Investments In India
  • Liaison Office, Branch Office & Project Office
  • Investment in India - Proprietorship or Partnership Firm or LLP
  • Investment in shares, securities and Mutual Funds in India

1. What is the difference between Liaison Office, Branch Office & Project Office? (Click Here)

Ans.


Liaison Office, Branch Office & Project Office

 

Sr. No.

Particulars

Liaison Office [LO]

Branch Office [BO]

Project Office [PO]

 

1

Meaning

1.  A    Liaison    Office    [also    known    as representative   office]   can   undertake only   liaison  activities  i.e.  it  can  act  as a  channel  of  communication  between Head   Office/Parent company   aborad   and   parties in India.

2.  It  is  not  allowed  to  undertake any   business   activity   in   India   and cannot have any income in India.

1. Person Resident Outside India are  allowed  to  setup  Branch  Offices.
 
2. Normally,  the  Branch  Office  should be   engaged   in   the   activity   of   the Parent entity

A  PO  means  a  place  of  business  established to   represent   the   interests   of   a   foreign entity  executing  a  project  in  India.  Such offices  are  prohibited  from  undertaking  or carrying   on   any   activity   other   than   the activity   relating   to   the   execution   of   the project for which such office is established.

 

2

Separate legal entity

1. An extension of the Head Office
2. No separate legal standing of its own

1. An  extension  of  the  Head  Office with right to accrue income in India
2. No  separate legal standing of  its own

1. An extension of the Head Office
2. No  separate legal standing of  its own

 

3

Permitted Activities

1. Representing    the parent company / group companies in India.
2. Promoting   export   /   import from / to India.
3. Promoting                  technical/ financial        collaborations        between parent /     group      companies     and companies in India.
4. Acting  as  a  communication channel  between  the  parent  company and Indian companies.

1.  Export/import of goods.
2.  Rendering     professional  or consultancy services (other than practice of legal profession in any matter).
3.  Carrying  out  research  work,  in areas  in  which  the   parent  company   is engaged.
4.  Promoting technical or financial collaborations  between  Indian  companies and parent or overseas group company.
5.  Representing          the          parent company  in  India   and  acting  as  buying selling    agent    in    India.    
6.    Rendering services   in   Information   Technology   an development of software in India.
7.  Rendering  technical  support  to the   products   supplied   by   parent/group companies.
8.  Representing a Foreign airline/  shipping company.

PO  is   permitted  to   undertake  only   specific activities   in   relation   and   incidental   to   the execution of the project

 

4

Criteria for set up (without RBI permission)

• Parent entity is required to make an application in Form FNC and is required to fulfill below conditions to set up LO:

 

1. Parent  Company should have  a profit   making   track   record   during   the immediately    preceding    three    financial years in the home country and

 

2. Net     Worth     of     the     Parent Company not less  than USD 50,000 or its equivalent.

 

3. In case company is not financially sound and are a subsidiary company, then letter of comfort is obtained from their parent company/group company and such parent / group company satisfies the above conditions.

 

4. In case, foreign company is a banking or insurance company, then necessary approvals shall be required under Banking Regulation Act or from Insurance Regulatory and Developmental Authority.

• Parent entity is required to make an application in Form FNC and is required to fulfill below conditions to set up BO:

 

1. Parent  Company  should  have profit   making   track   record   during  the immediately preceding five financial year in the home country.

 

2.  Net      Worth      of      the     Parent Company not less than USD 100,000 or it equivalent

 

3. In case company is not financially sound and are a subsidiary company, then letter of comfort is obtained from their parent company/group company and such parent / group company satisfies the above conditions.

 

4. In case, foreign company is a banking or insurance company, then necessary approvals shall be required under Banking Regulation Act or from Insurance Regulatory and Developmental Authority.

 

5. Further, a foreign entity intends to open a branch office (BO) in SEZ, to undertake manufacturing activity , following conditions are to be satisfied:

a. BO should operating in the sectors where 100% FDI is permitted
b. BO should comply with the Chapter XXII of the Companies Act, 2013 and function on a standalone basis

Reserve Bank has  granted general  permission to foreign companies to establish POs in India provided  they  have  secured  a  contract  from an   Indian   company   to  execute  a   project  in India, and
·      the   project   is   funded   directly   by inward remittance from abroad; or
·      the  project  is  funded  by  a  bilateral or         multilateral International Financing Agency; or
 the  project  has  been  cleared  by  an appropriate authority; or
      a    company    or    entity    in    India awarding   the   contract   has   been granted  Term  Loan  by  a  PFI  or  a Bank in India for the project.

