REGULATIONS(NRI)


FAQs-NRI Matters

Gist of guidelines on the following subjects are available on this page. Please refer to RBI Master Directions on the subject , for detailed guidelines.  The Directions are available at www.rbi.org.in – > Notifications -> Master Directions -> Commercial Banking, Financial Markets,  Foreign Exchange.

INTEREST RATES ON NR DEPOSITS     RISK MANAGEMENT    BORROWING AND LENDING IN INR
                ACQUISITION- TRANSFER OF PROPERTY            REMITTANCE OF ASSETS                                   DEPOSITS AND ACCOUNTS       MISCELLANEOUS        FOREIGN INVESTMENT IN INDIA  

INTEREST RATES ON  NO-RESIDENT DEPOSITS:                           (UPDATED 3rd March 2016)

RUPEE DEPOSITS OF NON-RESIDENTS

Interest rates on Rupee Deposits-Non-Residents

Interest on deposits of money accepted or renewed under NRE/NRO deposit scheme shall be on the terms and conditions specified in the ensuing paragraphs:

(a) The interest rates shall be subject to the conditions laid down in section 4 of these Directions.

(b) Interest rates on savings deposits under Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits shall be in accordance with section 6 of these Directions.

(c) Interest rates on NRE/NRO term deposits shall vary only on account of one or more of the following reasons:

(i) Tenor of Deposits:

Banks shall have the freedom to determine the maturity/tenor of the deposit subject to the condition that minimum tenor of NRE term deposits shall be one year and that of NRO term deposits shall be seven days.

(ii) Size of Deposits

Differential interest rate shall be offered only on bulk deposits

(d) Interest rates on NRE/ NRO deposits shall not be higher than those offered by the banks on comparable domestic rupee term deposits.

(e) The benefit of additional interest rate on deposits on account of being bank’s own staff or senior citizens shall not be available to NRE and NRO deposits.

(f) Interest on savings deposits shall be credited at quarterly or shorter intervals.

(g) If an NRE account holder, immediately on return to India, requests for conversion of the NRE term deposit into Resident Foreign Currency Account (RFC), interest shall be paid as under:

  1. if the NRE deposit has not run for a minimum period of one year, interest shall be paid at a rate not exceeding the rate payable on savings deposits held in RFC accounts.
  2. In all other cases, interest shall be paid at the contracted rate.

16. Prohibition on marking lien

Scheduled Commercial Banks shall not mark any type of lien, direct or indirect, against NRE saving deposits.

17. Penalty on premature withdrawal of NRE deposits

There shall be a comprehensive policy on penalties for premature withdrawal of NRE term deposits approved by the Board of Directors or any committee of the Board to which powers have been delegated, subject to the following:

  1. The components of penalty shall be clearly brought to the notice of the depositors at the time of acceptance of the deposits.
  2. No penalty shall be levied for premature withdrawal of NRE term deposits for conversion into Resident Foreign Currency (RFC) Account.
  3. Penalties for premature withdrawal shall be levied for conversion of NRE deposit into FCNR (B) deposit and vice versa.
  4. No penalty for premature withdrawal shall be levied, where depositors of the branch as mentioned in section 4(h) of this direction desires premature withdrawal of deposit consequent to the transfer of business to another bank.

18. Interest payable on the NRE term deposit account of deceased depositor

In case the claimants of an NRE term deposit account of a deceased depositor are residents, the deposit on maturity shall be treated as a domestic rupee term deposit and interest shall be paid for the subsequent period at a rate applicable to a domestic term deposit of similar maturity.

FOREIGN CURRENCY DEPOSITS

Foreign Currency (Non-resident) Accounts (Banks) Scheme

Interest on deposits of money accepted or renewed under the Foreign Currency (Non-Resident) Accounts (Banks) Scheme shall be in accordance with the terms and conditions specified in the ensuing paragraphs:

(a) The interest rates shall be subject to the conditions laid down in section 4 of these Directions.

(b) Interest rates on term deposits under the FCNR (B) scheme shall vary only on account of one or more of the following reasons:

(i) Tenor of deposits

The maturity period for term deposits under the FCNR (B) scheme shall be as under:

  1. One year and above but less than two years
  2. Two years and above but less than three years
  3. Three years and above but less than four years
  4. Four years and above but less than five years
  5. Five years only

Provided that, no bank shall accept or renew FCNR (B) deposits over five years and no recurring deposits shall be accepted under the FCNR (B) Scheme.

(ii) Size of deposits

Scheduled Commercial Banks shall, at their discretion, decide the currency-wise minimum quantum on which differential rates of interest may be offered.

(c) The interest rates on all deposits, including where differential rates of interest are offered, shall be subject to the overall ceiling prescribed at 19 (g) below.

(d) Interest on floating rate deposits shall be paid within the ceiling of swap rates for the respective currency/ maturity and in case of fixed rate deposits, interest shall be paid within the ceiling of LIBOR rates for the respective currency/ maturity.

(e) The interest reset period shall be six months for all floating rate deposits.

(f) The LIBOR/SWAP rates as on the last working day of the preceding month shall form the base for fixing ceiling rates for the interest rates offered effective in the following month.

(g) The interest rates ceiling on FCNR (B) deposits shall be as under:

Period of deposit Ceiling rate
1 year to less than 3 years LIBOR/ Swap plus 200 basis points
3 years and above upto and including 5 years LIBOR/ Swap plus 300 basis points

(h) The LIBOR / Swap rates quoted/displayed by Foreign Exchange Dealers Association of India (FEDAI) shall be used as the reference for arriving at the interest rates on FCNR(B) deposits.

20. Manner of calculation of interest on FCNR(B) deposits

  1. Interest on the deposits accepted under the scheme shall be calculated on the basis of 360 days to a year.
  2. The interest on FCNR (B) deposits shall be calculated and paid at intervals of 180 days each and thereafter for the remaining actual number of days.

Provided that the option to receive the interest on maturity with compounding effect shall vest with the depositor.

21. Calculation of interest on renewal of FCNR (B) deposits

Interest calculation on renewal of FCNR(B) deposits shall be as under:

  1. If the period from the date of maturity till the date of renewal (both days inclusive) does not exceed 14 days, the rate of interest payable on the amount of the deposit so renewed shall be the appropriate rate of interest for the period of renewal as prevailing on the date of maturity or on the date when the depositor seeks renewal, whichever is lower.
  2. In all other cases of renewal, interest rates for the overdue period on the renewed amount shall be determined by treating it as a fresh term deposit.
  3. If, after renewal, the deposit is withdrawn before completion of the minimum stipulated period under the scheme, scheduled commercial banks may, at their discretion, recover the interest paid for the overdue period i.e. period beyond the original date of maturity.

22. Interest payable on the deposit of a deceased FCNR(B) depositor

Scheduled commercial banks shall pay interest on the term deposits standing in the name(s) of a deceased FCNR(B) individual depositor or two or more joint depositors where one of the depositors has died, as under:-

  1. If paid on the maturity of the deposit, interest shall be paid at the contracted rate;
  2. If the deposit is claimed before the maturity date, interest shall be paid not at the contracted rate but at the rate applicable to the period for which the deposit remained with the bank and without charging penalty for pre-payment;
  3. In case the depositor dies before the date of maturity of the deposit but the amount of the deposit is claimed after the date of maturity, interest shall be paid at the contracted rate till the date of maturity and simple interest at the applicable rate operative on the date of maturity for the period for which the deposit remained with the bank beyond the date of maturity.
  4. In case of death of the depositor after the date of maturity of the deposit, the interest rate operative on the date of maturity in respect of savings deposits held under Resident Foreign Currency (RFC) Account Scheme shall be paid from the date of maturity till the date of payment.
  5. In case the claimants are residents, the maturity proceeds shall be converted into Indian Rupees on the date of maturity and interest shall be paid for the subsequent period at the rate applicable to a domestic term deposit of similar maturity.

23. Payment of interest on FCNR (B) deposits of NRIs on return to India

Scheduled commercial banks may, at their discretion, on receipt of the request from the depositor, allow FCNR (B) deposits of persons of Indian nationality/origin who return to India for permanent settlement to continue till maturity at the contracted rate of interest subject to the conditions that:

  1. The rate of interest as applicable to FCNR(B) deposits shall continue.
  2. Such deposits shall be treated as resident deposits from the date of return of the account holder to India.
  3. The FCNR (B) deposits on maturity shall be converted into Resident Rupee Deposit Account or RFC Account (if eligible) at the option of the account holder.
  4. The rate of interest on the new deposit (Rupee account or RFC Account) shall be the relevant rate applicable for such deposit account.

24. Conversion of FCNR (B) Accounts of Returning Indians into RFC Accounts/Resident Rupee Accounts- Payment of interest

Subject to the conditions given in section 4 of these Directions, a Scheduled Commercial Bank shall pay interest at the time of conversion of FCNR(B) Account into RFC/Resident Rupee Account even if the deposit has not completed the minimum maturity period mentioned in section 19(b)(i) above.

Provided that the rate of interest shall not exceed the rate payable on savings bank deposits held under RFC Account Scheme.

