Someone moves to Dubai for work. Their salary now arrives in dirhams, their life is now based there, and their demat account in India sits exactly where they left it, holding shares they bought as a resident.
Eighteen months later they want to buy more. They log in, place an order, and it goes through without complaint. Nothing on the screen tells them that, from the moment their residential status changed, their resident account was no longer the correct setup for new transactions.
That is one of the easiest mistakes to make in NRI investing, and it happens because nothing stops you.
This post explains the setup in the order that actually matters: what changes when you become an NRI, where your money should sit, which investment route you need, what you can trade, and what happens to the investments you already own.
First, decide where the money comes from
Before accounts, before brokers, before anything: where does the money come from?
An NRE account is generally used for permitted funds brought into India from abroad. The balance and interest are generally freely repatriable, and interest earned on the account is exempt from Indian income tax, subject to the applicable conditions.
An NRO account holds money and income arising in India: rent from a flat, dividends, a pension, or proceeds from something you owned before you left. Money can be sent abroad, but subject to the applicable repatriation limits and documentation. Interest is taxable.
Which account you use can affect how an investment and its proceeds can be repatriated later. Moving funds from NRO to NRE is possible in permitted circumstances, subject to the applicable limits, tax compliance and documentation.
The shortcut: foreign money generally points you toward NRE; money that arose in India generally points you toward NRO. The investment route then determines how that money can be used and repatriated.
NRE | NRO | |
|---|---|---|
Typical source of funds | Money earned abroad | Money arising in India |
Repatriation | Generally freely repatriable | Subject to applicable limits and documentation |
Interest | Generally tax-exempt in India | Taxable |
Typical use | Repatriable investments and foreign funds | India-source funds and non-repatriable investments |
The account structure you actually need
At a basic level, the setup has three parts:
Bank account: NRE, NRO, or both.
Trading account: the account through which you place investment orders.
Demat account: where your securities are held.
The important difference from a resident setup is that repatriable and non-repatriable holdings need to be kept separate. If you invest through both routes, you will generally need separate demat arrangements for each.
What happens to your existing resident account?
So, back to our investor in Dubai. What should they actually do?
Update the bank accounts. Your resident banking arrangements need to be redesignated appropriately once your residential status changes.
Deal with the existing holdings. Shares you bought while resident can generally remain invested. Your broker or depository participant can move or redesignate the holdings into the appropriate NRI demat arrangement and may ask for supporting documents.
Replace the resident trading setup. The trading arrangement is different from the existing holdings. You should not simply continue using the resident trading setup after becoming an NRI; you need the appropriate NRI trading arrangement for new transactions.
You will also need to redesignate any fixed deposits that were held under your resident status.
Your FEMA residential status, not whether you have an Aadhaar number, determines whether you are treated as resident or non-resident for these purposes. Aadhaar may still be used for identification or verification where permitted.
The KYC process can also differ between updating an existing account and opening a completely new one. Existing NRI customers may be able to complete applicable re-KYC from abroad under the current verification process.
If you are only updating an existing relationship, you may not need to travel to India. If you are opening a new account from scratch, check the current onboarding requirements before making travel plans.
The longer you leave it, the messier it gets. Do it when your status changes, not when you next want to trade.
Do you actually need PIS?
The short answer is: only for repatriable secondary-market equity investing through the NRE route.
The Portfolio Investment Scheme (PIS) is the RBI framework used when an NRI buys or sells listed Indian shares in the secondary market on a repatriable basis through the NRE route.
You do not need PIS for mutual funds or IPO applications, or for investments made on a non-repatriable basis through your NRO account.
You may only appoint one designated bank for PIS, and RBI requires that the PIS-linked account be kept separate from your ordinary banking.
There is also a cost to the PIS route. Banks may charge for setting up and maintaining it, in addition to broker and depository charges. The non-PIS route through NRO is generally simpler, although the proceeds remain subject to the applicable repatriation rules.
What can you actually invest in?
Once you know the route, the practical question is simple: what can you actually do through each one?
Repatriable route (NRE/PIS) | Non-repatriable route (NRO/non-PIS) | |
|---|---|---|
Equity delivery | Yes | Yes |
IPO applications | Yes | Yes |
Mutual funds | Not through PIS | Yes |
Intraday equity | No | Available with some brokers |
BTST | No | Available with some brokers |
Futures and options | No | Yes |
Short selling | No | No |
The practical takeaway: the NRE/PIS route is narrower but designed for repatriable equity investing; the NRO/non-PIS route is more flexible, but its proceeds remain subject to the applicable repatriation rules.
Commodity and currency derivatives have separate eligibility, position-limit and hedging rules for NRIs. They should therefore be checked separately rather than assumed to follow the same rules as equity derivatives. Confirm the current exchange and regulatory requirements for the specific segment before trading.
Some of these rules are relatively recent, which is why older NRI investing guides can give you the wrong picture.
The derivatives rule many older guides still get wrong
Until recently, NRIs trading derivatives had to go through a custodian and CP-code arrangement, adding paperwork and cost.