 

However,  if  the  above  criteria’s  are  not  met then  the  foreign  entity  has  to  approach  th RBI for getting the special approval.

 

5

Timeline to set up office after approval of application

Office should be opened within 6 months from the approval date. Further, 6 months period are allowed if office is not opened for reasons beyond the control of office. In all other cases, prior approval of RBI is required.

Office should be opened within 6 months from the approval date. Further, 6 months period are allowed if office is not opened for reasons beyond the control of office. In all other cases, prior approval of RBI is required.

In case  of  general  permission,  approval from AD Category Bank is required.

In all other cases, approval from RBI shall be required.

 

6

Renewal of approval

Approval of the office is valid till 3 years and thereafter renewal of approval is required for another 3 years by making an application with AD Bank

Approval of the office is valid till 3 years and thereafter renewal of approval is required for another 3 years by making an application with AD Bank

Generally, approval is valid till completion of project.

 

6

Specific cases in which prior approval of RBI is required

Prior approval of RBI is required in the following cases if the foreign entity/parent company is:

 

a. A citizen of / registered in Pakistan

 

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, North east region and Andaman and Nicobar Islands.

 

c. Having principal business of one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted.

 

d. A Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.

 

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the LO

Prior approval of RBI is required in the following

cases if the foreign entity is:

 

a. A citizen of / registered in Pakistan

 

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, North east region and Andaman and Nicobar Islands.

 

c. Having principal business of one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted.

 

d. A Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.


 

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the BO

Prior approval of RBI is required in below mentioned cases:

 

a. A citizen of / registered in Pakistan

 

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, Northeast region and Andaman and Nicobar Islands.

 

c. Principal business of applicant is one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted. Further, in case of defense sector and project has been awarded by/ entered into Ministry of Defense or Service Headquarters or Defense Public Sector Undertakings, then no approval is required.

 

d. The applicant is a Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.
 

 

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the PO

 

7

Registration with Police Authorities

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

 

8

Bank accounts

Liaison Offices  are  allowed  to  open  non-interest   bearing   INR  current  accounts   in India.     Such     offices     are     required     to approach    their    AD Category Bank    for opening the accounts.

Branch Offices  are  allowed  to  open  non-interest  bearing  INR  current  accounts  in India.     Such     offices     are     required     to approach    their    AD Category Bank    for opening the accounts.

1.  Project     offices     can     open     non-interest   bearing   Foreign   Currency  Account        in        India, subject to fulfillment of certain conditions.

2.Project  Offices  are  allowed  to  open non-interest    bearing    INR    current accounts  in  India.  Such  Offices  are   required  to        approach their Authorized  Dealers  for  opening  the accounts.

 

9

Permitted Debits/Credits in the Bank Account

Permitted Debits and Credits to the Account shall be:

 

a. Credits:

 

1. Funds received from HO through normal banking channels for meeting the expenses

2. Refund of Security Deposit through normal banking channels either paid from LO’s bank account or HO directly.

3. Refund of taxes, duties, etc. received from tax authorities paid from LO’s Bank Account.

4. Sale proceeds of the assets of the LO.

 

b. Debits:

Only for meeting the local expenses of the Office.

Permitted Debits and Credits to the Account shall be:

 

Credits to the bank account should be:

 

a. Credits:

 

1. Funds received from Head Office (HO) through normal banking channels for meeting the expenses of the Branch.

2. Any legitimate receivables arising in the course of business operations.

 

b. Debits:

 

1. Expenses incurred by the Branch

2. Remittance of profit
3. Winding up proceeds

Permitted Debits and Credits to the Account shall be:

 

a. Credits:

 

1.  Foreign Currency receipts from the Project Sanctioning Authority

2. Remittances from the parent/group company abroad or bilateral/multilateral international financing agency.

 

b. Debits:

 

1. Payment of Project related expenditure.

 

10

Opening of Term Deposit A/c

Allowed to open term deposit account for a period not exceeding 6 months if its is out of temporary surplus funds and the maturity proceeds will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.

 

11

Extension of fund and non-fund based facilities

Not Allowed

Allowed as per RBI guidelines

Allowed as per RBI guidelines

 

12

Restrictions

1. Not to undertake any activity of a trading, commercial or  industrial  nature and not to enter    into    any    business contracts  in  its  own  name  without  RBI's prior permission.

