Union Budget 2026: India Doubles Equity Investment Limits for Overseas Indians

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman, has introduced a landmark shift in how the Indian diaspora interacts with domestic equity markets. By proposing a substantial increase in investment limits for Persons Resident Outside India (PROIs), the government aims to tap into a more stable and long-term pool of capital. This move comes at a time when traditional Foreign Portfolio Investor (FPI) flows have shown significant volatility due to global macroeconomic shifts. The reforms are designed to simplify cross-border investment structures and reduce the compliance burden for non-resident investors, effectively opening a more direct route for the global Indian community to participate in the nation's growth story.

Doubling Individual Investment Limits

One of the most significant announcements in the Budget is the doubling of the individual investment limit for PROIs. Previously capped at 5 percent, the new proposal allows an individual person resident outside India to hold up to 10 percent of the paid-up capital in a listed Indian company. This change is expected to encourage high-net-worth individuals within the diaspora to take more meaningful stakes in Indian enterprises. Industry experts suggest that the earlier 5 percent cap often acted as a deterrent, forcing investors into fragmented holdings or complex structures to maintain their desired exposure. By raising this limit, the government is providing a straightforward path for significant individual investment.

Expanding the Aggregate Cap to 24 Percent

In addition to individual limits, the Budget has proposed a substantial increase in the aggregate investment limit for all PROIs in a single company. This cap has been raised from the current 10 percent to 24 percent. This expansion provides significant headroom for Indian companies to attract overseas retail and individual capital without exhausting their foreign investment quotas too quickly. This move is particularly beneficial for mid-cap and large-cap companies that have a strong brand presence among the global Indian community. It allows for a more diversified shareholder base and reduces the reliance on institutional FPIs, which are often more sensitive to global market shocks.

The Portfolio Investment Scheme Route

The Finance Minister has proposed allowing PROIs to invest in equity instruments through the Portfolio Investment Scheme (PIS) route more explicitly. Historically, the PIS was primarily utilized by Non-Resident Indians (NRIs), but the new framework aims to cover all persons resident outside India, including foreign nationals. This route allows for the purchase and sale of shares on recognized stock exchanges through designated bank accounts. By streamlining the PIS, the government is reducing the registration and compliance hurdles that were previously associated with the FPI and FDI routes. This simplification is expected to improve the ease of doing business and make the Indian equity market more accessible to a broader range of international investors.

FEMA and LLP Act Reforms

The Budget also signaled a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules. This review is intended to address long-standing regulatory challenges and create a more contemporary, user-friendly framework for foreign investors. Furthermore, the government proposed amendments to the Limited Liability Partnership (LLP) Act to ease compliance for Alternative Investment Funds (AIFs). Many AIFs currently operate as trusts, which can present operational constraints. By allowing AIFs to transition into LLPs with limited liability and rationalized document filing, the government is making these investment vehicles more attractive to foreign capital, particularly for private equity and venture capital investments.

Relief in Property Transaction Compliance

For many NRIs, investing in Indian real estate has been a traditional preference, but compliance has often been a hurdle. The Budget 2026-27 addresses this by removing the requirement for resident individuals or Hindu Undivided Families (HUFs) to obtain a Tax Deduction and Collection Account Number (TAN) when purchasing property from a non-resident. Instead, the Tax Deducted at Source (TDS) can now be reported using the buyer's Permanent Account Number (PAN). This change, effective from October 1, 2026, aligns the process with transactions between two residents, significantly reducing the administrative burden on individual homebuyers and making property deals with NRIs much smoother.

The Strategic Value of Diaspora Capital

Market analysts believe that diaspora capital serves as a crucial cushion against the volatility of institutional foreign flows. Unlike institutional FPIs, which may exit emerging markets en masse during global financial instability, NRIs and other overseas individuals often have a longer-term investment horizon and a deeper emotional or strategic connection to the Indian economy. By facilitating easier entry for this capital, the government is building a more resilient financial ecosystem. This patient capital is less likely to be triggered by short-term currency fluctuations, thereby providing a stabilizing effect on the Indian Rupee and the broader equity markets during periods of global uncertainty.

Sectoral Impact and Market Winners

Several sectors are poised to benefit from these relaxed investment norms. The financial services and wealth management sector is expected to see immediate interest, as PROIs can now directly access portfolio management services. The manufacturing sector, supported by the Production Linked Incentive (PLI) schemes in areas like semiconductors and electronics, is also a prime target for diaspora funds. Additionally, the infrastructure and real estate sectors, which received a record capital expenditure allocation of 12.2 trillion rupees, are likely to attract long-term foreign participation. Consumer-focused companies with strong brands and consistent dividend payouts will also be attractive to overseas investors looking for stable returns.

Key Investment and Compliance Changes

Personal Tax and TCS Adjustments

Beyond investment limits, the Budget introduced the Income Tax Act, 2025, which will replace the existing law from April 1, 2026. This new framework promises simpler tax forms and clearer rules. For individual taxpayers, including those abroad, the government has reduced the Tax Collected at Source (TCS) to 2 percent on foreign spending related to education and medical treatment. Additionally, share buybacks will now be taxed as capital gains, a move that alters the post-tax return profile for many shareholders. These changes reflect a broader shift toward a more predictable and simplified tax regime, aimed at improving the overall ease of living and investing in India.

Market Resilience and Volatility Cushion

The timing of these reforms is critical, following a period where foreign investors withdrew significant funds from the Indian market. By widening the investor base to include more overseas individuals, the government is diversifying the sources of foreign capital. This diversification is expected to deepen market participation and improve liquidity. The revised PIS framework offers a simpler, regulated route to Indian equities without the need for complex FPI registration, although KYC norms will remain stringent. This balance of ease and oversight is intended to prevent excessive dilution of domestic ownership while ensuring that India remains a top destination for global capital.

Conclusion

The Union Budget 2026-27 marks a strategic pivot toward mobilizing diaspora wealth to support India's capital markets. By doubling investment limits, simplifying compliance for property deals, and reforming the regulatory landscape for AIFs and FEMA, the government is creating a more inclusive and robust investment environment. These measures not only provide NRIs and PROIs with better access to India's growth but also strengthen the domestic market's resilience against global volatility. As the operational guidelines from the RBI and SEBI are released in the coming weeks, the focus will shift to how effectively these changes are implemented to drive the next wave of foreign investment into the country.