By ipomarket.in Editorial Team · Last reviewed: 2026-08-24
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
Non-Resident Indians (NRIs) can and do participate in Indian IPOs. But the tax and repatriation outcome of an IPO gain depends heavily on which bank account funds the investment. The same shares, bought at the same price and sold on the same day, can leave you with very different rights to move that money abroad depending on whether you used an NRE or an NRO account. This guide explains the differences in plain terms, covers what changed after Budget 2026, and flags where you should check with a chartered accountant.
This is an educational explainer, not tax advice. Rules vary by your country of residence and personal situation.
The three account types, quickly
NRE (Non-Resident External) account. This holds your foreign earnings converted into rupees. Interest earned on an NRE account balance is exempt from tax in India under Section 10(4)(ii). Funds are freely repatriable, meaning you can send both the principal and returns back abroad without a cap. You can only credit an NRE account from overseas remittances, from other NRE/NRO accounts, or from foreign currency deposits. You cannot park India-sourced income here.
NRO (Non-Resident Ordinary) account. This handles income you earn inside India, such as rent, dividends or pension. Interest earned on an NRO account is fully taxable. Tax is deducted at source, and reported sources put the TDS rate on NRO interest at 30% (see confidence notes). Repatriation from an NRO account is capped rather than free.
Resident account. When you become an NRI, your old resident savings account is supposed to be converted into an NRO account. A genuine resident account follows the standard income tax slabs and does not carry the NRI-specific exemptions on foreign income. If you have moved abroad, you typically should not still be operating a resident savings account for these purposes.
An NRI can hold both NRE and NRO accounts at the same time. They simply serve different jobs: NRE for foreign money, NRO for Indian income.
How IPO gains are taxed for NRIs
Here is the reassuring part: on capital gains, NRI tax treatment on listed shares broadly aligns with that of resident Indians. The gain itself is taxed the same way regardless of whether you invested via the account-linked PIS route or the non-PIS route. The account type affects repatriation, not the capital gains rate.
For listed equity shares (which is what an IPO share becomes once it lists):
- Short-term capital gains (holding of 12 months or less): taxed at 20%. This rate replaced the earlier 15% with effect from 23 July 2024, so an older reference will show the wrong figure.
- Long-term capital gains (holding of more than 12 months): taxed at 12.5% without indexation.
- The Rs 1.25 lakh exemption applies to long-term capital gains under Section 112A, which covers listed equity. Only LTCG above Rs 1.25 lakh in a financial year is taxed at 12.5%.
If you want a deeper look at how the LTCG exemption works in practice, see our explainer on the Rs 1.25 lakh LTCG exemption.
One practical point: because listing gains on IPOs are often booked within days, many NRI IPO exits fall into the short-term bucket and attract the 20% rate. Holding longer to qualify for the lower long-term rate is a decision that should factor in your own risk view, not just the tax.
Repatriation: where NRE and NRO really diverge
This is the difference that catches people out.
Investment made through an NRE account. You can repatriate the full sale proceeds without a ceiling. The money is treated as freely repatriable, so both your original capital and your gains can be sent abroad.
Investment made through an NRO account. Repatriation of capital income is capped at USD 1 million per financial year (April to March), subject to documentation and tax compliance. That USD 1 million ceiling covers your capital-type outflows for the year, not per transaction.
The mistake to avoid
If you remit foreign funds into an NRO account instead of an NRE account, you effectively surrender full repatriability on those funds. Once foreign money sits in the NRO pool, moving it out later is subject to the USD 1 million annual limit. Be deliberate about which account you credit foreign remittances to before you invest, because you cannot undo the classification afterwards.
For investors comparing the mechanics of applying, our guide on how to apply for an IPO online in 2026 covers the ASBA and demat basics that also apply to NRI applications.
What Budget 2026 changed
Budget 2026 raised the participation limits for NRIs in Indian listed companies. According to reported figures:
- The individual NRI investment cap in a single listed company was raised from 5% to 10%.
- The aggregate cap for persons resident outside India (PROI) in a single listed company was raised from 10% to 24%.
- A more direct route for overseas individuals was reportedly opened alongside these limits.
These changes were announced by the Finance Minister on 1 February 2026 and reported across financial media. We have not located the specific parliamentary gazette notification, so treat the exact effective dates and fine print as items to verify with a professional (flagged in confidence notes). The direction of travel is clearly towards easier NRI participation, which matters given that NRI deposits reportedly grew over 23% in FY25.
Double Taxation Avoidance Agreements (DTAA)
If you pay tax on the same income in both India and your country of residence, a DTAA can prevent it being taxed twice. India has such agreements with a large number of countries (reported as 90-plus). The core principle is credit: tax paid in one country can generally be set off against tax payable in the other. NRO account holders may claim reduced tax benefits under the applicable DTAA, but this depends on the specific treaty with your country. To use a lower treaty rate you usually need a Tax Residency Certificate and supporting documentation, so this is best handled with a CA who knows your treaty.
A simple compliance checklist
- Accounts and PAN: an NRE or NRO bank account, a PAN card, and an NRI demat account are the basic requirements to subscribe to Indian IPOs, provided the issuing company permits NRI participation.
- Choose the account first: decide whether the investment should be repatriable (NRE) or not (NRO) before you fund it.
- File your ITR: report capital gains even when TDS has already been deducted; TDS is not the final tax and you may be due a refund or owe more.
- Keep records: retain contract notes, bank statements and remittance proofs. Repatriation from an NRO account may require Form 15CA/15CB certification from a CA.
- Check your DTAA: confirm whether a treaty rate applies before assuming domestic rates.
If you are still building the fundamentals, our primer on how the IPO process works in India is a useful companion read.
FAQ
Are IPO capital gains taxed differently for NRIs than for residents?
No. On listed equity, the capital gains rates are broadly the same: 20% short-term for holdings of 12 months or less, and 12.5% long-term (without indexation) above the Rs 1.25 lakh annual exemption under Section 112A. The account type affects how much you can repatriate, not the tax rate itself.
Can I send my full IPO profit abroad?
It depends on the account. If you invested through an NRE account, the full sale proceeds are freely repatriable. If you invested through an NRO account, repatriation of capital income is capped at USD 1 million per financial year, subject to documentation and tax clearance.
What is the Rs 1.25 lakh exemption?
Under Section 112A, long-term capital gains on listed equity up to Rs 1.25 lakh in a financial year are exempt. Only the gains above that threshold are taxed at 12.5% without indexation. It applies to NRIs the same way it applies to residents.
Did Budget 2026 really raise NRI investment limits?
Reported changes from Budget 2026 include raising the individual NRI cap in a listed company from 5% to 10% and the aggregate PROI cap from 10% to 24%. These were announced on 1 February 2026 and widely reported, but you should confirm the exact effective dates and conditions with a professional before acting on them.
Should I use NRE or NRO for IPO investing?
There is no single right answer. If keeping full repatriability matters to you, funding through an NRE account preserves it. If you are investing India-earned income, an NRO account is the natural home but comes with the USD 1 million annual repatriation cap. Decide before you remit funds, and consult a CA for your specific case.
Last reviewed: 2026-08-24. Figures and rules should be verified against current Income Tax, RBI and SEBI guidance and with a qualified chartered accountant before you act.