25. Premature withdrawal of deposits

  1. Scheduled Commercial Banks shall, on request from the depositor, permit premature withdrawal of deposits under the FCNR(B) Scheme.
  2. If the premature withdrawal of FCNR(B) deposits takes place before completion of the minimum stipulated period as mentioned in section 19(b)(i) above, no interest shall be paid .

26. Penalty on Premature Withdrawal of deposits

There shall be a comprehensive policy on penalties for premature withdrawal of FCNR(B) term deposits approved by the Board of Directors or any committee of the Board to which powers have been delegated, subject to the following:

(a) The components of penalty shall be clearly brought to the notice of the depositors at the time of acceptance of the deposits. If not, the exchange loss arising out of premature withdrawal shall be borne by the Scheduled Commercial Banks.

(b) Penalty shall be levied on premature withdrawal of FCNR(B) deposits

  1. when the depositors return to India for permanent settlement.
  2. for conversion of FCNR (B) deposits into NRE deposits or vice-versa.

(c) In case of splitting of the amount of term deposit at the request from the claimant/s, no penalty for premature withdrawal of the term deposit shall be levied if the period and aggregate amount of the deposit do not undergo any change.

(d) Scheduled Commercial Banks shall, at their discretion, levy penalty to recover the swap cost in the case of premature withdrawal of FCNR(B) deposits.

(e) No penalties shall be levied in the case of premature conversion of balances held in FCNR (B) deposits into RFC Accounts by Non-Resident Indians on their return to India.

(f) No penalty for premature withdrawal shall be levied, where depositors of the branch as mentioned in section 4(h) of this direction desires premature withdrawal of deposit consequent to the transfer of business to another bank.

27. Resident Foreign Currency Accounts Scheme

A Scheduled Commercial Bank shall have the freedom to determine interest on deposits of money accepted by it or renewed by it under the Resident Foreign Currency Account Scheme, in accordance to the comprehensive policy on interest rates on deposits duly approved by the Board of Directors or any committee of the Board to which powers have been delegated.

RISK MANAGEMENT:                                                                              (UPDATED 2nd April 2018)

 

Facilities for Persons Resident outside India

Participants

Market-makers – AD Category I banks.

Users – Foreign Portfolio Investors(FPIs), Investors having Foreign Direct Investments (FDI), Non Resident Indians (NRIs), Non Resident exporters and importers, Non Residents lenders having ECBs designated in INR.

The purpose, products and operational guidelines of each of the users is detailed below:

1. Facilities for Foreign Portfolio Investors (FPIs)

Purpose

i) To hedge currency risk on the market value of entire investment in equity and/or debt in India as on a particular date.

ii) To hedge the coupon receipts arising out of investments in debt securities falling due during the following twelve months.

iii) To hedge Initial Public Offers (IPO) related transient capital flows under the Application Supported by Blocked Amount (ASBA) mechanism.

Products

Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options. Foreign Currency – INR swaps for IPO related flows.

Operational Guidelines, Terms and Conditions

a) FPIs may approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions:

i. The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FPI to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments.

ii. The FPI should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments.

iii. The hedges taken with AD banks other than designated AD banks have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT.

iv. If an FPI wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for the purpose. Further, while AD Category bank is expected to verify such mandates, in cases where this is rendered difficult, they may obtain a declaration from the FPI regarding the nature/structure of the PN/ODI establishing the need for a hedge operation and that such operations are being undertaken against specific mandates obtained from their clients.

b) AD Category I banks may undertake periodic reviews, at least at quarterly intervals, on the basis of market price movements, fresh inflows, amounts repatriated and other relevant parameters to ensure that the forward cover outstanding is supported by underlying exposures. In this context, it is clarified that in case an FPI intends to hedge the exposure of one of its sub-account holders, (cf paragraph 4 of schedule 2 to Notification No. FEMA 20 /2000-RB dated 3rd May 2000) it will be required to produce a clear mandate from the sub-account holder in respect of the latter’s intention to enter into the derivative transaction. Further, the AD Category I banks shall have to verify the mandate as well as the eligibility of the contract vis-a-vis the market value of the securities held in the concerned sub-account.

c) If a hedge becomes naked in part or in full owing to contraction of the market value of the portfolio, for reasons other than sale of securities, the hedge may be allowed to continue till the original maturity, if so desired.

d) Forward contracts booked by FPIs, once cancelled, can be rebooked up to the extent of 10 per cent of the value of the contracts cancelled. The forward contracts booked may, however, be rolled over on or before maturity.

e) Forward contracts booked for hedging coupon receipts as indicated in para. (1)(ii) above shall not be eligible for rebooking on cancellation. They may however be rolled over on maturity provided the relative coupon amount is yet to be received.

f) The cost of hedge should be met out of repatriable funds and /or inward remittance through normal banking channel.

g) All outward remittances incidental to the hedge are net of applicable taxes.

h) For IPO related transient capital flows

  1. FPIs can undertake foreign currency- rupee swaps only for hedging the flows relating to the IPO under the ASBA mechanism.
  2. The amount of the swap should not exceed the amount proposed to be invested in the IPO.
  3. The tenor of the swap should not exceed 30 days.
  4. The contracts, once cancelled, cannot be rebooked. Rollovers under this scheme will also not be permitted.

i) FPIs and other foreign investor are free to remit funds through any bank of its choice for any transaction permitted under FEMA, 1999 or the Regulations / Directions framed thereunder. The funds thus remitted can be transferred to the designated AD Category -I custodian bank through the banking channel. Note should, however, be taken that KYC in respect of the remitter, wherever required, is a joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. While the first bank will be privy to the details of the remitter and the purpose of the remittance, the second bank, will have access to complete information from the recipient’s perspective. Besides, the remittance receiving bank is required to issue FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency.

2. Terms and conditions for Foreign Portfolio Investors participating in the Exchange Traded Currency Derivatives (ETCD) 

Foreign portfolio investors (FPIs) eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from time to time may enter into currency futures or exchange traded currency options contracts subject to the following terms and conditions:

a. FPIs will be allowed access to the currency futures or exchange traded currency options for the purpose of hedging the currency risk arising out of the market value of their exposure to Indian debt and equity securities.

b. Such investors can participate in the currency futures / exchange traded options market through any registered / recognised trading member of the exchange concerned.

c. FPIs may take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges.

d. FPIs, are allowed to take positions in the cross-currency futures and exchange traded cross-currency option contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges.

e. An FPI cannot take a short position beyond USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. In order to take a long position in excess of these limits, it will be required to have an underlying exposure. The onus of ensuring the existence of an underlying exposure shall rest with the FPI concerned.

f. The exchange will, however, be free to impose additional restrictions as prescribed by the Securities and Exchange Board of India (SEBI) for the purpose of risk management and fair trading.

g. The exchange/ clearing corporation will provide FPI wise information on day-end open position as well as intra-day highest position to the respective custodian banks. The custodian banks will aggregate the position of each FPI on the exchanges as well as the OTC contracts booked with them (i.e. the custodian banks) and other AD banks. If the total value of the contracts exceeds the market value of the holdings on any day, the concerned FPI shall be liable to such penal action as may be laid down by the SEBI in this regard and action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999. The designated custodian bank will be required to monitor this and bring transgressions, if any, to the notice of RBI / SEBI.

h. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. The position limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Financial Markets Regulation Department, Reserve Bank of India.

3. Facilities for Non-resident Indians (NRIs)

Purpose

  1. To hedge the exchange rate risk on the market value of investment made under the portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued there under or in accordance with provisions of FEMA, 1999. For access to ETCD market, see para. 4 below.
  2. To hedge the exchange rate risk on the amount of dividend due on shares held in Indian companies.
  3. To hedge the exchange rate risk on the amounts held in FCNR (B) deposits.
  4. To hedge the exchange rate risk on balances held in NRE account.

Products

  1. Forward foreign exchange contracts with rupee as one of the currencies, and foreign currency-INR options.
  2. Additionally, for balances in FCNR (B) accounts – Cross currency (not involving the rupee) forward contracts to convert the balances in one foreign currency to other foreign currencies in which FCNR (B) deposits are permitted to be maintained.

4. Terms and conditions for Non-Resident Indians (NRIs) participating in the Exchange Traded Currency Derivatives (ETCD)

i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments.

ii. NRIs may take positions in the currency futures / exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts.

iii. The exchange/ clearing corporation will provide details of all transactions of the NRI to the designated bank.

iv. The designated bank will consolidate the positions of the NRI on the exchanges as well as the OTC derivative contracts booked with them and with other AD banks. The designated bank shall monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and bring transgressions, if any, to the notice of RBI / SEBI.

v. The onus of ensuring the existence of the underlying exposure shall rest with the NRI concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999.

5. Facilities for Hedging Foreign Direct Investment in India

Purpose

  1. To hedge exchange rate risk on the market value of investments made in India since January 1, 1993, subject to verification of the exposure in India
  2. To hedge exchange rate risk on dividend receivable on the investments in Indian companies
  3. To hedge exchange rate risk on proposed investment in India

Products

Forward foreign exchange contracts with rupee as one of the currencies and foreign currency-INR options.

