Investment in shares, securities and Mutual Funds in India

1. Can NRIs invest in equity shares of an Indian Company? If yes, what is the permissible manner of investment?

Ans.

Yes. NRIs are allowed to invest in equity shares of an Indian Company on repatriation and non-repatriation basis, as under:

Sr. No.

Manner of Investment

Shares in which investment is allowed.

1

On Repatriation Basis

 

 

Under Foreign Direct Investment Route

Unlisted equity shares

 

Through NRE (PIS) Route

Listed shares

2

On Non-Repatriation Basis

Listed and unlisted shares


However, above investment shall be subject to fulfilment of other conditions and compliances prescribed under FEMA.

2. How can NRIs trade equity instruments of listed Indian Company under the Portfolio Investment Scheme (PIS)?

Ans.

Basically, PIS is a scheme of RBI under which NRIs/OCIs can purchase and sell equity instruments of listed Indian company on repatriation basis, on a recognized stock in India.

For this purpose, NRI/OCI has to approach designated AD Bank to administer PIS and open NRE a/c under the scheme for routing all the investments through the said a/c only.

Equity instruments generally covers equity shares, convertible debentures, preference shares and share warrants issued by an Indian Company.

3. Can an NRI investor under PIS make an investment on repatriation basis as well as non-repatriation basis?

Ans.

Investment under PIS can be made only on repatriation basis.

4. Is there any ceiling limit on investments under PIS?

Ans.

NRIs are allowed to invest in equity instruments of listed Indian companies under PIS, subject to the following limits:

Sr. No

Particulars

Limit

A

Individual holding of an NRI/OCI

Upto 5% of the total paid- up equity capital on fully diluted basis or paid-up value of each series of debentures/ preference shares/share warrants issued by the Indian company

B

Aggregate holding of all the NRIs/OCIs

Upto 10% of the total paid-up equity capital of the company on a fully diluted basis or  paid-up value of each series of debentures preference shares/ share warrants issued by the Indian company.

The aggregate ceiling of 10% can be raised to 24%,if the General Body of the Indian company passes a special resolution to that effect.

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

Ans.

No, NRIs should have a separate bank a/c which will be designated as NRE (PIS) a/c and such a/c shall be utilized exclusively for PIS transactions. Transactions relating to their personal banking as well as transactions relating to shares acquired other than under PIS should be routed in a separate bank a/c not linked to their PIS a/c/s.

6. How many Designated Banks can an NRI assign under PIS?

Ans.

NRIs can assign only one Designated Bank for the purpose of routing the transactions under PIS. NRIs cannot maintain NRE a/cs under PIS with different AD Banks.

7. How are payments to be made by NRI investor for investing in equity instruments under PIS?

Ans.

Payment for purchase of equity instruments under PIS has to be made by way of inward remittance from outside India through normal banking channels or out of funds held in NRE (PIS) a/c.

8. Whether investment made under PIS is repatriable?

Ans. Yes, sale proceeds (net of taxes) of the equity instrument is repatriable and may be directly remitted outside India or credited to NRE (PIS) a/c of the NRI investor.

9. Whether NRI can purchase equity instrument of listed Indian company by any mode other than PIS?

Ans.

Yes, NRI can purchase equity instrument of listed Indian company on non-repatriation basis, either on stock exchange or outside it. Further, such investment on non-repatriation basis can be made without any limit.

10. Whether NRI can purchase equity instrument of unlisted Indian company and how?

Ans.

·        NRIs can purchase equity instrument of unlisted Indian company on repatriation basis, subject to entry routes, sectoral caps and other FDI conditions and compliances. The consideration amount has to be paid by way of inward remittance from abroad through normal banking channels or out of funds held in NRE/FCNR(B)/Escrow a/c.

·        NRIs can also purchase unlisted Indian company on non-repatriation basis, without any sectoral caps or limit. However, one may note that investments by NRI in shares of following sectors are prohibited:

-      Units of a Nidhi company; or

-      Company engaged in agricultural or planation activity; or

-      Real Estate business; or

-      Construction of farm houses; or

-      Dealing in transfer of development rights.

11. Is there any prescribed timeline for issue of equity instruments by the Indian Company to NRI for investments made under FDI Route?

Ans.

Yes. Equity instruments has to be issued to NRI by the Indian Company within 60 days from the date of receipt of consideration. In case of partly paid equity shares, the period of 60 days shall be reckoned from date of receipt of each call payment.

Where such equity instruments are not issued within 60 days from the date of receipt of the consideration, the Indian Company has to refund the proceeds to the NRE/FCNR (B) a/c of the NRI within 15 days from the date of completion of 60 days.

12. Can NRI invest in securities other than shares, convertible debentures, preference shares and share warrants issued by an Indian Company? If yes, is there any limit for making such investment?

Ans.

1.    Investment in securities:

a)    On repatriation basis: Yes, NRI can also invest in following securities without limit as under:

·         Government dated securities (other than bearer securities) or treasury bills or Units of domestic mutual funds or Exchange-Traded Funds (ETFs), which invest less than or equal to 50% in equity.

·         Bonds issued by a public sector undertaking (PSU) in India.

·         Shares in Public Sector Enterprises being disinvested by the Central Government.

