Why NRIs are keeping their dollars abroad

An explainer on why many NRIs are still sending money home, but thinking twice before investing it here. In today's story, we look at why a growing number of Non-Resident Indians are hitting pause on fresh investments in India, and parking their savings in global markets instead.

Why NRIs are keeping their dollars abroad

The backdrop

Let's imagine you're a software engineer in Dallas. You moved there a decade ago. Every month, like clockwork, a chunk of your salary flies back home. Some went to your parents. Some went into a mutual fund SIP. And some were being saved up for that flat near the Outer Ring Road in Hyderabad.

But lately, you've been doing something different.

The money for your parents still goes. But investing money? That now stays in a brokerage account in the US, quietly buying an S&P 500 index fund.

And you're not alone. A lot of NRIs seem to be having the same conversation with themselves.

Now, that might sound odd. Because on paper, NRIs have never sent more money home. India's net private transfers, which is mostly money sent by Indians working abroad, hit a record $144.8 billion in FY26. That's up from $124.6 billion the year before, a jump of more than $20 billion, and India remains the world's largest recipient of remittances by a wide margin.

Case closed, right? Not quite.

You see, remittances and investments aren't the same thing. A big part of what NRIs send is for family upkeep. It pays for groceries, school fees and medical bills. Investment money behaves differently. It goes where the returns, after all the costs and hassles, look best.

And there, the data tells a different story. Fresh money flowing into NRI deposit accounts in Indian banks fell to $14.41 billion in FY26, down from $16.16 billion the year before, according to RBI data. The sharpest drop was in FCNR(B) deposits (think of these as fixed deposits in India that you hold in dollars instead of rupees). Inflows there collapsed from $7.08 billion to just $946 million. That's a fall of roughly 86%.

So why the cold feet?

The single biggest reason is probably the rupee. In September 2023, one dollar bought about ₹83. This week, it crossed ₹96 for the first time in two months, pushed by high US bond yields and expensive oil.

Think of it this way. Say you sent $10,000 home three years ago. That was about ₹8.3 lakh. For that money to be worth $10,000 again today, it has to have grown to about ₹9.6 lakh. In other words, your Indian investment needed to earn roughly 16% in three years just to break even in dollar terms. Anything less, and you'd have been better off keeping the dollars.

That's the math many NRIs are now running in their heads.

It's also why the RBI had to step in. In June, it rolled out a special FCNR(B) scheme where the central bank effectively absorbs the cost of hedging these dollar deposits, estimated at around 3.5%. Basically, the RBI is paying extra to convince NRIs to bring their dollars home. And that tells you just how much the mood has shifted.

The tax trap nobody tells you about

Now, currency is a problem for every NRI. But if you live in the US, there's an extra layer of pain. And it has a rather scary name.

PFIC.

What's that, you ask? Well, it stands for Passive Foreign Investment Company. It's how the American taxman looks at pretty much any pooled investment fund set up outside the US. And yes, that includes your favourite Indian mutual fund.

Think of it this way. The US wants its citizens and residents to invest at home, or at least to not defer taxes by parking money in foreign funds. So it made owning foreign funds deliberately unpleasant.

How unpleasant? Under the default method, when you sell, your gain isn't simply taxed as a capital gain. Instead, it's spread across every year you held the fund, taxed at the highest ordinary income rate for each of those years, and then an interest charge gets added on top, as if you'd paid your taxes late. Even regular payouts can get caught if they exceed 125% of what you received on average in the previous three years.

There are ways around the default route, like a mark-to-market election, where you pay tax on your paper gains every single year even if you don't sell. But each comes with its own headaches.

And then there's the paperwork. You need a separate Form 8621 for every PFIC you own. So five mutual funds means five forms, every year. According to H&R Block, even someone with no PFIC income has to file once their funds are together worth more than $25,000. Most people end up paying a specialist, and that fee alone can eat into a small SIP's returns.

But that's not all.

If your foreign bank accounts together cross $10,000 at any point in the year, you must file an FBAR (a report of your foreign bank accounts) with FinCEN, a bureau of the US Treasury. Hold more, and you may also need Form 8938 under FATCA, a US law that makes foreign banks report on American taxpayers. And as the IRS itself points out, filing one doesn't let you skip the other. Missing Form 8938 can cost you a $10,000 penalty to start with.

This burden shows up on the Indian side too. Since FATCA forces Indian fund houses to report on their US clients, many simply stopped accepting them. Value Research counts just 16 fund houses that currently take online investments from US-based NRIs.

So it's not hard to see why some US-based NRIs are choosing the simpler route. Some buy Indian stocks directly, since single company shares aren't pooled funds. Others buy India-focused ETFs listed in the US. And many just skip India altogether and buy a plain US index fund.

