Non-Resident Indian
Also written NRI · Non-Resident Indian (NRI) · Non-Resident Indians · NRIs
An Indian citizen or person of Indian origin who does not meet the resident conditions. NRIs may invest in PMS through NRE or NRO accounts and are taxed only on Indian income.
In plain language
An Indian engineer living in Dubai, or a person of Indian origin settled in Singapore, can still invest in India — including through a PMS. For tax and investment purposes, such a person is a Non-Resident Indian.
The workbook's test is residence, not citizenship alone. An Indian citizen or person of Indian origin is an NRI if they do not meet the conditions for a Resident Individual. NRIs are taxed in India only on income earned or received in India; their foreign income is outside Indian tax.
For a PMS distributor, NRIs are a distinct client segment with their own account routes, their own restrictions and — in this workbook — two conflicting sets of tax rates that you need to recognise.
How it works
Residence test (Chapter 11, section 11.1.1). An individual is resident for a financial year if they stay in India 182 days or more, or at least 60 days in the year and 365 days or more in the preceding four years. Residents are Ordinary Residents (taxed on global income) or Not Ordinarily Residents (taxed on Indian income plus income from a business controlled from India). Someone failing both conditions is non-resident.
Can NRIs invest in PMS? Yes. Chapter 8 lists Non-resident Indians (as per the RBI guidelines) among eligible PMS investors, with the same ₹50 lakh minimum.
Account routes (section 11.5.3).
| Route | Feature |
|---|---|
| NRE PMS account | Repatriable — funds can go back to the foreign country |
| NRO PMS account | Non-repatriable — gains and capital stay in India, subject to Indian tax |
NRIs must open an NRE or NRO account with a designated bank, invest through providers registered under the 2020 PM Regulations, and cannot engage in intraday trading or short-selling.
Portfolio Investment Scheme. PIS is an RBI facility letting NRIs and OCIs invest in listed shares and convertible debentures through a designated bank account. PIS approval is necessary for direct stock trading but not required for PMS.
Derivatives (section 11.2.4). An NRI can trade F&O through a PMS only via the NRO account, on a non-repatriable basis — not through the NRE account. Gains are business income, taxed at slab rates applicable to NRIs.
Other tax points. Rules are similar to residents but subject to TDS; DTAA provisions may apply. Section 11.5.3 lists dividends taxable at slab rates with 20% TDS, and interest on NRO accounts taxable at 30% plus cess and surcharge.
A worked example
Illustrative investor and amounts; rates and rules are as printed in the workbook.
Rahul, an Indian citizen, has worked in London for four years and spent 25 days in India this year. He fails both residence tests, so he is an NRI.
He invests ₹90 lakh in PMS:
| Account | Amount | Why |
|---|---|---|
| NRE PMS account | ₹60 lakh equity approach | Wants to repatriate proceeds later |
| NRO PMS account | ₹30 lakh, including a derivatives hedge | F&O through PMS is permitted only via NRO |
He needs no PIS approval, because he is investing through a PMS, not trading shares directly.
After 14 months he makes a long-term equity gain of ₹5,00,000. Which tax rate applies?
| Source in workbook | Rate on the ₹5 lakh gain |
|---|---|
| Section 11.2.2 (general equity rules) | 12.5% on gains above ₹1.25 lakh → 12.5% × ₹3,75,000 = ₹46,875 |
| Section 11.5.3 (NRI under PIS) | 10% on gains above ₹1 lakh → 10% × ₹4,00,000 = ₹40,000 |
The two figures come from different sections of the same chapter. See the traps below for how to handle them.
Why NISM asks about it
Chapter 11 (Taxation, 5% weightage), sections 11.1.2, 11.2.4 and 11.5, and Chapter 8, section 8.1 (NRIs among eligible PMS investors). The Investor Charter in Chapter 12 separately lists opening a PMS account for non-resident clients — including demat, bank and trading accounts — as a service with its own timeline. Expect questions on NRE versus NRO, PIS not being required for PMS, the NRO-only route for F&O, and the residence tests.
Common exam traps
- The workbook contradicts itself on NRI equity tax rates. Section 11.5.3 prints 15% STCG and 10% LTCG on gains exceeding ₹1 lakh. Section 11.2.2 prints 20% STCG and 12.5% LTCG above ₹1.25 lakh, and section 11.1.2 says NRI rules are similar to residents but subject to TDS. The 15% / 10% / ₹1 lakh figures are the rates that applied before the July 2024 changes, so they appear stale. Even 11.5.3 is internally mixed: its TDS line uses ₹1.25 lakh for LTCG. Answer from the section a question is clearly drawn from.
- NRE = repatriable; NRO = non-repatriable.
- F&O through PMS only via NRO, never NRE.
- PIS approval is not required for PMS — only for direct stock trading.
- No intraday trading or short-selling for NRIs in PMS.
