Markets and structure · Stage 6 · Updated 23 July 2026

How NRIs trade Indian markets: NRE versus NRO, the PIS routes, and the delivery-only rule

For a Non-Resident Indian, the hard part of investing at home is not choosing shares. It is that a different body of law sits underneath the same screen: which account the money is in decides whether it can leave again, and the exchange lets an NRI do some things a resident does freely and stops others outright. This is a primer on that framework, not a tip sheet.

Most guides to this subject are checklists: open this, link that, keep these forms. The checklist is real and it matters, but it is downstream of a smaller number of ideas that, once held clearly, make the whole thing legible. The Indian market treats a Non-Resident Indian not as a foreigner and not as a resident, but as a distinct category with its own plumbing, and that plumbing exists to answer two questions the state cares about: can this money be taken back out of the country, and has the tax on it been paid. Every account type, every route and every restriction in what follows is an answer to one of those two questions. This piece works through them in order. What an NRI is for these purposes, the NRE and NRO accounts and the repatriation mechanics that separate them, the two investment routes and why one uses PIS and the other now does not, the delivery-only reality of NRI equity and the reasons behind it, the derivatives path through the NRO side and what the 2025 simplification changed, the taxation and the tax deducted at source with treaty relief, and finally the practical stack of accounts. It names no bank and no broker, because the framework is the point.

What an NRI is, and why the definition is the first fork

Before any account can be opened, residency has to be settled, because it is residency and not citizenship that switches on this entire regime. Under the foreign-exchange law a person's status turns on their presence in and intention to stay in India, assessed over the financial year, and the tax law has its own day-count tests that can classify the same person for a given year. The two frameworks, the foreign-exchange one that governs which accounts and routes you may use and the income-tax one that governs how you are taxed, are related but not identical, and it is entirely possible to be treated one way for banking and another for tax in a transitional year. The practical consequence is that residency is a status to be determined carefully for your own facts, ideally with professional help, rather than assumed, and it is the reason this article repeatedly says to verify your own position rather than adopt a general rule.

The point that carries real weight is what the change of status obliges you to do. When a resident becomes a Non-Resident Indian, the resident bank accounts, the resident demat and the resident trading account do not simply carry on. The framework requires them to be re-designated or re-opened under non-resident status, and continuing to invest through a resident account after becoming an NRI is not a technicality but a breach of the foreign-exchange rules. This is the single most common and most avoidable mistake in the whole area, and it is avoidable precisely because it is a paperwork step taken once, at the point of moving, rather than a judgement made under pressure later.

NRE and NRO: two accounts, and the source of the money decides everything

The two banking accounts an NRI uses look similar and behave very differently, and the difference is not a matter of preference. It is dictated by where the money in them came from. An NRE (Non-Resident External) account may be funded only with foreign earnings brought into India, and everything about it follows from that clean foreign origin: the balance and the interest are fully and freely repatriable, meaning they can be sent back out without a ceiling and without special permission, and the interest is exempt from Indian income tax. An NRO (Non-Resident Ordinary) account is where income that arises in India is received, such as rent from a property, dividends, a pension or the proceeds of selling an Indian asset, and because that money has an Indian source the state keeps two strings on it: the interest is taxable in India with tax deducted at source, and repatriation out of the account is capped, currently at USD 1 million per financial year, through a defined process. The figure below sets the two side by side.

It helps to see why the state draws the line here rather than somewhere else. Money that entered India as foreign exchange is, in a sense, just passing through: letting it leave again freely does not deplete the country's own resources, so the NRE account is left unrestricted and even encouraged with a tax exemption on its interest. Money that arose inside India is different. It represents a claim on the domestic economy, and the state wants both a tax on it and a measured pace at which it can be converted back into foreign exchange and sent abroad, which is exactly what the NRO account's taxable interest and annual ceiling provide. Once you see the two accounts as answers to those questions rather than as arbitrary bank products, their every feature becomes predictable, and so does the behaviour of the investment routes built on top of them.

Which account the money sits in is not an administrative label. It is the decision that fixes whether the money can leave the country and how it is taxed, and every route and restriction downstream inherits from it.

