Investment Opportunities for Non Resident Indian (NRIs) & Overseas Corporate Citizens of India (OCIs) & Person of Indian Origin (PIOs) in India on Non-Repatriation/ Repatriation basis
Before discussing the Investment opportunity available to Non Resident Indians (NRIs) & Overseas Corporate Citizens ( OCIs), it is important to understand the following terms as provided under FEMA & Regulation made thereunder:
‘Capital Instruments’ means equity shares, debentures, preference shares and share warrants issued by an Indian company.
‘Convertible Note’ means an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument;
‘Foreign Direct Investment’ (FDI) means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.
If an existing investment by a person resident outside India in capital instruments of a listed Indian company falls to a level below 10 percent of the post issue paid-up equity capital on a fully diluted basis, the investment will continue to be treated as FDI.
Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.
‘Foreign Investment’ means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.
‘Foreign Portfolio Investment’ means any investment made by a person resident outside India through capital instruments where such investment is less than 10 percent of the post issue paid-up share capital on a fully diluted basis of a listed Indian company or less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company.
‘Foreign Portfolio Investor (FPI)’ means a person registered in accordance with the provisions of Securities Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
‘Investment on repatriation basis’ means an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression ‘Investment on non-repatriation basis’, shall be construed accordingly.
‘Investment Vehicle’ means an entity registered and regulated under regulations framed by Securities and Exchange Board of India or any other authority designated for the purpose and shall include Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvIts), and Alternative Investment Funds (AIFs).
‘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;
‘Sectoral cap’ is the maximum investment including both foreign investment on a repatriation basis by persons resident outside India in capital instruments of a company or the capital of an LLP, as the case may be, and indirect foreign investment, unless provided otherwise. This shall be the composite limit for the investee Indian entity.
FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the sectoral cap.
Any equity held by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned under the sectoral cap.
‘Unit’ means beneficial interest of an investor in an investment vehicle.
‘Automatic Route’ means the entry route through which investment by a person resident outside India does not require the prior Reserve Bank approval or Government approval.
‘Government Route’ means the entry route through which investment by a person resident outside India requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.
1. Investments by NRIs & OCIs on Non-Repatriation basis:
NRIs & OCIs can make the following investments in India on Non-repatriation basis and can liquidate such investment in the manner as provided herein below under FEMA & Regulations made thereunder:
- 1.1 Purchase or Sale of Capital Instruments or convertible notes of an Indian company or Units or contribution to the capital of an LLP by NRIs or OCIs
- NRIs or OCIs , including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, may purchase/ contribute, as the case may be, on non-repatriation basis the following:
- (a) Any capital instrument issued by a company without any limit either on the stock exchange or outside it.
- (b) Units issued by an investment vehicle without any limit, either on the stock exchange or outside it.
- (c) The capital of a Limited Liability Partnership without any limit.
- (d) Convertible notes issued by a startup company in accordance with the Regulations under FEMA
The investment as detailed in para 1.1 above is deemed as domestic investment at par with the investment made by residents
However NRIs or OCIs including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, shall not make any investment as mentioned herein above in capital instruments or units of a Nidhi company or a company engaged in agricultural/ plantation activities or real estate business (real estate business is explained herein above) or construction of farm houses or dealing in Transfer of Development Rights.
- 1.2 Contribution to capital of a firm or a proprietary concern
An NRI or an OCI may invest, on a non-repatriation basis, by way of contribution to the capital of a firm or a proprietary concern in India provided such firm or proprietary concern is not engaged in any agricultural/ plantation activity or print media or real estate business.
- 1.3 Other Investments
- NRIs or OCIs may, without limit, purchase 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.
- NRIs or OCIs may, without limit, purchase on non-repatriation basis, listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation issued under FEMA.
- NRIs or OCIs may, without limit, on a non-repatriation basis subscribe to the chit funds authorized by the Registrar of Chits or an officer authorized by the State Government in this behalf.