Operational Guidelines, Terms and Conditions

a) In respect of contracts to hedge exchange rate risk on the market value of investments made in India, contracts once cancelled are not eligible to be rebooked. The contracts may, however, be rolled over.

b) In respect of proposed foreign direct investments, following conditions would apply:

  1. Contracts to hedge exchange rate risk arising out of proposed investment in Indian companies may be allowed to be booked only after ensuring that the overseas entities have completed all the necessary formalities and obtained necessary approvals (wherever applicable) for the investment.
  2. The tenor of the contracts should not exceed six months at a time beyond which permission of the Reserve Bank would be required to continue with the contract.
  3. These contracts, if cancelled, shall not be eligible to be rebooked for the same inflows.
  4. Exchange gains, if any, on cancellation shall not be passed on to the overseas investor.

6. Facilities for Hedging Trade Exposures, invoiced in Indian Rupees in India

Purpose

To hedge the currency risk arising out of genuine trade transactions involving exports from and imports to India, invoiced in Indian Rupees, with AD Category I banks in India.

Products

Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options.

Operational Guidelines, Terms and Conditions

The AD Category I banks can opt for either Model I or Model II as given in Master Direction.

7. Facilities for Hedging of ECBs, designated in Indian Rupees, in India

I) Purpose: To hedge the currency risk arising out of ECBs designated in INR either directly with AD Category- I banks in India or through their overseas banks on a back to back basis as per operational guidelines, terms and conditions given under (II) below

Products

Forward foreign exchange contracts with rupee as one of the currencies, foreign currency-INR options and foreign currency-INR swaps.

Operational Guidelines, Terms and Conditions

i. The foreign equity holder / overseas organisation or individual approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he needs to furnish appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying ECB transaction, and details of his overseas banker, address, etc. The following undertakings also need to be taken from the customer –

  1. That the same underlying exposure has not been hedged with any other AD Category- I bank/s in India.
  2. If the underlying exposure is cancelled, the customer will cancel the hedge contract immediately.

ii. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds.

iii. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts.

iv. The contracts, once cancelled, cannot be rebooked.

v. The contracts may, however, be rolled over on or before maturity subject to maturity of the underlying exposure.

vi. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or that the contract has been cancelled on account of cancellation of the underlying exposure.

II) Purpose: To hedge the currency risk arising out of ECBs designated in INR extended by recognised non-resident lenders with AD Category- I banks in India through their overseas banks on a back to back basis.

Products: Foreign currency-INR swaps

Operational Guidelines, Terms and Conditions

(i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower.

(ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable). The following undertakings also need to be taken from the customer –

  1. That the same underlying exposure has not been hedged with any other AD Category- I bank/s in India.
  2. If the underlying exposure is cancelled, the customer will cancel the hedge contract immediately.

(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank.

(iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis.

(v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times.

(vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India.

(vii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank.

8. Facility for hedging exposures of Indian subsidiaries

Users

Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India.

Products

All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder.

Operational Guidelines, Terms and Conditions

  1. The transactions under this facility will be covered under a tri-partite agreement involving the Indian subsidiary, its non-resident parent / treasury and the AD bank. This agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement. The ISDA agreement between the AD bank and the non-resident entity will be distinct from this agreement.
  2. The non-resident entity should be incorporated in a country that is member of the Financial Action Task Force (FATF) or member of a FATF-Style Regional body.
  3. The AD Bank may obtain KYC/ AML certification on the lines of the format in Annex XVIII of the Master Direction on Risk Management and Inter Bank Dealings, as amended from time to time.
  4. The non-resident entity may approach an AD Cat-I bank directly which handles the foreign exchange transactions of its subsidiary for booking derivative contracts to hedge the currency risk of and on the latter’s behalf.
  5. The non-resident entity may contract any product either under the contracted route or on past performance basis, which the Indian subsidiary is eligible to use.
  6. The Indian subsidiary shall be responsible for compliance with the rules, regulations and directions issued under FEMA 1999 and any other laws/rules/regulations applicable to these transactions in India.
  7. The profit/ loss of the hedge transactions shall be settled in the bank account and books of accounts of the Indian subsidiary. The AD bank shall obtain from the Indian subsidiary an annual certificate by its Statutory Auditors to this effect.
  8. The concerned AD Bank shall be responsible for monitoring all hedge transactions (OTC as well as exchange traded) booked by the non-resident entity and ensuring that the Indian subsidiary has the necessary underlying exposure for the hedge transactions.
  9. AD banks shall report hedge contracts booked under this facility by the non-resident related entity to CCIL’s trade repository with a special identification tag.

9. Simplified Hedging Facility

Users: Resident and non-resident entities, other than individuals.

Purpose: To hedge exchange rate risk on transactions, contracted or anticipated, permissible under Foreign Exchange Management Act (FEMA), 199915.

Products: Any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under FEMA, 1999.

Cap on Outstanding Contracts: USD 30 million, or its equivalent, on a gross basis.

Designated Bank: Any Authorised Dealer Category-I (AD Cat-I) bank designated as such by the user.

Operational Guidelines, Terms and Conditions

  1. The user shall appoint an AD Cat-I bank as its “Designated Bank”. The designated bank will assess the hedging requirement of the user and set a limit up to the stipulated cap on the outstanding contracts.
  2. If hedging requirement of the user exceeds the limit in course of time, the designated bank may re-assess and, at its discretion, extend the limit up to 150% of the stipulated cap.
  3. Hedge contracts in OTC market can be booked with any AD Cat-I bank, provided the underlying cash flow takes place with the same bank.
  4. Cost reduction structures can be booked by users provided that resident unlisted companies can use such structures only if they have a minimum net worth of Rs.200 crores
  5. Users are not required to furnish any documentary evidence for establishing underlying exposure under this facility. Users may, however, provide basic details of the underlying transaction in a standardised format16, only in the case of OTC hedge contracts.
  6. Cancelled contracts may be freely rebooked with the same bank.
  7. In case of hedge contracts booked in OTC market, while losses will be recovered from the user, net gains i.e. gains in excess of cumulative losses, if any, will be transferred at the time of delivery of the underlying cash flow. In case of part delivery, net gains will be transferred on a pro-rata basis.
  8. For hedge contracts on underlying capital account transactions, gains/losses may be transferred to the user as and when they accrue if the underlying asset/liability is already in existence.
  9. On full utilisation of the limit or in case of breach of limit, user shall not book new contracts under this facility. In such a case, contracts booked earlier under this facility will be allowed to continue till they expire or are closed. Any further hedging requirements thereafter may be booked under other available hedging facilities.
  10. Users booking contracts under this facility shall not book contracts under any other facility in OTC or ETCD market except as provided in para (ix).
  11. At the end of each financial year, the user will provide the designated bank with a statement signed by the head of finance or the head of the entity, to the effect that,
    1. Hedge contracts booked in both OTC and ETCD market, under this facility, are backed by underlying exchange rate exposures, either contracted or anticipated.
    2. The exposures underlying the hedge contracts booked under this facility are not hedged under any other facility.
  12. On being appointed, the designated bank shall report the details of the users and limits granted to the Trade Repository (TR). On a request by the TR, the exchanges shall report all contracts booked by such users to the TR on a daily basis.
  13. The TR will compute user wise outstanding position (across OTC and ETCD market) and provide this information to the designated bank for monitoring. If the outstanding contracts of a user exceeds the limit (or the extended limit, if applicable) the designated bank shall advise the user to stop booking new contracts under this facility.
  14. When user migrates to other available facilities, the designated bank shall report this information to the TR. The TR shall update this information in its records and notify the recognized stock exchanges to stop reporting data for the user concerned.
  15. Banks shall have an internal policy regarding the time limit up to which a hedge contract for a given underlying can be rolled-over or rebooked by the user.

10. Operational Guidelines, Terms and Conditions applicable to all non-residents (except non-residents hedging exposures of Indian subsidiaries at para. 8 above and those hedging under Simplified Hedging Facility)

The operational guidelines as outlined for FPIs would be applicable, with the exception of the provision relating to rebooking of cancelled contracts. All foreign exchange derivative contracts permissible for a resident outside India other than a FPI, once cancelled, are not eligible to be rebooked.

 

BORROWING AND LENDING IN INR                                              (UPDATED 1st January 2016)

1. Important Terms 

Unless the context requires otherwise, the terms ‘Authorised dealer’, ‘Authorised bank’, ‘Non-resident Indian (NRI)’, ‘Person of Indian origin (PIO)’, ‘NRE account’, ‘NRO account’, ‘NRNR account’1, ‘NRSR account’1, and ‘FCNR (B) account’ shall have the same meanings as assigned to them respectively in Foreign Exchange Management (Deposits) Regulations, 2000 notified vide Notification No. FEMA 5/2000-RB dated May 03, 2000.

The term ‘Liberalised Remittance Scheme’ means the scheme formulated in terms of circular A.P. (DIR Series) Circular No. 64 dated February 4, 2004 and as amended from time to time.

The terms ‘Person Resident in India’ and ‘Person Resident outside India’ shall have the same meanings as assigned to them in Sections 2(v) and 2(w) of the Foreign Exchange Management Act, 1999 (FEMA).

