to the investor’s NRE/FCNR(B)/NRO account.

Reporting and Compliance

Investments under the repatriation route must be reported to the RBI through Authorised Dealer Category-I banks. Specific forms such as Form LEC (NRI) may be used, depending on the transaction type.

Failure to comply with reporting requirements may attract penalties under FEMA, including the levy of a Late Submission Fee (LSF).

Conclusion

NRIs and OCIs looking to invest in India on a repatriation basis have multiple structured options ranging from equity and mutual funds to NPS and government disinvestment opportunities. However, adherence to regulatory conditions prescribed under FEMA and RBI directions is critical to ensure the legality and repatriability of the investments.

It is strongly recommended that investors consult with FEMA consultants, RBI-authorised dealer banks, or SEBI-registered advisors before initiating investments to avoid legal complications and to plan for optimized returns.

FAQs on NRI/OCI Investment on Repatriation Basis

1. Can an NRI invest in Indian startups on a repatriation basis?

Only through registered entities (like AIFs or VC funds) and not directly unless permitted under specific schemes.

2. Can the capital gains from such investments be sent back to the NRI’s country?

Yes, after deduction of applicable taxes and proper documentation through AD banks.

3. Is TDS applicable to repatriated income?

Yes. TDS is applicable under the Income Tax Act, and NRIs must also file returns to claim refunds (if any).

4. What if the aggregate limit of 10% is breached by mistake?

The company and the concerned investors may be asked to reverse the excess holdings. Prior approval from RBI is needed in such cases.

5. What is the difference between investment on a repatriation and non-repatriation basis?

• Repatriation basis: Funds can be taken out of India freely.

• Non-repatriation basis: Returns must remain in India or be subject to restrictions for outward remittance.