 

2. No   commission/fees   shall   be charged     or     any     other     remuneration received/ income earned by  the  office  in India    for    the    liaison    activities/services rendered by it or otherwise in India.

 

3. The entire expenses of the office in India will be met  exclusively  out  of  the funds  received  from  head  office   through normal banking channels.

 

4. The    office    in    India   shall   not borrow or lend  any  money  from/to  any person    in    India    without    RBI's     prior permission

 

5. A LO cannot be opened in case of a Foreign Law Firm for purpose of practicing legal profession.

 

1. Not to expand its activities or undertake any new trading, commercial or industrial  activity  other  than  that  is expressly approved by the RBI.

 

2. The entire expenses in  India will   be   met   either   out   of   the   funds received     from     head     office     through normal   banking   channels   or   through income generated by it in India.

 

3. The    Branch    Office   will   not accept any deposits in India

 

4. The commission earned by the Branch   Office   from   parties   abroad   for any  agency  business  will  be  repatriated to     India     through     normal     banking channels

 

5. Not   to   undertake   any   retail trading  activity 

 

6.  A Branch  Office  is  not allowed  to  carry  out  manufacturing  or
processing  activities  in  India,  directly  or indirectly.

1. Not to undertake or carry any activity
other    than    the    activity    relating    to    the execution of the project for which such
office is established.

 

2. Inter-Project   transfer   of   funds   requires prior permission of the RBI.

 

14

Application for additional offices and activities

Allowed for opening any additional offices upto 4 (one in each zone viz; East, West, North and South) by applying to the AD Bank. However, the foreign entity shall identify one of its offices as the Nodal office for co-ordination of all the activities of all its offices in India.

 

Further, prior permission of the RBI is required more than 4 offices in India or more than one office in each zone is to be opened.

 

If LO is shifted to another city in India, prior approval of Designated AD is required.

Allowed for opening any additional offices upto 4 (one in each zone viz; East, West, North and South) by applying to the AD Bank. However, the foreign entity shall identify one of its offices as the Nodal office for co-ordination of all the activities of all its offices in India.

 

Further, prior permission of the RBI is required more than 4 offices in India or more than one office in each zone is to be opened.

 

If BO is shifted to another city in India, prior approval of Designated AD is required.

NA

 

15

Indian Income Tax Compliance

Since there is  no  income  accrual,  there  is no income tax.
LO is required to e-file  Form 49C with the Income Tax Department.

Since BO is extension of foreign entity, income earned in India is liable to tax in India

Since PO is extension of foreign entity, income earned in India is liable to tax in India

 

16

Funding        of         local operations

The entire expenses of the LO in India will be met out of the funds received from Head Office through normal banking channels.
There will not be any income of the LO.

The entire  expenses  of  the  BO  in  India will   be   met   either   out   of   the   funds received    from    Head    Office    through normal   banking   channels   or   through income generated by it in India.

The funding can be through
1. Foreign currency   receipts  from the          Project            Sanctioning Authority
2. Remittances from  parent/group company abroad
3. Bilateral/Multilateral international financing agency.

 

17

Transfer of fund to Parent

Cannot transfer any funds to parent company except on closure of office

Approval is  not  required  for  repatriation of    post-tax   profits   to   the   head    offic outside  India,  subject  to  filing  of  requisite documents.

Intermittent remittances are allowed by the AD Bank,  subject  to  filing  of requisite documents.

 

18

Audit


a. Statutory Audit

Financials would  be  liable  to  Statutory Audit by a Chartered Accountant

Financials would  be  liable  to  Statutory Audit by a Chartered Accountant

Financials   would   be   liable   to   Statutory Audit by a Chartered Accountant

 

19

b. Tax Audit

Not Applicable

Applicable in  case of Turnover/Professional      fees exceeding certain   prescribed monetary   limits. No Compliance would result into a penalty @
0.5     %     of     the     total     turnover     or Rs.1,50,000/- whichever is less.

Applicable in case  of  Turnover/Professional fees    exceeding   certain   prescribed   monetary limits.  Non   Compliance   would result   into penalty   @   0.5   %   of   the   total   turnover   o Rs.1,50,000/- whichever is less.