‘Relative’ means a ‘relative’ as defined under the Companies Act, 1956/ 2013:

Act of 1956 Act of 2013
U/s 6: MEANING OF “RELATIVE”
A person shall be deemed to be a relative of another, if, and only if,
(a) they are members of a Hindu undivided family ; or
(b) they are husband and wife ; or
(c) the one is related to the other in the manner indicated in Schedule IA.
U/s 2(77) ‘‘relative’’, with reference to any person, means anyone who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed.
Schedule IA As prescribed
Father Father (including step-father)
Mother (including step-mother) Mother (including step-mother)
Son (including step-son) Son (including step-son)
Son’s wife Son’s wife
Daughter (including step-daughter) Daughter
Father’s father Daughter’s husband
Father’s mother Brother (including step-brothers)
Mother’s mother Sister (including step-sisters)
Mother’s father
Son’s son
Son’s son’s wife
Son’s daughter
Son’s daughter’s husband
Daughter’s husband
Daughter’s son
Daughter’s son’s wife
Daughter’s daughter
Daughter’s daughter’s husband
Brother (including step-brothers)
Brother’s wife
Sister (including step-sister)
Sister’s husband

The term ‘Transferable Development Right (TDR)’ shall have the meaning as assigned to it in the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

Notes:

With effect from April 01, 2002, no deposit, whether by way of renewal of existing deposit or otherwise, can be accepted under the NRNR account Scheme or the NRSR account Scheme. The provisions mentioned in the Master Direction may be read accordingly.

2. Persons Resident in India borrowing in INR from NRIs/PIOs

2.1 Available routes for borrowing: Persons resident in Indian may borrow in INR from NRIs/PIOs under the following two routes:

2.1.1 Borrowing in INR by persons other than companies in India: A person resident in India, not being a company incorporated in India, may borrow in INR from NRIs/PIOs after satisfying the following terms and conditions:

  1. Borrowing shall be only on a non-repatriation basis;
  2. The amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the lender, maintained with an authorised dealer or an authorised bank in India;
  3. Period of loan shall not exceed 3 years;
  4. Rate of interest on the loan shall not be more than two per cent above Bank Rate prevailing on the date of availment of loan;
  5. Payment of interest and repayment of principal shall be made only to the NRO account of the lender.

2.1.2 Borrowing in INR by companies in India: A company incorporated in India may borrow in INR, on repatriation or non-repatriation basis, from NRIs/PIOs after satisfying the following terms and conditions:

i. Borrowing company does not and shall not:

  1. Carry on agricultural/plantation/real estate business; or
  2. Trade in transferable development rights; or
  3. Act as Nidhi or Chit fund company.

ii. Borrowing is by issuance of non-convertible debentures (NCDs);

iii. The issue of NCDs is made by public offer;

iv. The rate of interest is not more than the prime lending rate of State Bank of India as on the date on which the resolution approving the issue is passed in the borrowing company’s General Body Meeting plus three per cent;

v. Period of loan shall not be less than three years;

vi. If the borrowing is on repatriation basis then the percentage of NCDs issued to NRIs/PIOs to the total paid up value of all NCDs issued shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures for foreign direct investment in India. Further, the funds towards borrowing should be received through inward remittance from outside India or by debit to NRE/FCNR (B) account of the investor maintained with an authorised dealer or an authorised bank in India;

vii. If the borrowing is on non-repatriation basis from NRIs/PIOs then the amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the investor maintained with an authorised dealer or an authorised bank in India. Payment of interest and repayment of principal shall be made only to the NRO account of the lender.

2.1.3 Restriction on use of borrowed funds: Use of proceeds of funds borrowed within the provisions given under 2.1.1 and 2.1.2 is subject to the following restrictions:

  1. The proceeds shall be utilised only for the own business of the borrower other than what is mentioned at 2.1.2.i above. Additionally, construction of farm houses will also not be permitted. This restriction on real estate does not include development of townships, construction of residential/ commercial premises, roads or bridges.
  2. The proceeds shall not be used for investment or for on-lending in any manner whatsoever. The Reserve Bank may, however, permit these borrowers to use the amount so borrowed for on-lending to infrastructure sector or to keep them in fixed deposits with banks in India, pending utilisation for permissible end-uses.

2.2 Reporting Requirements: For borrowing under 2.1.2 above, the borrowing company should file with the nearest office of the RBI, not later than 30 days from the date of:

2.2.1 Receipt of remittance for investment in NCDs, full details of the remittances received, viz., (a) a list containing names and addresses of NRIs who have remitted funds for investment on repatriation and/or non-repatriation basis, (b) amount and date of receipt of remittance and its rupee equivalent; and (c) names and addresses of authorised dealers through whom the remittance has been received; as also

2.2.2 Issue of NCDs, full details of the investment, viz., (a) a list containing names and addresses of NRIs and number of NCDs issued to each of them on repatriation and/or non-repatriation basis and (b) a certificate from its Company Secretary that all applicable provisions in regard to issue of NCDs have been duly complied with.

3. Lending by authorised dealers in INR to NRIs

3.1 Lending for own requirements or own business purposes: An authorised dealer in India may grant INR loans to a NRI against security of shares and other securities or against the security of immovable property (other than agricultural or plantation land or farm house) held by the latter subject to the following terms and conditions:

  1. The utilisation of loans shall meet the provisions given at 2.1.3.i above. Further, loan proceeds cannot be used for any other activity where foreign investment is not allowed. This shall be applicable even if the loan is utilised in association with other person;
  2. The loan amount shall not be remitted outside India or credited to NRE/FCNR(B)/NRNR account of the borrower;
  3. The directives of RBI on such loans and directives on advances against shares/securities/immovable property shall be duly complied with;
  4. The repayment of loan should be either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the borrower and/or out of sale proceeds realised through securities offered for the loans. Further, these loans can also be repaid by any relative (as defined under Companies Act) of the borrower in India through account to account transfer;
  5. Subject to aforesaid terms and conditions and with additional requirements like compliance with applicable prudential norms of the RBI, authorised dealer may also grant INR loans to NRI for any other purpose provided it is as per the board approval policy of the authorised dealer and loan proceeds are not used for investment in capital market including margin trading and derivatives. Repayment of the loan shall happen by remittance from outside India or by debit to NRE/FCNR(B)/NRO account.

3.2 Lending for acquiring shares under the Employees Stock Option Plan: An Authorised Dealer in India may grant INR loan to NRI employees of Indian companies for acquiring shares of the companies under the Employees Stock Option (ESOP) Scheme subject to the following terms and conditions:

  1. Lending for ESOP Scheme shall be as per the policy approved by the Board of the authorised dealer and shall be subjected to capital market exposure norms of the RBI and other prudential norms;
  2. The loan amount should not exceed 90 per cent of the purchase price of the shares or INR 20 lakhs per NRI employee, whichever is lower;
  3. The rate of interest and margin on such loans may be decided by the banks, subject to directives issued by the RBI from time to time;
  4. The amount shall be paid directly to the company and should not be credited to the borrowers’ non-resident accounts in India;
  5. The loan amount shall be repaid by way of inward remittances from outside India or by debit to NRO/NRE/FCNR(B) account of the borrower.

4. Lending in INR by an authorised dealer or a housing finance institution to NRI/PIO for housing purpose

An authorised or a housing finance institution in India approved by the National Housing Bank (NHB) may provide housing loan to a NRI or a PIO for acquisition of a residential accommodation in India subject to the following terms and conditions:

  1. The quantum of loans, margin money and the period of repayment shall be at par with those applicable to housing finance provided to a person resident in India;
  2. The loan amount shall not be credited to NRE/FCNR(B)/NRNR account of the borrower;
  3. The loan shall be fully secured by equitable mortgage of the property proposed to be acquired, and if necessary, also by lien on the borrower’s other assets in India;
  4. The instalment of loan, interest and other charges, if any, shall be paid by remittances from outside India or out of funds in NRE/ FCNR(B)/ NRNR/ NRO/ NRSR account of the borrower or out of rental income derived from renting out the property acquired or by any relative of the borrower in India by crediting the borrower’s loan account through account to account transfer;
  5. The rate of interest on the loan shall conform to the directives issued, if any, by the RBI and/ or NHB.

5. INR loans by Indian body corporate to its NRI/PIO employees

A body corporate registered or incorporated in India may grant rupee loan to its NRI/PIO employees subject to the following terms and conditions:

  1. The loan shall be granted only for personal purposes including purchase of housing property in India;
  2. The loan shall be granted in accordance with the lender’s Staff Welfare Scheme/Staff Housing Loan Scheme and other terms and conditions applicable to its staff resident in India;
  3. The lender shall ensure that the loan amount is not used for the purposes mentioned under 2.1.3 above;
  4. The lender shall credit the loan amount to the borrower’s NRO account or shall ensure credit to such account by specific indication on the payment instrument;
  5. The repayment of loan shall be made only by way of remittance from outside India or from NRE/NRO/FCNR(B) account of the borrower and by no other source. This condition shall be inbuilt in the loan agreement.

6. INR Loans to NRI by Resident Individual

A resident individual may grant INR loan to a NRI relative by way of crossed cheque/electronic transfer subject to the following terms and conditions:

  1. The loan is free of interest and the minimum maturity of the loan is one year;
  2. The loan amount should be within the overall limit under the Liberalised Remittance Scheme per financial year available for a resident individual, who shall ensure that the applicable limit is not breached;
  3. The utilisation of loans shall meet the provisions given at 2.1.3.i above;
  4. The loan amount shall not be remitted outside India but shall be credited to the NRO account of the borrower;
  5. Repayment of loan shall be made by way of inward remittances from outside India or by debit to the NRO/NRE/FCNR(B) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.

