Budget 2026-27 hikes investment limits for persons resident outside India in a bid to boost FDI, FII inflows
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.
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.
Key Details
- 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
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.
Key Details
- 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)
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.
Key Details
- 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
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).
- 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