- 1.4 The amount of consideration of the investments as mentioned in papa 1.1 or 1.2 or 1.3 shall be paid from the inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO account maintained by NRIs or OCIs in accordance with provisions of FEMA.
- 1.5 The sale/ maturity proceeds (net of applicable taxes) of the investments mentioned in para 1.1 or 1.2 or 1.3 shall be credited only to the NRO account of the investor, irrespective of the type of account from which the consideration was paid. The amount invested or appreciation there from cannot be repatriated out of India.
2. Investments by NRIs & OCIs on Repatriation basis:
- 2.1 Purchase/sale of capital instruments:
NRIs or OCIs may purchase or sell Capital Instruments of a listed Indian company on repatriation basis, on a recognized stock exchange in India, subject to the following conditions:
- NRIs or OCIs may purchase and sell Capital Instruments through designated branch of Authorised Dealer
- The total holding by any individual NRI or OCI shall not exceed 5 percent of the total paid-up equity capital on a fully diluted basis or 5 percent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company and the total holdings of all NRIs and OCIs put together shall not exceed ten percent of the total paid-up equity capital on a fully diluted basis/ or of the paid-up value of each series of debentures or preference shares or share warrants; The aggregate ceiling of 10 percent may be raised to 24 percent by a special resolution of the General Body of the Indian company.
- 2.2 Options to NRIs or OCIs in other Instruments on Repatriation basis
- 2.2.1. The NRIs or OCIs may, without limit, purchase the following instruments on repatriation basis,
- (a) Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds;
- (b) Bonds issued by a Public Sector Undertaking (PSU) in India;
- (c) Shares in Public Sector Enterprises being disinvested by the Central Government, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids;
- (d) Bonds/ units issued by Infrastructure Debt Funds;
- (e) Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulations under FEMA.
- 2.2.2 The NRIs or an OCI may purchase on repatriation basis perpetual debt instruments eligible for inclusion as Tier I capital and Debt capital instruments as upper Tier II capital issued by banks in India to augment their capital, as stipulated by Reserve Bank. The investments by all NRIs or OCIs in Perpetual Debt Instruments (Tier I) should not exceed an aggregate ceiling of 24 percent of each issue and investments by a single NRI or OCI should not exceed 5 percent of each issue. Investment by NRIs or OCIs in Debt Capital Instruments (Tier II) shall be accordance with the extant policy for investment by NRIs or OCIs in other debt instruments.
- 2.2.3 The NRIs may 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 the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.
The NRIs/ OCIs may offer such instruments as permitted by the Reserve Bank from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange-traded derivative contracts.
- 2.3 Investment in an LLP
A person resident outside India or an entity incorporated outside India (other than a citizen of Pakistan or Bangladesh or entity incorporated therein) who also not being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), may contribute to the capital of an LLP operating in sectors/ activities where foreign investment up to 100 percent is permitted under automatic route. The ‘Profit Share’ will fall under the category of reinvestment of earnings (6) Investment in an LLP either by way of capital contribution or by way of acquisition/ transfer of profit shares, should not be less than the fair price worked out as per any valuation norm which is internationally accepted/ adopted as per market practice (hereinafter referred to as “fair price of capital contribution/ profit share of an LLP”) and a valuation certificate to that effect shall be issued by the Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government. (7) In case of transfer of capital contribution/ profit share from a person resident in India to a person resident outside India, the transfer shall be for a consideration not less than the fair price of capital contribution/ profit share of an LLP. Further, in case of transfer of capital contribution/ profit share from a person resident outside India to a person resident in India, the transfer shall be for a consideration which is not more than the fair price of the capital contribution/ profit share of an LLP.
- 2.4 The amount of consideration of the investments as mentioned in papa 2.1 or 2.2 or 2.3 shall be paid from the inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B) account maintained by NRIs or OCIs in accordance with provisions of FEMA.
- 2.5 The sale/ maturity proceeds (net of applicable taxes) of the investments mentioned in para 2.1 or 2.2 or disinvestment proceeds of LLP as mentioned in para 2.3 shall be remitted abroad or credited to his NRE/ FCNR(B) account.