 

20

Annual Compliance Filing

1. Filing of audited accounts of the LO, World Accounts with Registrar of Companies

 

2. Yearly submission of Annual Activity Certificate with AD Bank

 

3. Filing Quarterly TDS returns

 

4. Yearly filing of audited accounts of the LO with the DGIT and Director of General Police

 

5. E-File Form 49 C with Income Tax Department

 

6. Auditing of accounts

 

7. Filing PT Returns

 

8. Attending to RBI Inquiries/AD’s inquiries

 

9. Attending to notices of IT Department/Company Law and other statutory departments

1.  Filing of audited accounts of BO, World Accounts with Registrar of Companies

 

2. Yearly submission of Annual Activity Certificate with AD Bank

 

3. Annual return with the Income Tax Department

 

4. Filing of Quarterly TDS returns

 

5.  Filing of Goods and   Service Tax returns

 

6. Auditing of accounts

 

7. Tax Audit

 

8. Filing PT Returns

 

9. Repatriation of funds outside India

 

10. Attending to RBI Inquiries/AD’s inquiries

 

11. Attending to notices of IT Department/Company Law and other statutory departments

 

12. Transfer pricing audit if applicable

1. Filing of audited accounts of PO, World Accounts with Registrar of Companies

 

2. Yearly submission of Certificate from a Chartered Accountant with AD Bank

 

3.  Annual return with the Income Tax Department

 

4.  Filing of Quarterly TDS returns

 

5. Filing of Goods and Service Tax returns

 

6. Auditing of accounts

 

7. Tax Audit

 

8. Filing PT Returns

 

9. Repatriation of funds outside India

 

10. Attending to RBI

Inquiries/AD’s inquiries

 

11. Attending to notices of IT Department/Company Law and other statutory departments

 

12. Transfer pricing audit if applicable

 

 

21

Exit mechanism

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

However, in case  of offices of bank and insurance companies, closure permission shall be required from the sectoral regulators by the AD Bank

 

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

However, in case of offices of bank and insurance companies, closure permission shall be required from the sectoral regulators by the AD Bank

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

 



                                                                                                                                               - Updated 02/2024

1. Can NRI/OCI make Investment in Partnership firm or Proprietary concern in India?

Ans. Yes, an NRI/ OCI can contribute to capital of a firm or proprietary concern in India on non-repatriation basis, subject to certain restrictions (Refer FAQ 2). 


Further investment by NRI/OCI firm or proprietary concern in India on repatriation basis, may require prior RBI permission.

2. Are there any restrictions/conditions on investment by NRI/OCI in firm or Proprietary concern in India?

Ans.

Yes, conditions subject to which NRI/OCI’s can make investments in a firm or a Proprietary concern are as follows:

a. The partnership firm or the proprietorship concern in which investment is proposed to be made should not be engaged in any agricultural/plantation activity or Print Media or real estate business.  

b.  The manner in which consideration is to be discharged for making the aforesaid investment should be in accordance with the extant FEMA Regulation (Refer FAQ 3).

*Real estate business means dealing in land and immovable property with a view to earning profit therefrom. However, it does not include development of townships, construction of residential/ commercial premises, roads or bridges or real estate broking services, and investment in Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014. 


In simple terms, firms or proprietary concern engaged in construction business and earn income by selling/renting such constructed units may not be covered under Real estate business activity and NRI/OCI's can invest in such firms or proprietary concern. In other cases, it may be advised to seek professional assistance before investing in an entity engaged in real estate activity. 

3. What are the mode of making investment by NRI/OCI in Firm or Proprietary concern in India?

Ans.

Investment by NRI/ OCI to the capital contribution of a firm or proprietary concern can be made either by way of:

      a) inward remittance from abroad through banking channels; or

      b) out of funds held in NRE/ FCNR(B)/ NRO A/c maintained in accordance with FEMA regulations.


4. Can a Foreign National other than NRI / OCI make investments in Firm or Proprietary concern in India?

Ans. No. Only NRI/OCI can make investment in firm or 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 firm or proprietary concern in India.

5. What is the mode for a firm or a proprietary concern to make payment to 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 capital contributed by such person in that firm or proprietary concern or income accruing to such person by way of profit on such contribution in his/her NRO A/c only, irrespective of the type of account from which capital contribution was paid.

6. Can NRI / OCI repatriate outside India the investment made in firm or proprietary concern and capital appreciation thereon?

Ans.

No. The amount invested for contribution to the capital of a firm or a proprietary concern and the capital appreciation thereon is not be allowed to be repatriated abroad.

