How NRIs Can Invest in AIFs in India: Eligibility, FEMA Rules and Taxation

NRIs can invest in Indian AIFs, subject to conditions set by the RBI and SEBI. The FEMA definition of an NRI allows investment in all AIF categories by purchasing units, and a FEMA declaration is mandatory for AIF investments. The standard SEBI minimum applies: ₹1 crore per investor. A lower threshold of ₹25 lakh is available only to employees and directors of the AIF or its manager.

This is the first decision you make, and it depends on the account you fund the investment from.

• Repatriable basis: Funds come from an NRE or FCNR account. Sale proceeds and distributions can generally be sent abroad, subject to FEMA and tax compliance.
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• Non-repatriable basis: Funds come from an NRO account. Returns are taxable in India and cannot be freely remitted outside India.

The mode also matters for the fund. A non-repatriable NRI investment is treated as domestic investment, while a repatriable one counts as foreign investment. That is why managers will ask which route you choose, and why reporting requirements differ between the two. Switching from one mode to the other later is possible only within FEMA rules, so decide with your advisor before you commit. bcajonline

One recent change is worth checking: a June 2026 FEMA amendment requires you to designate a single repatriable rupee account for all repatriable-basis investing and keep it separate from your other money. Confirm the current requirement with your bank before funding.

1. 1-Confirm your NRI status under FEMA.
2. 2-Open or confirm NRE and/or NRO accounts and a PAN.
3. 3-Complete KYC, including FATCA/CRS declarations, which fund managers need from non-resident investors.
4. 4-Choose the repatriable or non-repatriable route and submit the FEMA declaration.
5. 5-Open a demat account where required.
6. 6-Read the Private Placement Memorandum (PPM) for any restrictions on non-resident investors. Some        managers limit participation from certain countries.

Taxation depends on the fund’s category.

Category I and II AIFs (pass-through). Interest, dividends and capital gains pass through to investors and keep their character, with only business income taxed at the fund level. The tax then falls on you as the investor, not on the fund.

Withholding tax (TDS). For residents, the fund deducts 10% on income it distributes. For non-residents, the deduction is made at the rates in force for that year or the rates in the applicable Double Taxation Avoidance Agreement (DTAA) with the investor’s country of residence. A tax residency certificate and Form 10F are required to claim DTAA benefits.

Capital gains rates. For transfers on or after 23 July 2024, long-term capital gains on listed equity are taxed at 12.5% above ₹1.25 lakh, short-term gains at 20%, and other long-term gains at 12.5% without indexation. Which rate applies to you depends on what the fund holds and for how long.

Category III AIFs. Category III funds are taxed at the fund level. The investor does not report the same income again in the same way, but the fund’s tax is reflected in your net returns, so compare returns after tax. 

Two cautions. First, the Income-tax Act was replaced from April 2026, so section numbers you see in older material may have changed. Second, your country of residence taxes you too. For example, US residents face special rules on certain pooled foreign vehicles. Get advice in both countries before investing.

Key takeaways

• NRIs can invest in AIFs, with ₹1 crore as the usual minimum.
• Your funding account (NRE or NRO) decides whether the investment is repatriable.
• Tax is pass-through for Category I and II, at fund level for Category III, and DTAA relief needs paperwork.
• Get advice in India and in your country of residence before committing.
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Disclaimer: This article is for general information only and is not tax, legal or investment advice. FEMA and tax rules change, so please verify current requirements with the RBI, SEBI, the fund’s PPM and a qualified professional. Investments in AIFs are subject to market risks.