Repatriation mechanics: the USD 1 million path and the two forms

Because the NRO ceiling is where a great deal of avoidable trouble lives, it is worth tracing the actual path money takes to leave an NRO account, rather than leaving it as the single phrase "USD 1 million". The ceiling is an annual one: balances in an NRO account, together with other eligible assets, can be remitted abroad up to USD 1 million per financial year, the year running from April to March, and any amount above that in a year requires the prior approval of the Reserve Bank of India. Within the ceiling the constraint is not the amount but the evidence, because the whole purpose of the process is to confirm that Indian tax on the money has been settled before it goes.

The mechanism is worth naming step by step because each step is a place a remittance stalls. A chartered accountant certifies in Form 15CB that the tax on the money being sent has been provided for; the remitter then files Form 15CA online with the tax department as a declaration; and the bank, once those are in hand, processes the outward remittance, typically taking a Form A2 as well. None of these is onerous in itself, but they depend on your underlying tax records being clean and current, and the common failure is to leave them until the moment repatriation is wanted, at which point the certificate cannot be produced quickly and the money waits. The contrast with the NRE side is stark and is the practical reason the distinction matters: NRE funds carry no ceiling and need none of these forms, because their foreign origin was already established when they came in. The forms and the ceiling belong entirely to the NRO side. Treat the exact form numbers and the ceiling as current-at-writing rather than eternal, because both the process and the figure are periodically revised.

The two investment routes: repatriable through PIS, non-repatriable through NRO

With the accounts understood, the investment routes almost draw themselves, because each route is simply an account's character extended into the equity market. The foreign-exchange regulations set out an NRI's purchase and sale of listed shares under two schedules, and the split between them is once again repatriable against non-repatriable. The repatriable route is the Portfolio Investment Scheme, under which an NRI buys and sells listed shares on the exchanges through a designated bank account that reports every transaction so the Reserve Bank can monitor the aggregate holding of all NRIs in each company against the prescribed ceilings. It is funded from the NRE side, and because it is repatriable the proceeds can be freely sent abroad. The non-repatriable route is investment made using NRO funds, and it has been simplified over the years so that it now sits largely outside the PIS reporting regime, which is why it is commonly called the non-PIS route. The figure traces both.

Two practical points follow from the split and are worth making explicit. First, the PIS reporting on the repatriable route is not a courtesy; it is how the state enforces the aggregate ceilings on how much of a company all NRIs together may own, and it is the reason the repatriable route feels more supervised than a resident's ordinary account. Second, the simplification of the non-repatriable route is the quiet, consequential change most older explanations miss. Because non-repatriable NRO investment now sits largely outside PIS, the operational experience on that route has moved closer to a resident's, and that single fact is what makes some of the trading nuances in the next section possible. It is also why you should never treat "NRIs can only do X" as a flat rule: almost every such statement is true of the repatriable route and needs a second look on the non-repatriable one.

The delivery-only reality, and why intraday and short selling are restricted

Here is the part that surprises people who arrive from a resident trading account, where intraday, short selling and buy-today-sell-tomorrow are ordinary tools. For an NRI those tools are constrained, and the constraint is deliberate. The core permission is delivery-based equity: an NRI buys shares and takes delivery of them into the demat account, and sells shares that are actually held there. On the repatriable PIS route, that is the whole of it. There is no same-day squaring off of a position, no selling of stock before it has been delivered to you, and no short selling, which is the sale of stock you do not own at all. The figure below lays out what is available and what is not.

The reasons for the delivery-only design are not arbitrary, and understanding them is more useful than memorising the list. The foreign-exchange framework treats an NRI's participation as investment, a real inflow into real securities that is held, reported and counted against ownership ceilings, rather than as pure intraday speculation that leaves no delivery behind. Two rationales sit underneath. The first is monitoring: the state wants to see actual holdings, because the whole PIS apparatus of company-level ceilings depends on knowing who owns what, and same-day trading that nets to nothing by the close leaves nothing to monitor. The second is settlement risk: allowing a non-resident to sell stock not yet delivered, or to sell borrowed stock short, introduces a failure-to-deliver exposure across a border, exactly the kind of risk the framework is built to avoid. Delivery-based trading, where every sale is backed by shares already sitting in the demat, removes that exposure by construction. Seen this way, the restriction is not a penalty on NRIs; it is the price of a framework designed around held, visible, deliverable positions.

