Investments In India

Can NRI/OCI make Investment in Partnership Firm/ Proprietary Concern in India?

Ans.

NRI/ OCI can contribute to capital of a firm or proprietary concern in India on non-repatriation basis subject to certain restrictions. The amount is invested by inward remittance or out of a/c with AD Bank in accordance with FEMA Regulations.

Are there any restrictions on such investments?

Ans.

NRI / OCI cannot invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business (i.e. dealing in land & immovable property with a view to earning profit or income therefrom) or engaged in Print Media.

Can a NRI invest in a LLP in India?

Ans. Yes, NRI is permitted to make investment in an Indian LLP subject to certain conditions as prescribed by FDI policy and LLP Act, 2008.

Who can form a LLP in India?

Ans.

A person resident outside India or an entity incorporated outside India shall be eligible investor for the purpose of FDI in LLPs. However, the following persons shall not be eligible to invest in LLPs:
A citizen/ entity of Pakistan and Bangladesh or
FPI or
FVCI 

What are the eligibility criteria of LLP for accepting foreign investment?

Ans.

• FDI is permitted under the automatic route in LLPs operating in sectors/ activities where 100% FDI is     allowed, through the automatic route and there are no FDI linked performance conditions.

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

• Downstream investments by an LLP having foreign investment will be permitted to make downstream investment in another company  or LLP in sectors in which 100% FDI is allowed under automatic route and there are no FDI- linked performance conditions. 

Can a Foreign National other than NRI / OCI make investments in Partnership Firm/ Proprietary Concern in India?

Ans. No. NRI/OCI only can make investment in Partnership firm/ Proprietary concern in India. However, a person resident outside India other than NRIs/ OCI may make an application and seek prior approval of RBI for making such investment in partnership firm/ proprietary concern in India. 

Can NRI / OCI repatriate outside India the investment made in partnership firm/ proprietary concern?

Ans.

No. NRIs / PIO may invest in investment in partnership firm or proprietary concern in India only on non-repatriable basis. In our opinion the same may be repatriated under USD 1 million scheme but considering that such position may be litigative, it would recommended to obtain prior RBI approval. 

Can a firm or a proprietary concern make payment to a NRI or OCI who has made investment?

Ans. A firm or proprietary concern in India may make payment to or for credit of a NRI or OCI the sum invested by such person in that firm or proprietary concern or income accruing to such person by way of profit on such investment in NRO a/c only.

What are the mode of making payment for such Investments?

Ans.

The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO a/c maintained in accordance with Foreign Exchange Management (Deposit) Regulations, 2016.

What is the Portfolio Investment Scheme (PIS)?

Ans.

PIS is a scheme of RBI under which NRIs can purchase and sell capital instruments of listed Indian company on recognized stock exchanges. For this purpose, NRI/PIO has to apply to AD Bank. All sale/ purchase transactions are to be routed through the said account only. 
Capital instruments means equity shares, debentures, preference shares and share warrants (subject to explanation provided in definition of the capital instrument).

How can NRIs invest in shares in India?

Ans.

As per RBI guidelines, NRI who wishes to invest in shares in India through a stock exchange under repartriable basis need to approach AD Bank to open a NRE PIS a/c under the scheme for routing investments.

Can NRIs undertake PIS transactions through their existing NRE/ NRO a/c?

Ans.

NRI should have a separate bank account, i.e. NRE (PIS) savings a/c exclusively for PIS transactions. Accounts can be jointly held similar to NRE savings a/c. We understand that NRO PIS a/c is re-designated as NRO account.

Can NRI invest in other securities?

Ans.

Yes, NRI can also invest in following securities without limit - on repatriation basis:
•Government dated securities (other than bearer securities) or treasury bills or Units of domestic mutual funds.
•Bonds issued by a public sector undertaking (PSU) in India.
•Shares in Public Sector Enterprises being disinvested by the Government of India.
•Bonds/ units issued by Infrastructure Debt Funds
•Listed Non-convertible/ redeemable preference shares or debentures

Further, NRI/ can also invest in following securities without limit - on non-repatriation basis:
•Dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of money Market Mutual Funds, or National Plan/ Savings Certificates
•listed non-convertible/ redeemable preference shares or debentures in case of Merger & Demerger
•subscribe to the chit funds authorized by the Registrar of Chits or an officer authorized by the State Government in this behalf.


Does NRI need any RBI permission to open demat account with AD bank?

Ans.

No permission is required from RBI to open a demat account. However, credits and debits from demat account may require general or specific permissions as the case may be, from designated AD Banks.



Is there any ceiling on the investments under PIS?

Ans.

NRIs are allowed to invest in shares of listed Indian companies in recognized stock exchanges under PIS:
•NRIs can invest on repatriation basis under PIS route up to 5 per cent of the paid- up capital/ paid-up value of each series of convertible debentures/ paid-up value of each series of convertible preference shares/ paid-up value of each series of warrants of Indian companies.
•The aggregate paid-up value of shares/ convertible debentures/ convertible preference shares/ warrants purchased by all NRIs cannot exceed 10 per cent of the paid-up capital of the company/ paid-up value of each series of convertible debentures/ convertible preference shares/ warrants of the company.
•The aggregate ceiling of 10 per cent can be raised to 24 per cent, if the General Body of the Indian company passes a special resolution to that effect.