7. Change of status of borrower/lender from person resident in India to person resident outside India

7.1 Change of status of borrower to a person resident outside India: In case of change of status of a borrower who has taken Rupee loan/overdraft from an authorised dealer bank, from a person resident in India to a person resident outside India, the authorised dealer bank may allow continuance of loan/overdraft till its original maturity subject to the satisfaction of the lender. So long as the borrower continues to remain a person resident outside India, the repayment shall be out of inward remittance from outside India or from NRE/FCNR(B)/NRNR/NRO/NRSR account of the borrower.

7.2 Change of the status of the lender to a person resident outside India: In case a rupee loan was granted by a person resident in India to another person resident in India and the lender subsequently becomes a person resident outside India, the repayment of the loan by the resident borrower should be made by credit to the NRO account of the lender.

8. Overdraft by Authorised Dealer to its Branches/Correspondent Banks/Head Office outside India

An authorised dealer may permit a temporary overdraft, for value not exceeding INR five hundred lakhs, in INR accounts maintained with him by its branches or correspondents or Head Office outside India, subject to such terms and conditions as the Reserve Bank may direct from time to time. For the purpose of calculating the ceiling of INR five hundred lakhs, the aggregate amount of overdrafts permitted by the authorised dealer to all his branches, correspondents and Head Office outside India shall be taken into account.

ACQUISITION-TRANSFER OF PROPERTY            (UPDATED 11th April 2018)

Part II – Acquisition and Transfer of Immovable Property in India

1. Introduction

1.1 The Foreign Exchange Management Act, 1999 (FEMA) empowers the Reserve Bank to frame regulations to prohibit, restrict or regulate the acquisition or transfer of immovable property in India by persons resident outside India. The regulations governing acquisition and transfer of immovable property in India are either laid down in FEMA or notified under Notification No. FEMA 21(R)/2018-RB dated March 26, 2018, as amended from time to time. These restrictions do not apply to acquisition or transfer of immovable property in India by a person resident outside India on a lease not exceeding five years.

1.2 As per section 6(5) of FEMA, a person resident outside India can hold, own, transfer or invest in any immovable property situated in India if such property was acquired, held or owned by him/ her when he/ she was resident in India or inherited from a person resident in India.

2. Definitions

Some key terms used in the regulations are given below:

2.1 A ‘Non-Resident Indian’ (NRI) is a person resident outside India who is a citizen of India.

2.2 An ‘Overseas Citizen of India (OCI)’ is a person resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

2.3 ‘Repatriation outside India’ means the buying or drawing of foreign exchange from an authorised dealer in India and remitting it outside India through banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency.

2.4 ‘Transfer’ includes sale, purchase, mortgage, exchange, pledge, gift, loan or any other form of transfer of right, title, possession or lien.

2.5 ‘Relative’ means relative as defined in section 2(77) of the Companies Act, 2013.

3. Acquisition/ transfer by a Non- Resident Indian (NRI)

3.1 Acquisition of immovable property

3.1.1 An NRI or an OCI can acquire by way of purchase any immovable property (other than agricultural land/ plantation property/ farm house) in India.

3.1.2 An NRI or an OCI can acquire by way of gift any immovable property (other than agricultural land/ plantation property/ farm house) in India from person resident in India or from an NRI or an OCI who in any case is a relative as defined in section 2(77) of the Companies Act, 2013.

3.1.3 An NRI or an OCI can acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired the property in accordance with the provisions of the foreign exchange law in force at the time of acquisition.

3.1.4 An NRI or an OCI can acquire any immovable property in India by way of inheritance from a person resident in India

3.2 Transfer of immovable property

  1. An NRI or an OCI may transfer any immovable property in India to a person resident in India;
  2. An NRI or an OCI may transfer any immovable property (other than agricultural land or plantation property or farm house) to an NRI or an OCI. In case the transfer is by way of gift the transferee should be a relative as defined in section 2(77) of the Companies Act, 2013.

3.3 Payment for Acquisition of Immovable Property

  1. NRIs or OCIs may make payment, if any, for transfer of immovable property out of funds received in India through banking channels by way of inward remittance from any place outside India or by debit to their NRE/ FCNR (B)/ NRO account;
  2. Such payments cannot be made either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned above.

4. Joint acquisition by the spouse of an NRI or an OCI

4.1 A person resident outside India, not being a Non-Resident Indian or an Overseas Citizen of India, who is a spouse of a Non-Resident Indian or an Overseas Citizen of India may acquire one immovable property (other than agricultural land/ farm house/ plantation property), jointly with his/ her NRI/ OCI spouse.

4.2 Consideration for transfers made under this para should be out of funds received in India through banking channels by way of inward remittance from any place outside India or by debit to non-resident account of the person concerned maintained in accordance with the Act or the rules framed thereunder. Payments cannot be made either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned in this para.

4.3 The marriage should have been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property.

4.4 The non-resident spouse should not otherwise be prohibited from such acquisition.

5. Acquisition by a Long-Term Visa holder

5.1 A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority communities in those countries viz., Hindus, Sikhs, Jains, Buddhists, Parsis and Christians, who is residing in India and has been granted a Long Term Visa (LTV) by the Central Government may purchase only one residential immovable property in India as dwelling unit for self-occupation and only one immovable property for self-employment.

5.2 The property should not be located in and around restricted/ protected areas so notified by the Central Government or cantonment areas.

5.3 The person should submit a declaration to the Revenue Authority of the district where the property is located specifying the source of funds and that he/ she is residing in India on a LTV.

5.4 The registration documents of the property should mention the nationality and the fact that such person is on a LTV.

5.5 The property of such person may be attached/ confiscated in the event of his/ her indulgence in anti-India activities.

5.6 A copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of Police (DCP)/ Foreigners Registration Office (FRO)/ Foreigners Regional Registration Office (FRRO) concerned and to the Ministry of Home Affairs (Foreigners Division).

5.7 Sale of the immovable property so acquired is permissible only after such person has acquired Indian citizenship. However, transfer of such immovable property before acquiring Indian citizenship requires the prior approval of the Deputy Commissioner of Police (DCP)/ Foreigners Registration Office (FRO)/ Foreigners Regional Registration Office (FRRO) concerned.

6. Acquisition of immovable Property by Foreign Embassies/ Diplomats/ Consulate Generals

Foreign Embassy/ Diplomat/ Consulate General, may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided –

  1. Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and
  2. The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.

7. Acquisition of immovable property by person resident outside India for carrying on a permitted activity

7.1 A branch or office or any other place of business in India, other than a liaison office, established by a person resident outside India, may acquire immovable property in India which is necessary for or incidental to the activity carried on in India by such branch or office.

7.2 Such a person is required to file with the Reserve Bank a declaration in the form IPI (as given in the Master Direction on Reporting), not later than ninety days from the date of such acquisition.

7.3 The immovable property so acquired can be mortgaged to an Authorised Dealer as a security for any borrowing.

7.4 However, acquisition of immovable property in India by a branch, office or other place of business of persons of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong or Macau or Nepal or Bhutan or Democratic People’s Republic of Korea origin/ nationality/ ownership requires the prior approval of the Reserve Bank.

8. Repatriation of sale proceeds of immovable property

8.1 A person acquiring property in accordance with section 6(5) of FEMA (reference para 1.2 of Part II) or his successor cannot repatriate outside India the sale proceeds of such immovable property without the prior permission of the Reserve Bank. However, if such a person is an NRI or a PIO (as defined in Foreign Exchange Management (Remittance of Assets) Regulations, 2016) resident outside India, he/ she can utilise the remittance facilities available under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, as amended from time to time.

8.2 In the event of sale of immovable property other than agricultural land/ farm house/ plantation property in India by a PIO resident outside India [who held property in India in terms of the erstwhile FEM (Acquisition and transfer of Immovable Property in India) Regulations, 2000] or an NRI or an OCI, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:

  1. the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him;
  2. the amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in FCNR(B) account or NRE account;In case an immovable property in India has been purchased by a PIO resident outside India [who held property in India in terms of the erstwhile FEM (Acquisition and transfer of Immovable Property in India) Regulations, 2000] or an NRI or a OCI out of housing loans availed in terms of Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time, and the repayments for such loans are made out of remittances received from abroad through banking channels or by debit to the NRE/ FCNR(B) account of such person, such repayments may be treated as equivalent to foreign exchange received.
  3. in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties

8.3 In the event of failure in repayment of external commercial borrowing availed by a person resident in India under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, as amended from time to time, a bank which is an authorised dealer may permit the overseas lender or the security trustee (in whose favour the charge on immovable property has been created to secure the ECB) to sell the immovable property on which the said loan has been secured only to a (by the) person resident in India and to repatriate the sale proceeds towards outstanding dues in respect of the said loan and not any other loan.

9. Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries

9.1 Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People’s Republic of Korea cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India, other than on lease, not exceeding five years. For this purpose the term “citizen” shall include natural persons and legal entities.

