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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:

  1. He is a person resident outside India, and
  2. 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:

  1. On repatriation basis
  2. 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

General Permission

As per the Schedule 4, a NRI may make investment in India on non-repatriation basis in the following ways:

  1. By acquiring and holding various instruments such as equity shares, convertible preference shares, convertible debentures, warrants or units.
  2. 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.
  3. 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.

Prohibition

A NRI is prohibited from making investment in the following businesses which are also the prohibitions for FDI in general:

  1. A Nidhi company
  2. Agricultural/plantation activities
  3. Real estate business
  4. Construction of farm houses
  5. 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:

  1. Inward remittance through normal banking channel from abroad.
  2. 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.


37 thoughts on “Foreign Direct Investment (FDI) by a Non-Resident Indian (NRI)

  1. Can a NRI Director give loan to Indian Company on the basis of declaration under the Companies Act, 2013? Does he or the Company is required to comply with FEMA regulations or any other guidelines, for such loan. Please guide.

  2. a pvt ltd company(construction of residential houses) wants money from foreign investors. So can i get procedure in detail? on repatriation basis

    1. FDI in India is governed by sub-section (3) of Section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. The regulatory framework and instructions issued by the Reserve Bank have been compiled in the Master Circular(https://www.rbi.org.in/SCRIPTs/BS_ViewMasCirculardetails.aspx?id=9903).
      Pursuant to the said circular, FDI in any form is prohibited in a Company engaged in the Real Estate Sector business or construction of farm houses.

  3. Under what provisions of FEMA, not under Companies Act, 2013, a foreign resident or foreign company can incorporate a company in India?

  4. Is FCGPR reporting required even if subscription received from NRI through his NRE account in indian company on non repatriation basis.

  5. whether FCGPR reporting is required if the subscription is received from NRI through his NRE account in Indian company on Non Repatriation basis.

  6. is fcgprs reporting require if subscription received from NRI through his NRO account in indian company

  7. I’ve come across a NRI who is a promoter of indian company and an overseas company. Subsequent to starting an overseas company, it has invested in the indian company. What could be the reason for such FDI through the overseas company.

  8. Company got funds from NRI from his NRO account. Some funds repatriation basis and some non repatriation basis. So which require filing of fema ARF & FCGPR

    1. In case of amount received from an NRI from his NRO account on non-repatriation basis, FC-GPR is not required ti be filed and in case of repatriation basis, you are required to comply with FC-GPR filing requirment.

  9. Hi sir, i have a query.. Can a foreigner open a bank account in india and form that account can he invest in the share capital of the indian private limited company ?

    1. Apologies for the delay.!

      A Foreign national can open and maintain NRO/SNRR account in India with a RBI authorised Indian bank, provided they furnish requisite KYC documents.
      Further, as per FEMA Regulations Indian Company is not permitted to receive share application amount from foreign nationals through NRO/SNRR, so for such an investment one has to go through only those channels as specified by FEMA and FDI policies.
      For details you may refer: – RBI FAQs

      1. Can a foreign national who is ‘resident in India’ as defined under FEMA subscribe to share capital of a newly incorporated private limited company by transferring rupee funds from his Indian bank account

  10. can a foreign holding company guarantee the amounts borrowed by its subsidiary in India. can it allot its shares to discharge the liability of the Indian lender?

    1. As per Sec. 62(3) of CA 2013 loans can be converted into shares of the Indian company (borrower) provided that the terms of loan containing such an option have been approved before raising of loan by a special resolution passed by the company in general meeting.

      To answer the question that if a foreign holding company can guarantee the borrowed amounts, there is no restriction under the Companies Act, 2013 as long as it is acceptable to Indian borrower.

  11. Sir,Our company got foreign remittance for allotment of shares on non repatriation basis.But by mistake we filed ARF through EBIZ and we didn’t filed FCGPR.And also allotted shares and filed with ROC.What is the solution?

  12. Sir,Our company got foreign remittance for allotment of shares on repatriation basis.But by mistake we filed ARF through EBIZ and we didn’t filed FCGPR.And also allotted shares and filed with ROC.What is the solution?

  13. Hi… I have a query… Can a promoter(who is an NRI) of an Indian company subscribe from a Company incorporated outside india in which he is a shareholder… and can the shares be allotted in his name and not the foreign cos. name??

    1. Apologies for the delay in replying to your query. Please find below the answer to your query:
      If money is coming from accounts of the Company incorporated outside India, shares has to be allotted in the name of that Company.
      Also, Rule 2 (d) of Companies (Prospectus and Allotment of Securities) Rules, 2014 clearly states – the payment for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received.
      Thus shares can be allotted in the name of a person/Company who is subscribing the shares by transferring the amount.

  14. I incorporated one Private Limited company and now one Foreign Director wants to give fund and that person is not a member of company so can I choose the option of Private Placement?

    1. As per provisions of Section 42 read with Section 62(1)(c) of the Companies Act, 2013, a company can issue shares to any persons through private placement.
      In your case, the company can receive foreign investment subject to FDI compliances.

  15. hi sir,
    if all the shareholders of a foreign company incorporate a new company in india, will it become the wholly owned subsidiary of that foreign company?

    1. No, if the shareholders of a foreign company propose to hold all the shares of a proposed Indian Company, then the proposed Indian Company will not become subsidiary of the foreign company. This is because as per the Companies Act, 2013, a company is a separate legal entity different from its shareholders. Thus, if you want to make the proposed Indian Company a wholly owned subsidiary of the foreign company, then the foreign company itself must subscribe to the shares of the proposed Indian Company and not its shareholders.

  16. Thank you so much for your quick reply to my earlier question. I have another doubt, for incorporating a wholly owned subsidiary, what kind of resolution is required from the foreign body corporate? Will a board resolution do or is a shareholders resolution required? And where do we go to find out whether the activities to be undertaken come under automatic approval or not? Thanks again

  17. If one of the promoters is a foreign body corporate and is a subscriber to the memorandum of the Indian subsidiary, can it nominate its director (being a foreign national) to be the second subscriber to the Indian Company and hold the balance shares on its behalf? That way the shares in the Indian subsidiary will be held only by the foreign body corporate and its nominee who is a foreign national. is this allowed? Thank you in advance

    1. Yes, it is allowed if the company carries on business in a sector in which 100% FDI is allowed. Indian company will become the wholly owned subsidiary of the foreign body corporate. The foreign body corporate shall give 1 share to its nominee to comply with the law.

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