Now the honest complication, because a good primer states the caveat as plainly as the rule. The delivery-only account above is the reality of the repatriable PIS route. On the non-repatriable NRO non-PIS route, the picture is softer. Because that route now sits largely outside PIS and an NRI on it is treated closer to a resident, some brokers do enable intraday equity there, and a short view can be taken through the derivatives segment on the same non-repatriable basis. Whether intraday is actually available to you on that route is broker-specific and has been changing, and selling before delivery in the cash segment remains constrained regardless. The safe posture is the one the figure states: do not assume any of this from a general article, confirm exactly what your own account permits, because the answer is set by your broker's configuration and by rules that continue to move.

Derivatives: the NRO-only path, and what the 2025 change did to it

Futures and options sit apart from the equity discussion, and the single most important fact about them is that for an NRI they are available only on a non-repatriable basis, through the NRO side. The money used as margin and any gains stay on the non-repatriable side and are therefore subject to the USD 1 million per year ceiling when it comes time to remit. That much has been stable. What changed, and changed recently enough that a great deal of older material is now wrong, is the machinery around it.

For years, an NRI wanting to trade exchange-traded derivatives had to route them through a custodian and obtain a Custodial Participant (CP) code. Under that arrangement the custodian, a specialised intermediary registered for the purpose, held the margins and carried the settlement obligation, so the trades cleared through the custodian rather than the ordinary broker relationship a resident uses. It worked, but it added a layer of cost, paperwork and delay that sat on NRIs specifically. In July 2025 the Securities and Exchange Board of India removed the mandatory CP-code and custodian requirement for NRIs in exchange-traded derivatives, in a circular framed around operational efficiency in monitoring NRI position limits. In place of the custodian-held CP code, NRI position limits are now monitored directly by the exchanges and clearing corporations using the PAN, the same identifier logic applied to domestic investors. The practical effect is that an NRI can trade derivatives on the non-repatriable route without the old custodian intermediary and its overhead.

It is worth pausing on why this counts as a meaningful update rather than a footnote. The CP-code regime was, for many NRIs, the reason derivatives felt out of reach: the custodian relationship was an extra account, an extra fee and an extra point of friction that a casual participant would not bother to set up. Removing the mandatory requirement lowers that barrier and brings the NRI derivatives experience closer to the resident one, while leaving the repatriation wall exactly where it was. That combination, easier access but unchanged repatriability, is characteristic of how this area evolves: the operational friction is periodically sanded down, but the two underlying questions, can the money leave and has it been taxed, are answered as firmly as ever.

Taxation: tax deducted at source, and treaty relief as a documented rate

The tax treatment of an NRI's Indian gains has one structural feature that dominates all the rate detail, and it is worth leading with it because it is the feature residents do not share. An NRI's capital gains are subject to tax deducted at source: the payer withholds the tax before the sale proceeds reach the investor, rather than the investor computing and paying it later through advance tax and a return. Mechanically this flows from the provision that requires deduction of tax at source on sums chargeable to tax paid to a non-resident, and it means an NRI experiences the tax as a haircut on the proceeds at the moment of sale, not as a bill at year end. The figure traces the flow, including the route by which a tax treaty can lower the rate.

On the rates themselves, the honest approach is to give the framework and flag the numbers as changeable, because this is precisely an area that moved in the 2024 to 2026 window and where a confidently stated figure ages badly. For listed equity on which securities transaction tax is paid, short-term gains fall under one section and long-term gains under another, and both rates were revised with effect from 23 July 2024: the short-term rate rose to 20 percent and the long-term rate to 12.5 percent on gains above a threshold. Those are the headline resident rates and they frame the NRI position, but two NRI-specific wrinkles need stating plainly rather than smoothing over. First, the rate actually withheld at source from an NRI can differ from the final rate on the return, so the tax deducted is best understood as an interim collection to be reconciled, not necessarily the last word. Second, whether the long-term exemption threshold that residents enjoy is available to a non-resident is a technical question that has been read in more than one way. The responsible thing in a primer is to name both as points to verify for your own facts with a qualified adviser, and to resist quoting a single number as though it settled the matter. Every figure in this section is given to make the mechanism legible and should be checked against the current law before you rely on it.