9.2 The prohibition at 9.1 above shall not apply to an OCI.

10. Miscellaneous

10.1 Authorized Dealer Category-I banks may convey no objection for creation of charge on immovable assets of a person resident in India either in favour of the external commercial borrowing (ECB) lender or the security trustee subject to the following conditions:

  1. ‘No objection’ shall be granted only to a resident ECB borrower;
  2. The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying ECB;
  3. Such ‘no objection’ should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender/ security trustee;
  4. In the event of enforcement/ invocation of the charge, the immovable asset (property) will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB.

10.2 An authorised dealer which is an Indian correspondent of an overseas lender may create a mortgage on an immovable property in India owned by an NRI or an OCI who is a director of a company outside India, for a loan to be availed by the company outside India from the said overseas lender subject to the following conditions:

(a)The funds should be used by the borrowing company only for its core business purposes overseas; and

(b)In case of invocation of charge the authorised dealer should sell the immovable property to an eligible acquirer and remit the sale proceeds to the overseas lender.

10.3 A person resident outside India who has acquired any immovable property in India in accordance with foreign exchange laws in force at the time of such acquisition or with the general or specific permission of the Reserve Bank may transfer such property to a person resident in India provided the transaction takes place through banking channels in India and provided that the resident is not otherwise prohibited from such acquisition.

10.4 Any transfer of property not covered in these directions will require the prior permission of the Reserve Bank.

10.5 As per Government of India Press Release dated February 1, 2009, (given in the annex) in order to be considered as a person resident in India, a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of preceding financial year) but also his purpose of stay as well as the type of Indian visa granted to him should clearly indicate the intention to stay in India for an uncertain period. In this regard, to be eligible, the intention to stay has to be unambiguously established with supporting documentation including visa.

10.6 Any transaction involving acquisition or transfer of immovable property by a person resident outside India should be through banking channels in India.

10.7 Any existing holding of immovable property in India by a person resident outside India made in accordance with the policy in existence at the time of such acquisition would not require any modifications to confirm to the Foreign Exchange Management (Acquisition and transfer of Immovable Property in India) Regulations, 2018

11. Payment of taxes and other duties/ levies in India

Any transaction involving acquisition of immovable property by a person resident outside India shall be subject to applicable tax laws and other duties/ levies in India.

REMITTANCE OF ASSETS:                                                                      (UPDATED 28th April 2016)

1. Introduction

The Regulations for remittance outside India of assets in India by a person, whether resident in India or not, are laid down in the Notification No. FEMA 13/2000-RB dated May 3, 2000, as amended from time to time.

2. Definitions

Some key terms used in the regulations are given below:

2.1 ‘Remittance of assets’ means remittance outside India of funds in a deposit with a bank/ firm/ company, provident fund balance or superannuation benefits, amount of claim or maturity proceeds of insurance policy, sale proceeds of shares, securities, immovable property or any other asset held in India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (FEMA) or rules/ regulations made under FEMA.

2.2 ‘Non-Resident Indian’ (NRI) means a person resident outside India who is a citizen of India.

2.3 A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

  1. Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
  2. Who belonged to a territory that became part of India after the 15th day of August, 1947; or
  3. Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
  4. Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955.

2.4 ‘Authorised Dealer’ (AD) means a person authorised as an authorised dealer under subsection (1) of section 10 of the Act.

2.5 ‘Expatriate staff’ is a person whose provident/ superannuation/ pension fund is maintained outside India by his principal employer outside India.

2.6 ‘Not permanently resident’ is a person resident in India for employment of a specified duration or for a specific job/ assignment, the duration of which is not more than three years.

3. Remittance of assets permitted under the regulations

3.1 Remittances by individuals not being NRIs/ PIOs

ADs may allow remittance of assets by a foreign national where:

  1. the person has retired from employment in India;
  2. the person has inherited from a person referred to in section 6(5) of the Act;
  3. the person is a non-resident widow/widower and has inherited assets from her/his deceased spouse who was an Indian national resident in India.

The remittance should not exceed USD one million per financial year. This limit, however, will not cover sale proceeds of assets held on repatriation basis. In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD on submission of documentary evidence.

  1. the remittance is in respect of balances held in a bank account by a foreign student who has completed his/ her studies, provided such balance represents proceeds of remittances received from abroad through normal banking channels or rupee proceeds of foreign exchange brought by such person and sold to an authorised dealer or out of stipend/ scholarship received from the Government or any organisation in India.

These facilities are not available for citizens of Nepal or Bhutan or a PIO.

3.2 Remittances by NRIs/ PIOs

ADs may allow NRIs/ PIOs, on submission of documentary evidence, to remit up to USD one million, per financial year:

  1. out of balances in their non-resident (ordinary) (NRO) accounts/ sale proceeds of assets/ assets acquired in India by way of inheritance/ legacy;
  2. in respect of assets acquired under a deed of settlement made by either of his/ her parents or a relative as defined in Companies Act, 2013. The settlement should take effect on the death of the settler;
  3. in case settlement is done without retaining any life interest in the property i.e. during the lifetime of the owner/ parent, it would tantamount to regular transfer by way of gift and the remittance of sale proceeds of such property would be guided by the extant instructions on remittance of balance in the NRO account;

In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD. Where the remittance is to be made from the balances held in the NRO account, the Authorised Dealer should obtain an undertaking from the account holder stating that “the said remittance is sought to be made out of the remitter’s balances held in the account arising from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer from any other NRO account and if such is found to be the case, the account holder will render himself/ herself liable for penal action under FEMA.”

3.3 Remittances by companies/ entities

3.3.1 ADs may allow remittances by Indian companies under liquidation on directions issued by a Court in India/ orders issued by official liquidator in case of voluntary winding up on submission of:

  1. Auditor’s certificate confirming that all liabilities in India have been either fully paid or adequately provided for.
  2. Auditor’s certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 1956.
  3. In case of winding up otherwise than by a court, an auditor’s certificate to the effect that there are no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.

3.3.2 ADs may also allow Indian entities to remit their contribution towards the provident fund/ superannuation/ pension fund in respect of their expatriate staff resident but “not permanently resident” in India.

3.4 Remittances/ winding up proceeds of branch/ office

ADs may permit remittance of assets on closure or remittance of winding up proceeds of branch office/ liaison office (other than project office) on submission of the following documents:

(i) A copy of the Reserve Bank’s permission for establishing the branch/ office in India.

(ii) Auditor’s certificate:

  1. indicating the manner in which the remittable amount has been arrived and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
  2. confirming that all liabilities in India including arrears of gratuity and other benefits to the employees etc., of the branch/ office have been either fully met or adequately provided for;
  3. confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India;
  4. confirming that the branch/office has complied with all regulatory requirements stipulated by the Reserve Bank of India from time to time regarding functioning of such offices in India;

(iii) a confirmation from the applicant that no legal proceedings are pending in any Court in India and there is no legal impediment to the remittance; and

(iv) a report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the office in India.

4. Remittance of assets requiring RBI approval

4.1 Prior approval of the Reserve Bank is necessary for remittance of assets where:

  1. Remittance is in excess of USD 1,000,000 (US Dollar One million only) per financial year (i) on account of legacy, bequest or inheritance to a citizen of foreign state, resident outside India; (ii) by NRIs/ PIOs out of the balances held in NRO accounts/ sale proceeds of assets/ the assets acquired by way of inheritance/ legacy.
  2. Hardship will be caused to a person if remittance from India is not made to such a person.

4.2 Remittance of funds from the sale of assets in India held by a person, whether resident in or outside India, not covered under the directions stipulated above will require approval of the Reserve Bank.

5. Income-tax clearance

The remittances are subject to payment of applicable taxes in India. Reserve Bank of India will not issue any instructions under FEMA clarifying tax issues. It shall be mandatory on the part of Authorised Dealers to comply with the requirement of tax laws, as applicable.

DEPOSITS AND ACCOUNTS:                                                              (UPDATED 23rd June 2016)

(A) Opening, holding and maintaining accounts in India by a person resident outside India

1. Introduction

1.1 The Foreign Exchange Management Act, 1999 (FEMA) empowers the Reserve Bank to frame regulations to restrict, regulate and prohibit the maintenance of deposits between a person resident in India and a person resident outside India. These regulations are notified under Notification No. FEMA 5(R)/2016-RB of April 1, 2016, (FEMA 5(R)) as amended from time to time.

2. Definitions

Some key terms used in the regulations are given below:

2.1 ‘Authorised Bank’ is a bank including a co-operative bank authorised by the Reserve Bank to maintain an account of a person resident outside India.

2.2 ‘Authorised Dealer’ is a person authorised as an authorised dealer under sub-section (1) of section 10 of FEMA.

2.3 ‘Deposit’ includes deposit of money with a bank, company, proprietary concern, partnership firm, corporate body, trust or any other person.

2.4 A ‘Non-resident Indian’ (NRI) is a person resident outside India who is a citizen of India.

2.5  A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

  1. Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
  2. Who belonged to a territory that became part of India after the 15th day of August, 1947; or
  3. Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
  4. Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955.

2.6 ‘Permissible currency’ is a foreign currency which is freely convertible.

2.7  ‘Relative’ means relative as defined in section 2(77) of the Companies Act, 2013.