What about that flat back home?

Ah, Indian real estate. For decades, buying a house or a plot back home was almost a rite of passage for NRIs. It felt safe. It felt tangible. And it made your parents proud.

But here's the thing. Property looks very different when you manage it from 13,000 km away.

Start with the tax deducted when you sell. When a resident sells a flat, the buyer typically deducts a flat 1% as TDS (tax deducted at source), and only if the deal crosses ₹50 lakh. When an NRI sells, the buyer has to deduct tax at capital gains rates, on the entire sale price, with no minimum threshold. For a property held over two years, that's 12.5% plus surcharge and cess, or an effective 13% to about 15% of the full price.

Why does that matter? Because TDS is charged on the price, not your profit. Say you sell a flat for ₹1 crore that you bought for ₹80 lakh. Your actual gain is ₹20 lakh, and the tax on it is roughly ₹2.5 lakh. But the buyer may hold back around ₹13 lakh. You can get the excess back as a refund, or apply in advance for a lower deduction certificate. But either way, your money is stuck for months.

And until now, the buyer also had to get a TAN (a special tax deduction account number) just to do this one transaction. That scared off a lot of buyers. The good news is that this changes from tomorrow. Starting 1 October 2026, resident individuals buying from a non-resident can deposit the TDS using their regular PAN, after the CBDT notified the change on 22 September. The tax rate, though, stays the same.

Then comes getting the money out. Sale proceeds usually land in an NRO account, which is meant for money earned in India. From there, you can send home up to $1 million per financial year. Anything more needs RBI approval. And that $1 million cap covers everything from that account, including rent and dividends.

Now add the everyday stuff. Finding tenants. Chasing rent. Paying maintenance. Keeping an eye out for encroachment. Visiting government offices for paperwork. None of it is impossible, but all of it is harder from another time zone.

But surely prices make up for it?

Well, not as much as you'd think. According to Anarock, average home prices across India's top seven cities rose 7% in the last year, to ₹9,714 per sq ft.

That sounds decent. Until you remember the rupee. A year ago, a dollar was about ₹88.8. Today, it's over ₹96. So an NRI who bought an average flat a year ago saw its value rise 7% in rupees, but roughly 1.5% fall in dollars. And that's before stamp duty, brokerage, maintenance and taxes.

There's also a supply question. Unsold housing inventory across the top seven cities has grown 12% in a year to around 6.3 lakh units. In Hyderabad, new launches more than doubled from a year earlier, and almost all of it was in premium and luxury projects. More supply could mean slower price growth ahead.

That's why, for an NRI with no plans to move back, a plain index fund abroad is starting to look like the less stressful choice.

So, is India losing its NRI investors?

Not quite. And this is where things get a little more nuanced.

First, NRIs haven't walked away. Many are keeping what they already own in India and simply slowing new money. SIPs keep running, but fresh lump sums are going abroad. It's more of a rebalancing than an exit.

Second, not all the numbers point one way. While dollar deposits dried up, inflows into NRE accounts (rupee accounts funded by money earned abroad, with tax-free interest in India) actually jumped to $7.94 billion in FY26 from $4.71 billion the year before. Some NRIs clearly still see value in higher Indian interest rates.

Third, a weak rupee cuts both ways. Yes, it hurts money that's already here. But every dollar sent today buys more rupees than ever before. If the rupee ever steadies or strengthens, those who invested at ₹96 could be the ones smiling.

And finally, it really depends on where you plan to live. If you're likely to move back to India someday, your future expenses will be in rupees. School fees, healthcare, a home. In that case, holding rupee assets isn't a gamble. It's matching your savings to your future bills. It's the NRIs who plan to stay abroad for good who have the least reason to take on rupee risk.

So what does this mean for you?

Well, maybe three things. One, look at your India investments in dollar terms, not just rupee terms. That's the number that tells you how you're actually doing. Two, if you're a US taxpayer, check what you own for PFIC exposure before buying another fund, and speak to a cross-border tax advisor. And three, if you're buying property, factor in TDS, repatriation limits and upkeep from day one, not just the price tag.

As for India, the government and the RBI seem to know the mood has shifted. Special FCNR schemes, simpler TDS rules and a push to make compliance easier are all attempts to win back NRI money. Whether that's enough to beat the pull of a strong dollar and a simple US index fund is something only time will tell.

Until then…

If this story helped you make sense of where NRI money is going, share it with your friends and family abroad on WhatsApp, LinkedIn and X.

Note: This article is for information only and isn't investment or tax advice. Please consult a qualified advisor for your specific situation.

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