NRI Investment on Non-Repatriation Basis in India: FEMA Rules & NRO Exit
NRI investment on non-repatriation basis in India is a distinct FEMA route under which an NRI or OCI can invest in specified Indian businesses and investment vehicles without receiving an automatic right to take the invested capital and appreciation back abroad. The route matters because Schedule IV investments are generally treated as domestic investment for FEMA purposes, while sale proceeds are credited to the NRO account and the underlying investment remains non-repatriable under that route.
Quick answer: what does “NRI investment on non-repatriation basis” mean?
Under Schedule IV of India’s foreign-investment framework, an NRI or OCI may make specified investments on a non-repatriation basis. In practical terms, the investment is made with the understanding that the invested amount and capital appreciation cannot be repatriated abroad under that route. This is different from an investment made on a repatriation basis, where the sale or maturity proceeds are, subject to tax and other conditions, eligible to be remitted outside India.
The distinction is not merely banking terminology. It can affect how an investment is classified for FEMA purposes, where the money must be credited on exit, which sectors are available, and how an Indian company should analyse downstream-investment consequences.
NRI investment on non-repatriation basis in India: the FEMA framework
The current RBI Master Direction on foreign investment expressly deals with NRI/OCI investments on a non-repatriation basis in Annex 4. See the RBI Master Direction on Foreign Investment in India.
The underlying legal framework is Schedule IV of the foreign-investment rules. See the RBI notification reproducing the Schedule IV framework.
Issue | Non-repatriation position |
|---|---|
Who can use the route | NRI or OCI; Schedule IV also covers specified overseas entities owned and controlled by NRIs/OCIs |
What can be acquired | Equity instruments of Indian companies, units of investment vehicles, LLP capital and qualifying startup convertible notes |
Payment source | Inward remittance or funds in NRE, FCNR(B) or NRO accounts |
Sale / maturity proceeds | Credited only to the investor’s NRO account under Schedule IV |
Repatriation | The invested amount and capital appreciation are not repatriable under this route |
Regulatory character | Deemed domestic investment at par with resident investment, subject to Schedule IV restrictions |
Who can invest on a non-repatriation basis?
The route is available to NRIs and OCIs. Schedule IV also extends specified permissions to a company, trust or partnership firm incorporated outside India and owned and controlled by NRIs or OCIs. That expansion is important for family investment vehicles and closely held overseas structures, but the ownership-and-control condition should be documented rather than assumed.
What investments are permitted under Schedule IV?
Equity instruments issued by an Indian company, without a separate quantitative cap under Schedule IV itself, whether acquired on or off a recognised stock exchange.
Units issued by an investment vehicle, again without a separate Schedule IV quantitative cap.
Capital contribution to an Indian LLP.
Convertible notes issued by a qualifying startup company in accordance with the applicable foreign-investment rules.
Contribution to the capital of an Indian firm or proprietary concern, subject to the separate Schedule IV conditions and prohibited activities.
The phrase “without any limit” in Schedule IV should not be read as permission to ignore every other law. Company-law restrictions, SEBI rules, sector-specific regulation, beneficial-ownership rules, prohibited activities and tax consequences can still apply.
Why is non-repatriation investment treated as domestic investment?
A central commercial feature of Schedule IV is that qualifying NRI/OCI non-repatriation investment is deemed to be domestic investment at par with resident investment for the foreign-investment framework. This can materially change the FEMA analysis compared with ordinary foreign investment on a repatriation basis.
The treatment is particularly relevant where an Indian entity owned and controlled by NRIs/OCIs through compliant non-repatriation investment makes downstream investments. The current framework clarifies that such investment is not counted as indirect foreign investment merely because the owners are NRIs/OCIs, provided the conditions for the non-repatriation route are actually met.
This is not a blanket exemption from regulation. It is a classification rule within the foreign-investment regime, and prohibited sectors under Schedule IV remain prohibited.
Which sectors are prohibited?
Schedule IV does not permit the non-repatriation route for investment in equity instruments or units of a Nidhi company or a company engaged in agricultural or plantation activities, real-estate business, construction of farm houses, or dealing in Transfer of Development Rights. For firms and proprietary concerns, agriculture/plantation, print media and real-estate business are specifically restricted.
“Real-estate business” should not be casually equated with every activity involving immovable property. The regulatory definition and the actual business model matter. A transaction involving development, leasing, infrastructure or an investment vehicle should be checked against the current FEMA definition and any sector-specific conditions before funds are accepted.
How should the NRI pay for the investment?
Consideration can be received from abroad through normal banking channels or paid from funds held in NRE, FCNR(B) or NRO accounts maintained in accordance with the deposit regulations. The choice of funding account does not convert a Schedule IV investment into a repatriable investment.
This is a common operational mistake: an investor may fund the purchase from an NRE account and assume that the investment therefore remains freely repatriable. Under Schedule IV, the investment character—not simply the source bank account—controls the repatriation position.
What happens when the NRI sells the investment?
For equity instruments purchased under Schedule IV, or an LLP disinvestment, the sale or maturity proceeds net of applicable taxes are credited only to the investor’s NRO account, irrespective of whether the original consideration came from an NRE, FCNR(B), NRO account or an inward remittance.
