Investment in India by Non Resident Indian(NRI)/ Person of Indian Origin (PIO/OCI)

June 30, 2016

 

Non Resident Indian’s  (NRI) /  Person of Indian Origin(PIO/OCI)  are the strength of India when comes to the inflow of the Foreign Direct Investment (FDI) to India . Many of the recent modifications and relaxations in the FDI policy are to attract the investment from Indian Community who are residing outside India. Under the #MakeInIndia campaign lead by Mr. Narendra Modi, Prime Minister of India, the prime most target are the NRI who are spread across the World. As a result of the campaign, there is a considerable improvement in the inflow of Foreign Investment to India in recent times.

 

At this juncture, I would like to brief about various entities in which NRI’s can invest and the formalities in connection therewith.  This will be helpful for those who are looking for an investment opportunity in India. I had tried to avoid all the legal jargons from this articles to keep it simple and the proper definition of certain terms are given at the end of this article for reference purpose.

 

Investing in a Company.

An NRI can invest in an Indian Company , which is incorporated in India under the Companies Act subject to sectoral restrictions. There are certain sectors of business in which FDI is permitted only upto a defined ceiling limit. Those ceiling limits are called Sectoral Caps. Many of the investment sectors are open for NRI to invest and in those sectors they can hold upto 100% of the capital of the Investee company.

 

NRI’s can invest into the capital of the Indian Company on repatriation basis as well as on Non repatriation basis. Repatriation in simple sense means the investor will be eligible to take out the invested amount along with the gains after deducting the taxes at applicable rates. Non repatriation can be construed accordingly. To enjoy the repatriation benefits the Investor and the investee company has to observe certain formalities with Reserve Bank of India (RBI), such as intimation of the receipt of the fund in specified form, submission of KYC details as per RBI requirements and submission of Form FCGPR on allocation of the capital.

 

If an NRI investor wants to invest in sectors having sectoral limits, they can do that with the prior approval of the Foreign Investment Promotion Board (FIPB) under Government route.

 

FDI in Partnership Firm/Proprietary Concern

A Non Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside  India can invest in the capital of a firm or a proprietary concern in India on non repatriation basis provided;

  1. Amount  is  invested  by  inward  remittance  or  out  of  NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks.

  2. The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.  The investment in these sectors are banned(not allowed) even if the entity is a Company. So care should be taken while choosing these segments as your investment destination.

  3. Amount invested shall not be eligible for repatriation outside India. NRIs/PIO  may  seek  prior  permission  of  Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option.   The  application  will  be  decided  in  consultation  with  the Government of India.

FDI in Trusts

FDI is not permitted in Trusts other than in ‘VCF’ registered and regulated by SEBI and ‘Investment vehicle’.

 

FDI in Limited Liability Partnerships (LLPs)
FDI in LLPs is permitted subject to the following conditions:

  1. FDI is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100 % FDI is allowed, through the automatic route and there are no FDI linked performance conditions.

  2. An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI linked performance conditions.

  3. FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.

FDI in other Entities

FDI in resident entities other than those mentioned above is not permitted

 

Definition of the terms used in this article

  1. Capital’ means  equity  shares;  fully,  compulsorily  &  mandatorily  convertible preference shares; fully, compulsorily & mandatorily convertible debentures and warrants.

  2. FDI’ means investment by non -resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer   or   Issue   of   Security   by   a   Person   Resident   Outside   India) Regulations,2000.

  3. FIPB’ means  the  Foreign  Investment  Promotion  Board  constituted  by  the Government of India.

  4. Government route’ means that investment in the capital of resident entities by non-resident  entities  can  be made  only  with  the  prior  approval of  Government (FIPB, Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion,as the case may be)

  5. Investment Vehicle’  shall mean an entity registered and regulated under relevant regulations framed by SEBI or any other authority designated for the purpose and shall include Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012.

  6. ‘Investment on repatriable basis’ means investment, the sale proceeds of which, net  of  taxes,  are  eligible  to  be  repatriated  out  of  India  and  the  expression ‘investment on non-repatriable basis’ shall be construed accordingly.

  7. Limited Liability Partnership’ means a Limited Liability Partnership firm, formed and registered under the Limited Liability Partnership Act, 2008.

  8. ‘Non Resident Indian’(NRI) means an individual resident outside India who is a citizen of India or is an ‘Overseas Citizen of India’ cardholder within the meaning of section 7 (A) of the Citizenship Act, 1955. ‘Persons of Indian Origin’ cardholders registered as such under Notification No. 26011/4/98 F.I. dated 19.8.2002 issued by the Central Government are deemed to be ‘Overseas Citizen of India’ cardholders’

  9. Person  of  Indian  Origin’ (PIO)  means  a  citizen  of  any  country  other  than Bangladesh or Pakistan, if (i)he at any time held Indian Passport ; or (ii) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or (iii)the person is a spouse of an Indian citizen or a person referred to in sub-clause (i) or (ii).

  10. RBI’ means the Reserve Bank of India established under the Reserve Bank of  India Act, 1934.

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