NRIs Investment in India


GOVERNMENT SECURITIES/UTI UNITS :

NRIs are freely permitted to invest their funds in Government securities/National Savings Certificates/Units of UTI through authorised dealers (Banks authorised to deal in foreign exchange). Units can also be purchased directly from UTI. However they are not permitted to invest in bearer securities like Indira Vikas Patra/Kisan Vikas Patra. The securities can also be freely transferred/sold through authorised dealers. UTI units can, however, be resold directly to UTI. If the securities were purchased out of funds remitted from abroad or out of NRE/FCNR accounts, sale/maturity proceeds can be repatriated. However, sale/maturity proceeds of securities purchased out of funds in NRO accounts would not be repatriable and can only be credited to NRO accounts. But the interest earned on such investments is fully repatriable, subject to production of a Chartered Accountant's certificate and an undertaking/certificate regarding payment of tax from the Income Tax Authorities.

FIRMS/COMPANIES :

NRIs can make direct investments in proprietary/partnership concerns in India as also in the primary issues of shares/debentures of Indian companies. They can also make portfolio investments, i.e. purchase of shares/debentures of Indian companies through stock exchanges in India. These facilities are available on both repatriation and non-repatriation basis.

DIRECT INVESTMENT :

(a) WITHOUT REPATRIATION BENEFITS :

NRIs can invest by way of capital contribution in propriety/partnership concerns and companies in India on non-repatriation basis provided the investee concern is not engaged in any agricultural/plantation activity or real estate Business. (However, there is no bar in investing in real estate development i.e. development of property and construction of houses.) NRIs can also make investments in domestic public/private sector mutual funds or money market mutual funds floated by commercial banks and public/private sector financial institutions. Income/interest earned on such non-repatriable investments, can however, be repatriated fully from the year 1996-97, subject to production of a Chartered Accountant's Certificate and an regarding payment of tax from the Income Tax Authorities.

(b) WITH REPATRIATION BENEFITS :

NRIs can make investments with foreign exchange funds in new issues of shares/convertible debentures of Indian companies on repatriation basis under Direct Investment schemes such as 24% scheme/40% scheme/100% scheme. They can also invest in the schemes of domestic mutual funds floated by public/private sector institutions/companies and bonds issued by Public Sector Undertakings. Since the issuing companies would be obtaining the necessary permissions from RBI, the NRI investor does not have to obtain RBI's permission for investing in such shares/debentures.

24% SCHEME :

Indian Companies engaged in any activity including finance, hire purchase, leasing, trading or other services etc., (except agricultural/plantation activities) are allowed by Reserve Bank of India to issue shares/debentures to NRIs with repatriation benefits to the extent of 24% of the new issue.

40% SCHEME:

Indian companies engaged in the following activities are allowed by Reserve Bank of India to issue shares/debentures to NRIs with repatriation benefits to the extent of 40% of the new issue.

  • Industrial and manufacturing units.

  • Hotels with 3, 4, or 5 star category.

  • Hospitals and diagnostic centres.

  • Shipping companies.

  • Development of computer software.

  • Oil exploration services.

100% SCHEME:

Indian companies engaged in the following activities are allowed by RBI to issue shares/debentures to NRIs with repatriation benefits upto 100% of the new issue subject to certain prescribed conditions:

  • High priority industries listed in Annexure III to the Statement on Industrial Policy dated 24th July 1991 of the Government of India.

  • Development of serviced plots and construction of built up residential premises.

  • Real estate covering construction of residential and commercial premises including business centres and offices.

  • Development of township.

  • City and regional level urban infrastructure facilities including roads and bridges.

  • Manufacture of building materials.

  • Financing of housing development.

  • Air taxi operations.

  • 100% Export Oriented Units or Units in Export Processing Zones. The NRI investor need not obtain permission of RBI for the above investments. The investee company would obtain the necessary permission.

SICK INDUSTRIAL UNITS :

NRIs are also permitted to undertake revival of sick industrial units by making bulk investment in them to the extent of 100% either by way of purchase of existing equity shares or in the form of subscription to new equity issues. Repatriation of capital in such cases is allowed after a minimum period of 5 years, on the merits of individual cases.

PORTFOLIO INVESTMENT SCHEME (PIS) :

NRIs have to obtain prior permission of RBI to acquire shares/debentures of Indian Companies and units of domestic mutual funds on both repatriation and non-repatriation basis through stock exchanges in India. The application for permission is to be submitted to RBI through a designated Bank branch in one of the prescribed forms. RBI approval is valid for a period of 5 years from the date of issue. The following branches of our Bank conduct the business under Portfolio Investment Scheme on behalf of NRIs.

An NRI has to confine his transactions to one designated branch only. He can authorise a resident as his agent in India to purchase/sell shares on his behalf but all transactions should be routed through the designated bank branch.

CEILING:

Investment under the Portfolio Investment Scheme is subject to an overall ceiling of 10% of the paid up share capital/each series of convertible debentures of a company by NRI. An individual NRI/OCB can make investment on repatriation basis upto 5% of the paid up share capital/each series of convertible debentures of a company. However, there is no ceiling on investment in domestic mutual funds.

SALE/TRANSFER OF SHARES/SECURITIES THROUGH STOCK EXCHANGE:

Shares, bonds and debentures acquired by NRIs on non-repatriation basis under both Direct Investment Scheme and Portfolio Investment Scheme can be freely sold through stock exchanges. The sale proceeds would have to be credited to the NRO account of the seller.

Shares, bonds and debentures acquired by NRIs on repatriation basis under both Direct Investment Scheme a Portfolio Investment Scheme can be sold through stock exchanges. The repatriation of the sale proceeds or credit thereof to the NRE/FCNR account of the beneficiary would be subject to payment of capital gains tax. Long term capital gain in respect of securities purchased with foreign exchange (provided the securities are held in one's name for at least one year) is taxed at a flat rate of 10% for NRIs.

PURCHASE/SALE OF SHARES/SECURITIES THROUGH PRIVATE ARRANGEMENT:

(i.e other than through stock exchanges or directly from the issuing companies) - requires permission of RBI.

GIFT OF SHARES/SECURITIES :

Shares and securities can be freely gifted by NRIs to resident relatives or charitable trusts. However, gifting to nonresident relatives would require RBI's permission.

COMPANY DEPOSITS :

NRIs can invest in company deposits on both repatriation and non-repatriation basis (for a maximum period of 3 years for repatriation) subject to certain ceilings/conditions.

LOANS AGAINST SHARES/SECURITIES :

It can be availed of by NRIs from banks after obtaining prior permission of RBI for meeting the borrower's personal/business requirements and not for re-lending or investment in shares/securities/immovable property/agricultural/plantation activities or farm house/real estate business.