Schedule IV further states that the invested amount and the capital appreciation cannot be repatriated abroad under this route. Businesses should therefore avoid describing a Schedule IV investment as “freely repatriable” in subscription documents, board papers or investor communications.
Does non-repatriation basis change Indian income tax?
No. “Non-repatriation basis” is a FEMA classification, not an income-tax exemption. Dividends, interest, capital gains and other income remain taxable under the applicable provisions of Indian tax law, subject to any available DTAA relief. TDS may also apply because the investor remains a non-resident for income-tax withholding purposes.
The tax and FEMA analyses therefore need to be run separately. A transaction can be domestic investment for one FEMA classification purpose while the investor is still a non-resident taxpayer for Indian income-tax purposes.
Worked example: NRI subscribes to shares of an Indian private company
Assume an Indian citizen living in Singapore qualifies as an NRI under FEMA and subscribes ₹50 lakh for equity shares of an Indian private company on a documented non-repatriation basis. The subscription amount is paid from the investor’s NRE account.
The use of the NRE account does not by itself make the shares repatriable if the investment was made under Schedule IV.
The qualifying investment is treated as domestic investment for the Schedule IV foreign-investment framework.
If the company is in a prohibited Schedule IV activity, the non-repatriation route cannot be used merely because the investor is an NRI.
If the investor later sells the shares, the net sale proceeds are credited to the NRO account under the Schedule IV mechanism.
Any dividend or capital-gains tax analysis is performed separately under the Income-tax Act and the applicable India–Singapore treaty, where relevant.
Non-repatriation vs repatriation basis: practical decision points
Use the correct investment route before funds are accepted; do not decide the FEMA character only at the time of exit.
Match the subscription agreement, board resolution, bank instructions and statutory filings to the intended route.
Check the investee business against Schedule IV prohibitions and any other sector regulator rules.
Where an NRI-owned Indian entity plans downstream investment, document why the underlying NRI ownership qualifies as compliant non-repatriation investment.
Separate FEMA repatriation analysis from Indian income-tax and DTAA analysis.
Common mistakes to avoid
Assuming every NRI investment is automatically foreign investment for sectoral-cap purposes.
Assuming payment from an NRE or FCNR(B) account automatically makes the investment repatriable.
Using the non-repatriation route for a prohibited real-estate, agricultural/plantation, Nidhi or other restricted activity.
Failing to preserve evidence of the intended route, source of funds and NRI/OCI status.
Promising an overseas investor unrestricted exit remittance even though the shares were acquired under Schedule IV.
Treating “deemed domestic investment” as an income-tax exemption.
Compliance checklist before an Indian company accepts NRI money
Confirm that the investor is an NRI or OCI for FEMA purposes and retain supporting status/KYC documents.
Record clearly whether the investment is on repatriation or non-repatriation basis.
Check whether the investee activity is permitted under Schedule IV and under other applicable sector regulations.
Verify the permitted payment channel and maintain bank evidence.
Align subscription documents, share certificates/capital records and company filings with the chosen route.
Plan the exit mechanics in advance, including the NRO-credit requirement.
Perform a separate Indian tax and DTAA review for dividends, interest, gains and withholding.
Related PGT guidance
For the broader tax, TDS and FEMA treatment of NRI portfolios, see NRI Investments in India 2026: Taxation, TDS, FEMA & Repatriation Guide.
For compliance risk where FEMA conditions are breached, see FEMA Violations in India: What They Are, How They’re Detected, and the Penalties You Face.
FAQs
Can an NRI buy shares of an Indian company on a non-repatriation basis?
Yes, Schedule IV permits NRIs/OCIs to acquire qualifying equity instruments of Indian companies on a non-repatriation basis, subject to the prohibited-activity rules and other applicable law.
Is NRI non-repatriation investment treated as foreign investment?
Qualifying Schedule IV investment is deemed domestic investment at par with resident investment for the relevant FEMA foreign-investment framework. This does not eliminate other legal, tax or sector-specific requirements.
Can the NRI use an NRE account to fund a non-repatriation investment?
Yes. Schedule IV permits payment through inward remittance or NRE, FCNR(B) or NRO funds. Funding from an NRE account does not by itself convert the investment into a repatriable one.
Where are sale proceeds credited?
Under Schedule IV, sale or maturity proceeds net of applicable taxes are credited only to the investor’s NRO account, irrespective of the original funding account.
Does non-repatriation basis make capital gains tax-free?
No. The non-repatriation classification is a FEMA concept. Indian income tax, withholding and treaty rules continue to apply separately.
Can an NRI use this route for a real-estate business?
Schedule IV prohibits investment under this route in a company engaged in real-estate business and also contains restrictions for firms/proprietary concerns. The precise regulatory definition should be checked for the actual activity.
Professional takeaway
For founders, family businesses and overseas Indians, the non-repatriation route can be strategically useful because qualifying Schedule IV investment is treated as domestic investment for the relevant FEMA framework. But the benefit comes with a genuine trade-off: the route does not provide repatriation rights for the invested capital and appreciation. The investment documentation, banking trail, sector analysis and tax treatment should therefore be settled before money moves—not reconstructed at exit.
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