- Residence is 182 days, or 60 days plus 365 days in the preceding four years — as the workbook states the test.
- NRIs are taxed only on Indian income; ordinary residents on global income.
Check yourself
1.As per the workbook, STCG on equity shares held for 12 months or less is taxed at:
- a)12.5%
- b)15%
- c)20%
- d)Slab rate
Show the answer
Answer: (c) 20%
Equity STCG is taxed at 20% under Section 111A, with no exemption limit.
12.5% is the equity LTCG rate. Slab rate applies to debt STCG and to dividends. 15% is the figure printed in the workbook's NRI section 11.5.3, which conflicts with 11.2.2.
2.Income from futures and options transactions in a PMS is treated as:
- a)Short-term capital gains
- b)Long-term capital gains
- c)Business income under PGBP
- d)Income from other sources
Show the answer
Answer: (c) Business income under PGBP
F&O income in PMS is business income, taxed under Profits and Gains from Business or Profession (PGBP) — for both residents and NRIs.
Income from other sources is where interest and dividends go. Capital gains apply to equity and debt sales, not derivatives.
3.Which of the following entities is eligible to invest in PMS?
- a)Proprietorship firms
- b)Association of persons
- c)Partnership firms
- d)All of the above
Show the answer
Answer: (d) All of the above
The workbook's list includes all three: proprietorship firms, association of persons and partnership firms — along with individuals, NRIs (as per RBI guidelines), HUFs, LLPs, trusts and bodies corporate.
Picking any single option ignores that the others are on the same list.
Where this is taught
- Series XXI-A · Chapter 11: Taxationintroduced here
- Series X-A · Chapter 17: Operational Aspects of Investment Managementintroduced here
Related terms
- Double Taxation Avoidance AgreementA treaty between two or more countries that prevents the same income being fully taxed twice, either by allocating the taxing right or by the residence country giving credit for tax paid at source.
- Non-ResidentAn assessee who fails every residency test in section 6 — taxable in India only on income received, accruing or deemed to accrue in India, and on nothing that arises abroad.
- Portfolio Management ServicesA tailored investment service where the client owns the securities directly in their own name, regulated under the SEBI (Portfolio Managers) Regulations, with a minimum investment of Rs 50 lakh.
- Resident and Ordinarily ResidentThe residential status under which an individual's worldwide income is taxable in India — reached by being resident and failing both of the not-ordinarily-resident tests.
- Resident but Not Ordinarily ResidentA middle residential status for income tax: the person is a resident of India, yet foreign income unconnected with an Indian business or profession stays outside the Indian tax net.
- Exchange Rate RiskThe risk that an investment’s value, measured in the home currency, changes because foreign exchange rates move. A falling rupee raises returns on foreign assets; a rising rupee cuts them.
- Residential statusThe classification — resident (ordinarily or not ordinarily), deemed resident or non-resident — that decides which income is taxable in India. Citizenship alone is not the test.
- Person resident in IndiaFEMA's definition of residence under section 2(v) — broadly a person normally residing in India for more than 182 days in the preceding financial year, plus Indian-registered bodies and certain offices.
- Portfolio Investment SchemeThe FEMA route through which SEBI-registered FPIs, and NRIs permitted by a designated AD Category-I bank branch, buy shares, convertible debentures and warrants of listed Indian companies within set limits.
- SWAGAT-FISingle Window Automatic and Generalised Access for Trusted Foreign Investor: government and government-related investors and public retail funds, freed from the FPI aggregate 50% NRI/OCI/RI limit.
- Cash investment limitMutual funds accept cash only up to Rs 50,000 per investor per mutual fund per financial year, from KYC-compliant resident individuals, sole proprietorships and minors through guardians.
- Resident Foreign Currency (RFC) accountA bank account a returning NRI may open to hold foreign currency, transferring in balances from an NRE or FCNR(B) account and continuing to receive foreign-currency income from investments held abroad.
- RepatriationTaking investment proceeds out of India in foreign currency — permitted without limit where the money came in as foreign currency, and capped at USD 1 million a financial year from an NRO account.
- FDI RouteThe route for strategic foreign investment into India: at least 10% of an investee company's post-investment fully diluted paid-up capital, under the DPIIT's FDI policy and RBI's NDI Rules.
- Person of Indian OriginA citizen of a country other than Bangladesh, Pakistan, Afghanistan, China, Iran, Bhutan, Sri Lanka and Nepal who once held an Indian passport or whose parent, grandparent or great-grandparent was an Indian citizen.
- NRE PMS accountThe repatriable route an NRI uses to invest in PMS under the Portfolio Investment Scheme, where funds and gains can be sent back to the NRI's country of residence.
- NRO PMS accountThe non-repatriable route an NRI uses to invest in PMS: capital and gains stay in India, subject to Indian taxation, unlike the repatriable NRE PMS account.