Foreign Direct Investment (FDI) by a Non-Resident Indian (NRI)
December 22, 2016 by CS Samrish Bhanja
A person must satisfy the following 2 conditions to qualify as a NRI:
- He is a person resident outside India, and
- He is a citizen of India or is an ‘Overseas Citizen of India’ cardholder.
As per the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as may be amended from time to time, a NRI is allowed to make investment in India in accordance with the said Regulations.
Types of Investment by NRI
A NRI may invest in India on either of the following basis:
- On repatriation basis
- On non-repatriation basis
FDI by NRI on Repatriation Basis
FDI by NRI on repatriation basis is governed by the provisions of Schedule 1, 2, 3 and 5 of the above stated Regulations as may be amended from time to time.
FDI by NRI on Non-Repatriation Basis
Foreign Direct Investment by a non-resident Indian (NRI) on non-repatriation basis is governed by Schedule 4 of the above stated Regulations as may be amended from time to time. You can see the whole schedule at Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, Schedule 4 with an important amendment at Review of FDI policy on Investments by NRIs, PIOs, and OCIs
As per the Schedule 4, a NRI may make investment in India on non-repatriation basis in the following ways:
- By acquiring and holding various instruments such as equity shares, convertible preference shares, convertible debentures, warrants or units.
- A NRI may also contribute to the capital of a partnership firm, proprietary firm or a Limited Liability Partnership without any limit on non-repatriation basis.
- A NRI may also invest on non-repatriation basis through a company, trust and a partnership firm incorporated outside India and owned and controlled by NRIs.
All of the above investment will be deemed to be domestic investment at par with the investment made by residents.
A NRI is prohibited from making investment in the following businesses which are also the prohibitions for FDI in general:
- A Nidhi company
- Agricultural/plantation activities
- Real estate business
- Construction of farm houses
- Dealing in Transfer of Development Rights
Mode of Purchase
The consideration by NRI for investment under Schedule 4 shall be paid by any of the following ways:
- Inward remittance through normal banking channel from abroad.
- Out of funds held in NRE/FCNR/NRO account maintained with a bank in India.
Sale/Maturity Proceeds of Securities
The sale/maturity proceeds of the securities or units acquired as above shall be credited only to NRO account irrespective of the type of account from which the consideration for acquisition was paid.