On 29 July 2025, SEBI removed that requirement. After the change, exchanges and clearing corporations monitor NRI position limits directly under the revised framework, without requiring the earlier CP-code arrangement. Exchanges were given thirty days to update their systems, and existing NRI clients a ninety-day window to opt out of their codes.
The practical consequence is that, for NRI clients trading in the equity F&O segment, obtaining a Custodial Participant (CP) code is no longer mandatory. Onboarding may therefore differ from the procedures described in older CP-code guidance. If a broker’s documentation still refers to the earlier setup, confirm the broker’s current NRI account-opening and F&O activation requirements.
Following the changes, some brokers began offering intraday equity and BTST facilities to NRIs through the non-PIS NRO route. The availability and exact conditions vary by broker, so confirm what your intermediary currently supports.
Budget 2026 raised the limits
The headline change is simple: overseas individuals can hold a larger stake in an individual listed company than before.
Previously, the individual limit was five per cent and the aggregate limit for all overseas individuals was ten per cent, with the aggregate limit capable of being increased to twenty four per cent by company resolution.
The Union Budget of February 2026 proposed raising the individual limit to ten per cent and the aggregate limit for overseas individuals to twenty four per cent. It also proposed a direct route for overseas individuals to invest without routing through a registered foreign portfolio investor. The higher limits took effect from 12 June 2026 through the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.
Tax, and the part that surprises people
The headline capital-gains rates on listed equity are broadly the same for residents and NRIs: short-term gains are taxed at 20 per cent and long-term gains at 12.5 per cent, with the applicable annual exemption threshold for long-term gains.
For NRIs, an important practical difference is that tax may be deducted at source when securities are sold. The exact withholding mechanism depends on the investment route and transaction.
That means the amount credited to your account can be lower than the gross sale proceeds you expected because tax may already have been deducted.
The important point is that TDS is not necessarily the final tax you owe. Tax deducted during the year may not reflect every exemption, loss or set-off available to you, including adjustments elsewhere in your tax return. Filing a return is how you reconcile the tax already deducted with your final liability.
If your country of residence has a double taxation treaty with India, you may be entitled to relief. Claiming treaty benefits generally requires a tax residency certificate from your local authority.
One final tax point: India's Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. If you or your accountant are working from section numbers found in older material, make sure you are using the current provisions.
One lesser-known cost-saving option
A Basic Services Demat Account (BSDA) is a lower-cost demat option for smaller holdings. The applicable annual maintenance charges depend on the holding value and current depository rules.
NRI accounts can fall within the BSDA eligibility framework, subject to the applicable conditions, although not every bank or broker offers it to NRIs.
If your holdings are modest, ask your depository participant whether you qualify and whether the facility is available for your account.
Common questions
What is the difference between an NRE and NRO account?
An NRE account is generally used for permitted funds brought into India from abroad and is generally freely repatriable. An NRO account is generally used for money and income arising in India and is subject to applicable repatriation limits and documentation.
Do I need a PIS account to invest in Indian shares?
Only for repatriable secondary-market equity investing through the NRE route. Mutual funds, IPO applications and non-repatriable investing through the NRO route do not require PIS.
Can NRIs do intraday trading?
Not through the PIS route. Some brokers now offer intraday and BTST through the non-PIS NRO route, subject to their current rules.
Can NRIs trade futures and options?
NRIs can trade permitted exchange-traded equity derivatives through the applicable NRO/non-PIS route, subject to position limits and broker requirements. Since July 2025, the earlier CP-code requirement has been removed.
Why is my sale amount less than I calculated?
Tax may be deducted at source from an NRI's securities transaction, depending on the investment route and applicable rules. This can make the amount credited lower than the gross sale proceeds. TDS is generally an advance tax payment rather than necessarily the final liability, and filing a return is how you reconcile it.
Can I keep using my old demat account after becoming an NRI?
You should not continue using the resident setup after your residential status changes. Your existing holdings can be moved into the appropriate NRI demat arrangement, while the resident trading account needs to be closed and replaced with the appropriate NRI trading account. The issue is the account structure and new transactions, not the validity of shares you already own.
If you are just starting out
If you're becoming an NRI or are already investing from abroad, don't start with the broker. Start with the account structure.
Do these three things before your next investment.
Know when your residential status changed. That determines which account structure you should be using.
Know where the money came from. Foreign money generally points toward NRE; money that arose in India generally points toward NRO.
Know which investment route you need. The account you use can affect whether you need PIS, what you can trade and how the proceeds can be repatriated.
Don't assume an old broker page or NRI investing guide still describes the current setup. Several important rules have changed, and implementation can vary by intermediary.
The platform may not stop you. That doesn't mean the setup is right. Fix the account structure when your status changes, not when you next want to trade.
Risk disclosure
Hem Finlease Private Limited, SEBI Registration No. INZ000167734. Hem Securities Limited, SEBI Reg. No. IN-DP-568-2021, CDSL: 17700/17701.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI and membership of recognised stock exchanges do not guarantee the performance of the intermediary or provide any assurance of returns to investors.
All Topics