 

However, RBI has given general permission to NRIs to repatriate upto USD 1 million per Financial Year (April – March) out of balances held in their NRO A/c and accordingly, various banks in the past has allowed repatriation of such proceed under USD 1 Million scheme. Hence, it is advisable to seek professional assistance and bank's guidance and understand the conditions associated with repatriability of funds before investing into the firm/proprietary concern.

7. Who can invest in an LLP in India?

Ans.

Following persons/entity outside India can invest in an LLP in India:

 

·  NRI or OCI can contribute to the capital of an LLP on non-repatriation basis. The contribution has to be made by way of inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO A/c maintained in accordance with FEMA regulations. Further, capital contribution and appreciation thereon can be repatriated outside India in the manner given in FAQ 6 above.

 

·  A company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs can also contribute to the capital of an LLP without any limit on non-repatriation basis.

 

·   A person resident outside India including NRI/OCIs or an entity incorporated outside India shall be eligible investor for the purpose of Foreign Investment in LLPs, subject to certain conditions (Refer FAQ 9). Investment in LLP can be made either by way of capital contribution or by way of acquisition or transfer of profit share of LLP. However, the following persons shall not be eligible to invest in LLPs under automatic route and shall require prior RBI approval:

                     

   · A citizen/ entity of Pakistan and Bangladesh or

   · Foreign Portfolio Investor (FPI) or

· Foreign Venture Capital Investor (FVCI)

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

Ans.

·    Foreign investment is permitted under the automatic route in LLPs operating in sectors/ activities where 100% Foreign Direct Investment (FDI) is allowed, through the automatic route and there are no FDI linked performance conditions.

·     Foreign Investment in LLP is subject to the compliance of LLP Act, 2008.

·    Pricing guidelines norms - The price at which investment is made in an LLP should not be less than the fair price worked out as per any valuation norm which is internationally accepted or adopted as per market practice. Further, a valuation certificate to this effect shall be issued by the Chartered Accountant or by a practising Cost Accountant or by an approved valuer from the panel maintained by the Central Government.

·   In case of transfer of capital contribution or profit share from a person resident in India to a person resident outside India, the transfer should not be for consideration less than the fair price of capital contribution or profit share of LLP.  Further, in case of transfer of capital contribution or profit share from a person resident outside India to a person resident in India, the transfer should not be for consideration more than the fair price of capital contribution or profit share of LLP.

·   The amount of consideration should be paid by way of inward remittance from abroad through banking channels out of funds held in NRE/FCNR(B)/NRO Account maintained in accordance with the FEMA Regulation.

9. What are the mode of making investment by NRI/OCI in an LLP in India on non-repatriation and repatriation basis?

Ans.

The mode of investment allowed on non-repatriation and repatriation is tabulated below:

Manner of investment

Investment on Non-Repatriation basis

Investment on Non-Repatriation basis

Inward Remittance from abroad through banking channels in India

ü   

ü   

NRE account

ü   

ü   

FNCR(B) account

ü   

ü   

NRO account

ü   

       X

10. What are the modes of disinvesting the investment made by NRI/OCI in LLP and capital appreciation thereon?

Ans.

      · Investment on repatriation basis:

The disinvestment proceeds of an LLP shall be remitted outside India or may be credited to NRE or FCNR(B) A/c of the investor.


       · Investment on non-repatriation basis:

The disinvestment proceeds of an LLP shall be credited only to the NRO A/c of the investor, irrespective of the type of account from which the consideration was paid.

11. Can a company be converted into LLP?

Ans. Yes. A company having foreign investment, engaged in a sector where foreign investment upto 100% is permitted under automatic route and there are no FDI linked performance conditions may be converted into LLP under the automatic route. Such investment in LLP shall be construed as investment on repatriation basis.

12. Is there any reporting requirement for investment made by an NRI/OCI in an LLP on non-repatriation basis?

Ans. No. Such investments are treated as domestic investments at par with investments made by residents and there is no reporting requirement.  

13. Is there any reporting requirement with respect to foreign investment made in an LLP and disinvestments thereof?

Ans.

Yes, the reporting requirement are as under:

  • Form LLP (I):  An LLP receiving amount of consideration for capital contribution and acquisition of profit shares shall file Form LLP(I) within 30 days from the date of receipt of amount of consideration.
  • Form LLP (II): The dis-investment/transfer of capital contribution or profit share between a resident and a nonresident (or vice versa) shall be filed in Form LLP (II) within 60 days from the date of receipt of funds. The onus of reporting shall be on the resident transferor/transferee.


Updated 11/2023

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.

13. 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