How are payments to be made by NRI for shares purchased on stock exchange on repatriation basis?

Ans. Payment for purchase of shares and debentures on repatriation basis has to be made by way of inward remittance through normal banking channels or NRE a/c funds.

How are payments to be made by NRI for shares purchased on stock exchange on non-repatriation basis?

Ans. Payment for purchase of shares and debentures on non-repatriation basis has to be made by way of inward remittance through normal banking channels or out of funds held in NRO/ NRE/ FCNR a/c.

How can NRI/PIO remit sale proceeds?

Ans. If shares sold were held on repatriation basis, sale proceeds (net of taxes) may be credited to NRE/ FCNR/ NRO a/c (subject to conditions).

Is there any tax obligation on sale of shares?

Ans.

The sales proceeds are subject to tax under the head Income from Capital Gains as per the Act. Kindly refer to Chapter 17: Capital Gains on Securities.

Can a NRI trade in shares without taking delivery of the shares?

Ans. It is mandatory for NRI to take delivery of shares purchased and give delivery of shares sold. 

NRI/OCI wants to sell his shares to another NRI/OCI or to non-resident other than an NRI or an OCI. Is he required to obtain RBI permission?

Ans.

No RBI permission is required for transfer (by way of sale or gift) shares/ of Indian Company to another NRI/OCI or to non-resident other than an NRI or an OCI. However, it is required to comply with necessary conditions for acquiring said shares.

Can NRIs transfer their shares/ debentures held on non-repatriation basis to residents freely?

Ans. NRI can freely transfer shares or debentures held on non-repatriation basis to residents by way of gift. 

Resident wants to gift equity shares of an Indian Company to his daughter, who is NRI. Is he permitted to do so?

Ans.

The resident is required to make an application to RBI to gift equity shares to his daughter (NRI) and comply with conditions. Further, he also required to submit following information:
•Name and address of himself and his daughter and the relationship that they share.
•Reasons for making the gift
•Certificate from the Indian Company concerned certifying that the proposed gifting is in accordance will FDI regulations
•Other documents as may be specified by RBI from time to time. 
RBI may permit such a transfer only after evaluating the merits of the case. 

In case a Resident Indian becomes a NRI, will he be required to change the status of his holding from Resident to NRI?

Ans.

Yes. NRI can continue to hold the securities, acquired by him as a resident Indian, even after he becomes a NRI. He is required to intimate AD Banks, brokers, companies about change in his residential status.

In case a NRI becomes a resident in India, will he be required to change the status of his holding from NRI to Resident?

Ans.

Yes, NRI needs to inform AD Bank (through which he had made investments in PIS) and Depository (with whom he opened Demat a/c) about the change in his residential status. Subsequently, a new Demat a/c with relevant resident status will have to be opened. Securities should be transferred from the NRI Demat a/c to the Resident Demat a/c and  NRI Demat a/c must be closed.

Can Indian Companies borrow from NRIs?

Ans. No. As per provisions of FEMA, Indian Company is not permitted to avail loan from a NRI. Alternatively, NRIs can provide deposits to an Indian company or invest in the Non-convertible Debentures offered by the Company.

Can NRI subscribe to public issues? What are the permissions/approvals required?

Ans. Yes. The issuing company is required to issue shares to NRI on the basis of specific or general permission from Government of India/ RBI. Therefore, individual NRI need not obtain any permission.

Does an NRI require any permission to receive bonus/rights shares?

Ans.

No. NRI need not take any permission to receive bonus/ right shares. FEMA provisions allow Indian companies to issue Rights / Bonus share to existing non-resident shareholders, subject to adherence to sectoral cap as may be applicable.

What are the eligible capital instruments for FDI?

Ans.

The eligible capital instruments for FDI are as under:
•Equity Shares;
•Fully, compulsorily and mandatorily convertible debentures; 
•Share warrants;
•Fully, compulsorily and mandatorily convertible preference shares. 

Can person resident outside India or foreign entity invest in units of an Investment Vehicle?

Ans. Person Resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) can invest in units of Investment Vehicle which includes Real Estate Investment Trusts [REITs], Infrastructure Investment Trusts [InvITs] and Alternative Investment Funds [AIFs].

How can NRI make the payment for the purchase of the units of REITs, InvIts and AIF?

Ans.

The payment for the purchase of the units of the REITs, InvIts and AIF shall be made by an inward remittance through normal banking channel including by debit to NRE or FCNR a/c.

Can NRI invest under National Pension System?

Ans.

NRI can subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels including by debit to NRE or FCNR a/c and the person is eligible to invest as per provisions of PFRDA Act. The annuity/ accumulated saving will be repatriable.