2.8 As FEM (Deposit) Regulations, 2000 have been repealed and replaced by FEM (Deposit) Regulations, 2016 with effect from April 1, 2016 (FEMA 5(R)), the term NRI, wherever it appeared, has been replaced by NRI and/or PIO. Prior to this, PIOs were covered within the definition of NRI.

3. Exemptions

These restrictions are not applicable for the following:

3.1 Deposits in rupee accounts and special rupee accounts maintained by foreign diplomatic missions and diplomatic personnel.

3.2 Foreign currency accounts maintained by diplomatic missions, diplomatic personnel and non-diplomatic staff who are the nationals of the concerned foreign countries and hold official passport of foreign embassies in India, subject to the following conditions:

  1. The permissible credits to the account will be inward remittances received from outside India through banking channels; and transfer of funds, from the rupee account of the diplomatic mission in India, which are collected in India as visa fees and credited to such account;
  2. Funds held in such account if converted in rupees cannot be converted back into foreign currency;
  3. The account may be held in the form of current or term deposit account, and in the case of diplomatic personnel and non-diplomatic staff, may also be held in the form of savings account;
  4. The rate of interest on savings or term deposits shall be such as may be determined by the authorised dealer maintaining the account;
  5. The funds in the account may be repatriated outside India without the approval of Reserve Bank.

3.3 Deposits with Authorized Dealer maintained in rupees by persons resident in Nepal and Bhutan.

3.4 Deposits with authorized dealer maintained by any multilateral organization and its subsidiary/ affiliate bodies and officials in India, of which India is a member nation.

4. Non-Resident (External) Rupee Account Scheme – (NRE Account):

The detailed instructions for opening and maintaining this account are laid down in Schedule 1 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. The salient features of the scheme are given below:

4.1 Non-resident Indians (NRIs) and Person of Indian Origin (PIOs) are permitted to open and maintain these accounts with authorised dealers and with banks (including cooperative banks) authorised by the Reserve Bank to maintain such accounts.

4.2 The accounts may be maintained in any form, e.g. savings, current, recurring or fixed deposit account etc.

4.3 Joint accounts can be opened by two or more NRIs and/or PIOs or by an NRI/PIO with a resident relative(s) on ‘former or survivor’ basis. However, during the life time of the NRI/PIO account holder, the resident relative can operate the account only as a Power of Attorney holder.

4.4 Inward remittances to the account and remittances outside India from NRE account are permitted.

4.5 Credits permitted to this account as inward remittance are interest accruing on the account, interest on investment, transfer from other NRE/ FCNR(B) accounts, maturity proceeds if such investments were made from this account or through inward remittance.

4.6 The debits allowed from this account are local disbursements, transfer to other NRE/ FCNR(B) and investments in India.

4.7 Current income like rent, dividend, pension, interest etc. will be construed as a permissible credit to the NRE account provided the Authorised Dealer is satisfied that the credit represents current income of the NRI/PIO account holder and income tax thereon has been deducted/ paid/ provided for, as the case may be.

4.8 The regulations for sanction of loans are detailed below:

4.8.1 Authorised Dealers/ banks in India can grant loans against the security of the funds held in NRE accounts to the account holder/ third party in India, without any limits, subject to the usual margin requirements. The loan cannot be repatriated outside India and shall be used for the following purposes:

  1. personal purposes or for carrying on business activities except for the purpose of relending or carrying on agricultural/ plantation activities or for investment in real estate business;
  2. making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/ companies subject to the provisions of the relevant Regulations made under the Act;
  3. acquiring flat/ house in India for his own residential use subject to the provisions of the relevant Regulations made under the Act.

In case of loans sanctioned to a third party, there should be no direct or indirect foreign exchange consideration for the non-resident depositor agreeing to pledge his deposits to enable the resident individual/ firm/ company to obtain such facilities.

In case of the loan sanctioned to the account holder, it can be repaid either by adjusting the deposits or through inward remittances from outside India through banking channels or out of balances held in the NRO account of the account holder.

4.8.2 Authorised Dealers may allow their branches/ correspondents outside India to grant loans to or in favour of non-resident depositor or to third parties at the request of depositor for bona fide purpose against the security of funds held in the NRE accounts in India and also agree for remittance of the funds from India, if necessary, for liquidation of the outstanding.

4.8.3 The facility for premature withdrawal of deposits will not be available where loans against such deposits are availed of.

4.8.4 The term “loan” shall include all types of fund based/ non-fund based facilities.

4.9 NRE accounts should be designated as resident accounts or the funds held in these accounts may be transferred to the RFC accounts, at the option of the account holder, immediately upon the return of the account holder to India for taking up employment or on change in the residential status.

4.10 In the event of the demise of an account holder, balances in the account can be transferred to the non-resident nominee of the deceased account holder. However, request from a resident nominee for remittance of funds outside India for meeting the liabilities, if any, of the deceased account holder or for similar other purposes, should be forwarded to the Reserve Bank for consideration.

4.11 Operations on an NRE account may be allowed in terms of Power of Attorney or other authority granted in favour of a resident by the non-resident account holder, provided such operations are restricted to withdrawals for local payments or remittance to the account holder himself through banking channels. In cases where the account holder or a bank designated by him is eligible to make investments in India, the Power of Attorney holder may be permitted to operate the account to facilitate such investment. The resident Power of Attorney holder is not allowed to (a) open a NRE account; (b) repatriate outside India funds held in the account other than to the account holder himself; (c) make payment by way of gift to a resident on behalf of the account holder; (d) transfer funds from the account to another NRE account.

4.12 Income from interest on balances standing to the credit of NRE Accounts is exempt from Income Tax. Likewise balances held in such accounts are exempt from wealth tax.

4.13 The rate of interest and tenor applicable to these accounts will be in accordance with the directions/ instructions issued by the Department of Banking Regulations, Reserve Bank of India.

5. Foreign Currency (Non-resident) Account (Banks) Scheme – FCNR (B) Account

The detailed instructions for opening and maintaining this account are laid down in Schedule 2 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. The salient features of the scheme are given below:

5.1 Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) are permitted to open and maintain these accounts with authorised dealers and banks authorised by the Reserve Bank to maintain such accounts. Deposits may be accepted in any permissible currency.

5.2 The accounts can be maintained only in the form of fixed deposit.

5.3 Other conditions such as credits/debits, joint accounts, loans / overdrafts, operation by power of attorney etc., as applicable to an NRE account will be applicable to FCNR (B) account as well.

5.4 The rate of interest and tenor applicable to these accounts will be in accordance with the directions/ instructions issued by the Department of Banking Regulation, Reserve Bank of India.

6. Non-Resident (Ordinary) Account Scheme – NRO account

The detailed instructions for opening and maintaining this account are laid down in Schedule 3 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time. The salient features of the scheme are given below:

6.1 Any person resident outside India (as per Section 2 (w) of FEMA), may open and maintain NRO account with an Authorised Dealer or an Authorised Bank for the purpose of putting through bona fide transactions denominated in Indian Rupees.

6.2 Post Offices in India may maintain savings bank accounts in the names of persons resident outside India and allow operations on these accounts subject to the same terms and conditions as are applicable to NRO accounts maintained with an authorised dealer/ authorised bank.

6.3 NRO (current/ savings) account can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. The balance in the NRO account may be paid to the account holder at the time of his departure from India provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.

6.4 Opening of accounts by individuals/ entities of Pakistan nationality/ ownership and entities of Bangladesh ownership requires prior approval of the Reserve Bank. However, individuals of Bangladesh nationality may be allowed to open these accounts subject to the individual/ s holding a valid visa and valid residential permit issued by Foreigner Registration Office (FRO)/ Foreigner Regional Registration Office (FRRO) concerned.

6.5 The accounts may be maintained in any form, e.g. savings, current, recurring or fixed deposit account.

6.6 The accounts may be held jointly with residents on ‘former of survivor’ basis. NRIs and PIOs may hold an NRO account jointly with other NRIs and PIOs.

6.7 Inward remittances from outside India, legitimate dues in India and transfers from other NRO accounts are permissible credits to NRO account. Rupee gift/ loan made by a resident to a NRI/PIO relative within the limits prescribed under the Liberalised Remittance Scheme may be credited to the latter’s NRO account.

6.8 The account can be debited for the purpose of local payments, transfers to other NRO accounts or remittance of current income abroad. Apart from these, balances in the NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to conditions specified in Foreign Exchange Management (Remittance of Assets) Regulations, 2016. Funds can be transferred to NRE account within this USD 1 Million facility.

6.9 Loans against the deposits can be granted in India to the account holder or third party subject to usual norms and margin requirement. The loan amount shall not be used for re-lending, carrying on agricultural/plantation activities or investment in real estate.

6.10 NRO accounts may be designated as resident accounts on the return of the account holder to India for any purpose indicating his intention to stay in India for an uncertain period. Likewise, when a resident Indian becomes a person resident outside India, his existing resident account should be designated as NRO account.

6.11 Powers have been delegated to the Authorised Dealers/ Authorised banks to allow operations on an NRO account in terms of a Power of Attorney granted in favour of a resident by the non-resident individual account holder provided such operations are restricted to local payments and remittances to non-residents.