·         Bonds issued by Infrastructure Debt Funds

·         Listed Non-convertible/ redeemable preference shares or debentures

·         Debt instruments issued by banks, eligible for inclusion in regulatory capital. 

b)    On non-repatriation basis: Yes, NRI can also invest in following securities without limit as under:

·         Government dated securities (other than bearer securities) or treasury bills or Units of domestic mutual funds or Exchange-Traded Funds (ETFs) which invests less than or equal to 50% in equity, or National Plan/ Savings Certificates.

·         Listed Non-convertible/ redeemable preference shares or debentures

·         Chit funds authorized by the Registrar of Chits authorised by the Registrar of Chits or an officer authorized by the State Government in this behalf.

2.    Subscription to National Pension System:

Yes, NRI can subscribe to National Pension System, governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such person is eligible to invest as per provisions of PFRDA Act. The annuity/accumulated savings would be repatriable

Subscription to National Pension System shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE /FCNR(B)/NRO a/c. Accordingly, the sale proceeds (net of taxes) may be remitted outside India or may be credited to NRE /FCNR(B)/NRO a/c of the investor, as per investor’s choice.

Can NRI invest in any entity/instrument apart from securities mentioned in FAQ 12 in India?

Ans.

Yes. NRI can invest in the following subject to prescribed conditions/restrictions:

·         Contribution to capital of a firm or proprietary concern in India (on non-repatriation basis)

·         Contribution to capital of a LLP (on repatriation and non-repatriation basis)

·         Units issued by an investment vehicle (on repatriation and non- repatriation basis)

·         Convertible notes issued by a startup company (on non- repatriation basis)

Refer FAQ of Investments by Person Resident Outside India in Proprietary Concern/Partnership firm/LLP in India.

14. How can NRI/PIO remit sale proceeds of equity instruments held on non- repatriation basis?

Ans.

If equity instruments sold were held on non- repatriation basis, sale proceeds (net of taxes) shall be credited to NRO a/c, irrespective of the type of a/c from which the consideration was paid.

Investment on non-repatriation means sale proceeds (net of taxes) is generally not eligible to be repatriated outside India. However, RBI has given general permission to NRIs to repatriate funds from the balances held in NRO a/c upto One Million USD per FY. Accordingly, in our opinion and as per the general practice followed by the AD Banks, NRIs may be allowed to repatriate the proceeds received on sale of such shares under the One Million USD Scheme.

15. Is there any tax obligation on sale of equity instruments?

Ans.

Yes, gains accrued on sale of equity instrument may be subject to tax in India whether acquired on repatriation or non-repatriation basis.

16. Can NRI do an intraday trade in equity shares?

Ans.

No. In our opinion, it is mandatory for NRI to take delivery of shares purchased and give delivery of shares sold.

17. 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.

Where the NRI is holding shares of the Indian company on a repatriation basis, RBI permission is not required for transfer shares of Indian Company (by way of sale or gift) to another NRI/OCI or to non-resident other than an NRI or an OCI.  

However, if NRI is holding shares of Indian company on non-repatriation basis:

-      No RBI permission shall be required for transfer of shares by way of sale to another NRI/OCI or to a non-resident.

-      No RBI permission shall be required for transfer of shares by way of gift to another NRI/OCI on non-repatriation basis. However, if shares are transferred by way of gift to another NRI/OCI on repatriation basis or to a non-resident, prior RBI permission shall be required.  

Further, one may note that such transfer of shares has to be complied with the necessary conditions attached to it as prescribed under FEMA.

18. Mr. A, who is a resident individual wants to gift equity shares of an Indian Company to his daughter, who is NRI. Is he permitted to do so?

Ans.

Since Mr. A and his NRI daughter are “relatives” within the meaning as defined in the Companies Act, 2013, he may gift equity shares of an Indian Company to his daughter. Further, he is required to make an application to RBI and comply with the following additional conditions:

·       The NRI daughter should be eligible to hold such equity shares and applicable sectoral cap in the Indian Company is not breached.

·        The equity shares to be gifted to NRI daughter should not exceed 5% of the paid up capital of the Indian company (such limit of 5% will be on cumulative basis by a single person to another single person).

·        The value (Fair Market Value) of equity shares to be transferred by Mr. A together with any security transferred as gift by him to any person resident outside India during a Financial Year should not exceed the rupee equivalent of USD 50,000/-.

·         Any other conditions as may be specified by RBI.

 

RBI may permit such a transfer only after evaluating the merits of the case.

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

20. 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.

21. 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 NRI shareholders, subject to the conditions specified therein.

22. Can an Indian Company issue Employees Stock Options and/or sweat equity shares to NRI?

Ans.

Yes. An Indian Company may issue Employees Stock Options and/or sweat equity shares to its employees, directors, etc. who are NRI subject to other conditions as may be prescribed.

23. Can an NRI exercise rights/ESOP shares if such rights/ESOP were issued when he was a Resident?

Ans.

An individual who is a NRI exercising a right/ESOP which was issued when he was a Resident shall hold the equity shares so acquired on exercising the option on a non-repatriation basis.

24. Can NRI invest in units of an Investment Vehicle?

Ans.

Yes. NRIs can invest in units of Investment Vehicle which includes Real Estate Investment Trusts [REITs], Infrastructure Investment Trusts [InvIts] and Alternative Investment Funds [AIFs], subject to fulfillment of other conditions as prescribed.

                                    ­- Updated 12/2023