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.

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

Ans.

NRI/OCI cannot invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or Print Media or real estate business*

 

* real estate business means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.

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

Ans.

NRI/OCI can contribute to capital of a firm or proprietary concern in India 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. 

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.

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 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 was paid.  

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 shall not be allowed to be repatriated abroad. 

RBI has given general permission to NRIs to repatriate upto USD 1 million  per FY out of balances held in their NRO a/c. Accordingly, such amount may be repatriated under USD 1 million scheme. However, considering that such position may be litigative, it is recommended to obtain prior RBI approval. 

Can a NRI/OCI invest in a LLP in India?

Ans.

Yes, NRI/OCI is permitted to contribute to the capital of a LLP on repatriation and non-repatriation basis subject to certain conditions/restrictions.

Who can form a LLP in India?

Ans.

• NRI/OCI, including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs may contribute to the capital of a LLP without any limit on non-repatriation basis. 
 
• 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.



What are the mode of making investment LLP in India on repatriation and non-repatriation basis?

Ans.

·     Investment on repatriation basis:

Contribute to capital of LLP in India shall be by way of inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B) A/c maintained in accordance with FEMA regulations.


·     Investment on non-repatriation basis:

Contribute to capital of LLP in India shall be 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. 


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

Ans.

·       Investment on repatriation basis:

The disinvestment proceeds of a 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 a 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.

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.

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.


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 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 convertible debentures/convertible preference shares/share warrants issued of the 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/ paid-up value of each series of convertible debentures/ convertible preference shares/ warrants of the 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.

 


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.

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

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.