The treaty layer is where an NRI can often reduce the bite, and it works as a documented entitlement rather than an automatic discount. India has Double Taxation Avoidance Agreements with many countries, and where a treaty prescribes a lower rate than the domestic one on a given kind of income, that lower rate can be claimed, but only on producing the right evidence: a Tax Residency Certificate from the tax authority of the country of residence, together with Form 10F furnished to the Indian side. If those are not in place when tax is deducted, the deduction happens at the domestic rate and the excess has to be reclaimed later through an Indian return, which is slower and ties up cash. The lesson is the same one that runs through the whole repatriation story: the favourable treatment exists, but it is unlocked by paperwork prepared in advance, not by the fact of being eligible. On the derivatives side, note separately that F&O income is generally treated as business income rather than capital gains, which is a different computation again, and one more reason a non-resident with active positions benefits from professional filing.

The practical account stack, assembled from the framework

Everything above resolves into a small, concrete set of accounts, and the value of having worked through the framework is that the stack now reads as a set of consequences rather than a checklist to take on faith. An active NRI investor typically holds the following, and each item is there to answer a question the earlier sections raised.

• An NRE account for repatriable capital that came from abroad and may need to leave again, feeding the repatriable equity route.
• An NRO account for India-sourced income and for capital used on the non-repatriable route, including the derivatives route, and subject to the USD 1 million per year repatriation ceiling.
• The PIS designation on the bank account for the repatriable route, which the non-repatriable NRO route now largely does not require.
• An NRI-designated demat account, tagged as non-resident at the depository and distinct from any demat held while resident, to hold delivered shares.
• An NRI trading account with a broker that supports the non-resident segment and its delivery, PIS and derivatives workflows.
• A qualified chartered accountant experienced in non-resident matters, for the annual return, the tax deducted at source reconciliation and the Form 15CA and 15CB when money is repatriated.

The one transition step that belongs at the top of any real setup, and the one most often skipped, is the conversion of former resident accounts. If you invested as a resident before moving abroad, the resident bank, demat and trading accounts must be re-designated or re-opened under non-resident status rather than quietly carried on, because continuing to trade a resident account after becoming an NRI is a breach of the foreign-exchange rules rather than a convenience. Do that first, and the rest of the stack assembles cleanly on top of it.

Frequently asked questions

Sources

• Securities and Exchange Board of India, Operational Efficiency in Monitoring of Non-Resident Indians (NRIs) Position Limits in Exchange Traded Derivatives Contracts, Ease of Doing Investment (July 2025). The circular removing the mandatory Custodial Participant code requirement for NRIs in exchange-traded derivatives and moving to PAN-based monitoring of NRI position limits by the exchanges and clearing corporations. sebi.gov.in
• Securities and Exchange Board of India, investor education material, Investments by Non-Resident Indians (NRIs) in Indian Securities Market. The NRI account structure, the repatriable and non-repatriable routes, and the delivery framework for NRI participation in the securities market. investor.sebi.gov.in
• Reserve Bank of India, Notification No. FEMA 20(R). The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2017, with Schedule 3 covering portfolio investment by NRIs on a repatriation basis funded from NRE or FCNR(B) accounts and Schedule 4 covering investment on a non-repatriation basis funded from NRO accounts. rbi.org.in
• Reserve Bank of India, Frequently Asked Questions, Accounts in India by Non-residents (as on 16 January 2025). The definition of an NRI, the NRE account with interest exempt from income tax and free repatriation, and NRO balances remittable up to USD 1 million per financial year. rbi.org.in
• Reserve Bank of India, Frequently Asked Questions on Remittance of Assets. The USD 1 million per financial year facility from NRO balances and eligible assets under the Foreign Exchange Management (Remittance of Assets) Regulations 2016, and the accompanying documentation. rbi.org.in
• Income Tax Department, Double Taxation Relief. Relief under a Double Taxation Avoidance Agreement is available to a non-resident on obtaining a Tax Residency Certificate from the country of residence and furnishing Form 10F. incometaxindia.gov.in
• Income Tax Department, Section 195 of the Income-tax Act. Deduction of tax at source on interest and other sums chargeable to tax that are paid to a non-resident, the statutory basis for tax deducted at source on an NRI's Indian gains. incometaxindia.gov.in
• TaxGuru, Capital Gains under the Income-tax Act 2025. The short-term rate of 20 percent under section 111A and the long-term rate of 12.5 percent above the threshold under section 112A for listed equity where securities transaction tax is paid, effective 23 July 2024. taxguru.in

Related reading

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