What Happened
- The Union Budget 2026-27 raised the individual NRI investment limit in listed Indian companies from 5% to 10%, and the aggregate limit for all NRIs together from 10% to 24%.
- The Budget also increased investment limits for persons resident outside India (including foreign portfolio investors of NRI origin) in government securities (G-secs).
- Additional NRI-friendly measures announced: reduction of TCS on remittances under the Liberalised Remittance Scheme (LRS) for education and medical purposes from 5% to 2%; elimination of TAN requirement for NRIs in property transactions (PAN-based TDS now sufficient).
- These changes are designed to attract greater NRI capital into Indian equity and debt markets, supporting India's external financing needs and capital market depth.
- The changes are effective from FY 2026-27.
Static Topic Bridges
FEMA and the NRI/PIO/OCI Framework
The Foreign Exchange Management Act (FEMA), 1999 replaced FERA (Foreign Exchange Regulation Act, 1973) and governs cross-border capital and current account transactions. Under FEMA, a key distinction exists between "residents" and "non-residents" for investment eligibility. NRI investment in India is regulated through FEMA provisions and RBI circulars issued under it.
- FEMA, 1999: Enforced by Enforcement Directorate (ED); administered by RBI for capital account transactions and MoF for policy
- Non-Resident Indian (NRI): An Indian citizen who is not a "person resident in India" as defined under Section 2(v) of FEMA (i.e., residing outside India for employment, business, or any other purpose for an uncertain duration)
- Person of Indian Origin (PIO): Foreign national with Indian-origin ancestors (up to 4 generations); PIO card merged with OCI card since 2015
- Overseas Citizen of India (OCI): Registered OCI cardholders; treated on par with NRIs for most investment purposes under FEMA
- Section 6 of FEMA: Governs capital account transactions; RBI empowered to regulate capital flows
- FEMA violation: Civil offence (unlike FERA, which was criminal); penalties up to 3x the sum involved
Connection to this news: The Budget's increase in NRI investment limits in government securities and equities is operationalised through amendments to FEMA regulations and RBI's Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
NRI Bank Accounts: NRE, NRO, and FCNR
NRIs and OCIs can hold Indian bank accounts under three principal structures, each with distinct tax and repatriation rules. These are governed by FEMA's deposit account regulations.
- Non-Resident External (NRE) Account: For foreign income remitted to India; held in Indian rupees; fully repatriable; interest is tax-free in India; principal and interest can be freely repatriated
- Non-Resident Ordinary (NRO) Account: For India-sourced income (rent, dividends, pension); held in rupees; interest is taxable in India; repatriation up to USD 1 million per financial year (after tax payment and filing Form 15CA/15CB)
- Foreign Currency Non-Resident (FCNR-B) Account: Fixed deposit in foreign currency (USD, GBP, EUR, etc.); principal and interest fully repatriable; no currency risk for depositor; interest taxable in India for resident accounts upon maturity, but FCNR held by NRIs is tax-exempt in India
- Portfolio Investment Scheme (PIS): RBI-regulated scheme under which NRIs/OCIs can invest in listed Indian equities; managed through a designated bank (PIS bank)
Connection to this news: NRIs route equity and government securities investments through NRE/FCNR accounts (foreign income) or NRO accounts (India-sourced funds). The limit hike makes G-sec investment more attractive for NRIs using NRE/FCNR flows.
Government Securities Market and External Participation
Government securities (G-secs) are debt instruments issued by the central government (or state governments) to finance fiscal deficits. Expanding external participation in G-secs is part of India's capital account liberalisation and the goal of inclusion in global bond indices.
- Fully Accessible Route (FAR): Introduced 2020; allows foreign portfolio investors (FPIs) to invest without limits in specified G-secs — key to India's inclusion in JPMorgan GBI-EM (from June 2024) and Bloomberg EM Local Currency Government Index (from 2025)
- Voluntary Retention Route (VRR): Separate window for FPIs with a minimum 3-year retention commitment
- Existing NRI G-sec investment: Under FEMA and RBI regulations, NRIs/OCIs can invest in G-secs; Budget hike increases their specific sub-limits
- G-sec market size: India's outstanding central government securities exceed ₹110 lakh crore (as of 2025)
- FRBM Act, 2003: Governs fiscal deficit (Article 292 — Parliament's borrowing power for Union); limits on government borrowing as % of GDP
- Article 292: Union can borrow on the security of the Consolidated Fund of India, subject to limits fixed by Parliament
Connection to this news: Raising NRI investment limits in G-secs deepens the domestic bond market, increases foreign inflows, and supports the government's borrowing programme while reducing dependence on purely domestic institutional buyers (LIC, provident funds).
Key Facts & Data
- NRI individual equity investment limit: 5% → 10% per company (Budget 2026-27)
- NRI aggregate equity investment limit: 10% → 24% per company
- TCS on LRS remittances (education/medical): reduced from 5% to 2%
- NRO account repatriation ceiling: USD 1 million per financial year
- FEMA 1999: Replaced FERA 1973; enforced by Enforcement Directorate
- India's inclusion in JPMorgan GBI-EM Index: June 2024 (first G-sec index inclusion)
- Outstanding G-secs (central government): >₹110 lakh crore (2025 estimate)
- FRBM Act 2003: Target fiscal deficit of 3% of GDP (medium-term); 2021 amendment introduced escape clause
- NRI remittances to India 2023-24: USD 120 billion (world's largest recipient)
- Portfolio Investment Scheme (PIS): governed by RBI; NRIs transact through designated PIS banks