NRI Income Tax & Compliance

FPIs Taxability in India

  • April 2, 2026
  • 16 mins
  • 11.1K Views
FPI taxability in India

Foreign Portfolio Investment has grown as a crucial avenue for international investors looking to capitalize on growth opportunities within India's vibrant financial markets. FPI refers to the investment a foreign investor has made in Indian financial markets.

Regulated by the Securities and Exchange Board of India (SEBI) and governed by key tax laws, FPI allows foreign investors to diversify their portfolios by investing in Indian securities without seeking control over the underlying companies. It's attractive in India due to liberalized regulations and access to one of the world's largest capital markets. In this blog, we will cover everything about FPIs taxability in India, including its definition, investment avenue, tax rules, and FPIs benefits from DTAA. 

Key Takeaways
  • FPI refers to investments made by foreign investors in Indian financial markets, characterized by a passive approach without direct control over the invested entities. 
  • FPIs can invest in a variety of instruments, including mutual funds, alternative investment funds, real estate investment trusts, and corporate securities such as shares and debentures. 
  • Under Section 115AD of the Income Tax Act, FPI income is taxed differently based on the type of income, and FPIs must fulfill tax obligations before repatriating funds. 
  • FPIs can take advantage of reduced tax rates by claiming relief under the DTAA agreement. 

What is Foreign Portfolio Investment?

Foreign Investment Portfolio (FPI) means the investment made by a foreign investor in Indian financial markets and is considered a passive investment in the Indian financial markets. The Securities and Exchange Board of India regulates it. Additionally, it must comply with the Indian Income Tax Act, 1961, and the Foreign Exchange Management Act, 1999. 

FPI is one of the common ways to invest in an overseas economy, just like FDI (Foreign Direct Investment). However, unlike FDI, the investor doesn't have direct control or access to the company's assets in which they invested. 

For example, if a US-based mutual fund purchases the shares of an Indian company on the Indian stock exchange, it's considered a Foreign Portfolio Investment (FPI). 

FPIs Taxability in India

What are the Allowed Investment Avenues to FPIs?

FPIs can invest in the following securities in India:

  • Units of mutual funds.
  • Category III Alternative Investment Funds (AIF) Unit.
  • Infrastructure Investment Trusts recognized Estate Investment Trusts (REITs registered with SEBI. 
  • Units of the scheme floated by a collective investment scheme are traded on a recognized stock exchange. 
  • Shares, debentures, and warrants issued by a corporate body, whether listed or to be listed on a recognized stock exchange in India. 

How is FPI Income Taxed in India?

FPIs are taxed under Section 115AD of the Income Tax Act, 1961, as part of the Foreign Institutional Investor (FII) regime in India. They should calculate their tax liability on income in Indian rupees. They must complete income tax obligations before transferring the proceeds outside India. 

Tax on FPI income can be generally categorized into income from specified funds and others, including capital gains, listed and unlisted, other income from securities, like dividends, or income other than from securities. 

Always note that some income from specified securities can be considered as exempt on the satisfaction of some conditions. Additionally, special tax rates apply on ttransfer of unlisted equity shares. 

What are the DTAA Benefit on FPI?

India has signed a DTAA agreement with over 100 countries around the world, which prevents individuals from being taxed twice on the same income, including NRIs. FPIs can submit the following documents under DTAA to claim a reduced rate of taxes:

  • Form 10F
  • Self-declaration on beneficial ownership
  • Tax Residency Certificate (TRC) of their home country
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Bottom Line 

Foreign Portfolio Investment (FPI) plays an important role in attracting global capital to India's financial markets, offering non-resident investors a way to take part in the country's economic growth. Understanding the rules, tax implications, and benefits available through DTAAs can significantly improve investment strategies for FPIs. 

Additionally, for NRIs seeking assistance with banking, tax implications, repatriation, and finances, reach out to Savetaxs. We have an entire team of experts with years of experience and knowledge who can help you with all the complexities of being an NRI. Connect with us right away, as we are working 24/7 across all time zones. 

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

Manish Prajapat
Manish Prajapat(Tax Expert)

Mr Manish is a financial professional with over 10 years of experience in strategic financial planning, performance analysis, and compliance across different sectors, including Agriculture, Pharma, Manufacturing, & Oil and Gas. Mr Prajapati has a knack for managing financial accounts, driving business growth by optimizing cost efficiency and regulatory compliance. Additionally, he has expertise in developing financial models, preparing detailed cash flow statements, and closing the balance sheets.

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Frequently Asked Questions

Yes, if an NRI earns income from Foreign Portfolio Investments (FPI) in India, it is treated as Indian sourced income and needs to be reported in the Indian Income Tax Return. It includes income from capital gains, dividends, or interest.

Yes, NRIs can claim DTAA (Double Taxation Avoidance Agreement) benefit on FPI income when filing their ITR by submitting a valid tax residency certificate (TRC) and Form 10F (if applicable).

FPI in ITR refers to the income earned from Foreign Portfolio Investments in securities like shares, mutual funds, bonds, or debentures, which must be reported while filing the Income Tax Return.

Taxable income from FPI includes capital gains acquired from the sale of securities, dividend income earned from shares or mutual funds, and interest income acquired from debt securities.

Yes, TDS is generally deducted on FPI income at applicable rates. Taxpayers are allowed to claim a refund of excess TDS (if any) by filing their Income Tax Return.