6.12 To facilitate the foreign nationals to collect their pending dues in India, AD Category-I banks may permit such foreign nationals to re-designate their resident account maintained in India as NRO account on leaving the country after their employment to enable them to receive their pending bona fide dues, subject to the bank satisfying itself that the credit of amounts are bona fide dues of the account holder when she/ he was a resident in India. The funds credited to the NRO account should be repatriated abroad immediately, subject to payment of the applicable income tax and other taxes in India. The amount repatriated abroad should not exceed USD one million per financial year. The debit to the account should be only for the purpose of repatriation to the account holder’s account maintained abroad. The account should be closed immediately after all the dues have been received and repatriated as per the declaration made by the account holder when the account was designated as an NRO account.

6.13 International Credit Cards – Authorised Dealer banks have been permitted to issue International Credit Cards to NRIs/PIOs, without prior approval of Reserve Bank. Such transactions may be settled by inward remittance or out of balances held in the cardholder’s FCNR (B) / NRE / NRO Accounts.

6.14 Income-Tax – The remittances (net of applicable taxes) will be allowed to be made by the Authorised Dealer banks on production of requisite information in the formats prescribed by the Central Board of Direct Taxes, Ministry of Finance, Government of India from time to time. Reserve Bank of India will not issue any instructions under FEMA, clarifying tax issues. It shall be mandatory on the part of Authorised Dealers to comply with the requirement of tax laws, as applicable.

7. Special Non-Resident Rupee Account – SNRR account

7.1 Any person resident outside India, having a business interest in India, may open a Special Non-Resident Rupee Account (SNRR account) with an authorised dealer for the purpose of putting through bonafide transactions in rupees, not involving any violation of the provisions of the Act, rules and regulations made there under.

7.2 The SNRR account shall carry the nomenclature of the specific business for which it is opened and shall not earn any interest.

7.3 The debits/ credits and the balances in the account shall be incidental and commensurate with the business operations of the account holder.

7.4 Authorised Dealers should ensure that all the operations in the SNRR account are in accordance with the provisions of the Act, rules and regulations made there under.

7.5 The tenure of the SNRR account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and in no case should exceed seven years. No operations are permissible in the account after seven years from the date of opening of the account.

7.6 The operations in the SNRR account should not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner.

7.7 The balances in the SNRR account shall be eligible for repatriation and transfers from any NRO account to the SNRR account are prohibited.

7.8 All transactions in the SNRR account will be subject to payment of applicable taxes in India.

7.9 SNRR account may be designated as resident rupee account on the account holder becoming a resident.

7.10 The amount due/ payable to non-resident nominee from the account of a deceased account holder, will be credited to NRO account of the nominee with an authorised dealer/ authorised bank in India.

7.11 Opening of SNRR accounts by Pakistan and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior approval of Reserve Bank.

8. Escrow Account

8.1 Resident or non-resident corporate/ acquirers may open Escrow account in INR with an authorized dealer in India as an Escrow agent subject to the terms and conditions specified in Schedule 5 of the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

8.2 Transactions shall be in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a person resident Outside India) Regulations, 2000 and relevant regulations of the Securities and Exchange Board of India.

8.3 The accounts shall be non-interest bearing.

8.4 No fund/ non-fund based facility would be permitted against the balances in the account.

9. Acceptance of deposit by a company in India from NRIs/PIOs on repatriation basis

A company incorporated in India including NBFC registered with the Reserve Bank cannot accept deposits on repatriation basis. It can, however, renew the deposits it had accepted in accordance with Schedule 6 of Foreign Exchange Management (Deposit) Regulations), 2016, as amended from time to time.

10. Acceptance of deposits by Indian proprietorship concern/ firm or a company from NRIs or PIOs on non-repatriation basis

10.1 An Indian proprietorship concern/ firm or a company (including Non-Banking Finance Company) registered with Reserve Bank can accept deposits from NRIsor PIOs on non-repatriation basis subject to the terms and conditions specified in Schedule 7 to Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

10.2 Indian companies can accept deposits from NRIs or PIOs by issue of a commercial paper subject to terms and conditions specified in sub-Regulation (3) of Regulation 6 of Notification No FEMA 5(R)/ 2016-RB dated April 1, 2016.

11. Acceptance of deposits by Indian companies from a person resident outside India for nomination as Director

Keeping deposits with an Indian company by persons resident outside India, in accordance with section 160 of the Companies Act, 2013, is a current account (payment) transaction and, as such, does not require any approval from Reserve Bank. All refunds of such deposits, arising in the event of selection of the person as director or getting more than twenty five percent votes, shall be treated similarly.

12. Other Accounts / Deposits

12.1 A deposit made by an Authorised Dealer with its branch, head office or correspondent outside India, and a deposit made by a branch or correspondent outside India of an Authorised Dealer, and held in its books in India, will be governed by the directions issued by the Reserve Bank in this regard.

12.2 A shipping or airline company incorporated outside India, can open, hold and maintain a Foreign Currency Account with an authorised dealer for meeting the local expenses in India of such airline or shipping company. The credits permitted to such accounts are only freight or passage fare collections in India or by inward remittances through banking channels from its office outside India.

12.3 An Authorised Dealer may allow unincorporated joint ventures (UJV) of foreign companies/ entities, with Indian entities, executing a contract in India, to open and maintain non-interest bearing foreign currency account and an SNRR account as specified in Schedule 4 of the Deposit Regulations for the purpose of undertaking transactions in the ordinary course of its business. The debits and credits in these accounts should be incidental to the business requirement of the UJV. The tenure of the account should be concurrent to the tenure of the contract/ period of operation of the UJV and all operations in the account shall be in accordance with the provisions of the Act or the rules or regulations made or the directions issued there under. Opening of such accounts by companies/ entities of Pakistan/ Bangladesh ownership/ nationality would require the prior approval of the Reserve Bank.

13. Nomination

Authorised dealers may provide nomination facility in respect of the deposits/ accounts in these regulations maintained by individual account holders.

14. Responsibility of authorised dealers maintaining foreign currency accounts:-

An authorised dealer maintaining accounts under this Master Direction is required to:

a) comply with the directions issued by the Reserve Bank from time to time; and

b) submit periodic return or statement, if any, as may be stipulated by the Reserve Bank.

MISCELLANEOUS:                                                                  (UPDATED 28th July 2017)

1) Remittances to non-residents – Deduction of Tax at Source

On the Central Board of Direct Taxes (CBDT) revising the existing instructions to be followed while allowing remittances to the non-residents, Reserve Bank of India has clarified that it will not be issuing instructions under Foreign Exchange Management Act, 1999 (FEMA), clarifying tax issues. The Authorised Dealers are required to comply with the requirement of the tax laws, as applicable.

2) Repatriation of income and sale proceeds of assets held abroad by NRIs who have returned to India for permanent settlement and repatriation of income and sale proceeds of assets acquired abroad through remittances under Liberalised Remittance Scheme – Clarification

(a) in terms of sub-section 4 of Section (6) of FEMA, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

(b) Sub-section 4 of Section (6) of FEMA covers the following transactions:

  1. Foreign currency accounts opened and maintained by such a person when he was resident outside India;
  2. Income earned through employment or business or vocation outside India taken up or commenced while such person was resident outside India, or from investments made while such person was resident outside India, or from gift or inheritance received while such a person was resident outside India;
  3. Foreign exchange including any income arising therefrom, and conversion or replacement or accrual to the same, held outside India by a person resident in India acquired by way of inheritance from a person resident outside India.
  4. A person resident in India may freely utilise all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without approval of Reserve Bank, provided the cost of such investments and/ or any subsequent payments received therefor are met exclusively out of funds forming part of eligible assets held by them and the transaction is not in contravention to extant FEMA provisions.

(b) an investor can retain and reinvest the income earned on investments made under the Liberalised Remittance Scheme.

3) Resident bank account maintained by residents in India – Joint holder -liberalization

Individuals resident in India are permitted to include non-resident Indian (NRI) close relative (s) (NRI as defined in regulation 2(vi) of Notification No FEMA 5/ 2000-RB dated May 3, 2000, as amended from time to time and relative as defined in Section 6 of the Companies Act, 1956 as a joint holder(s) in their resident savings bank accounts on “Either or Survivor” basis subject to the following conditions:

  1. Such account will be treated as resident bank account for all purposes and all regulations applicable to a resident bank account shall be applicable.
  2. Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI close relative shall not be eligible for credit to this account.
  3. The NRI close relative shall operate such account only for and on behalf of the resident for domestic payment and not for creating any beneficial interest for himself.
  4. Where the NRI close relative becomes a joint holder with more than one resident in such account, such NRI close relative should be the close relative of all the resident bank account holders.
  5. Where due to any eventuality, the non-resident account holder becomes the survivor of such an account, it shall be categorized as Non-Resident Ordinary Rupee (NRO) account as per the extant regulations.
  6. Onus will be on the non-resident account holder to keep AD bank informed to get the account categorized as NRO account and all such regulations as applicable to NRO account shall be applicable.
  7. The above joint account holder facility may be extended to all types of resident accounts including savings bank account.

While extending this facility the AD bank should satisfy itself about the actual need for such a facility and also obtain the following declaration duly signed by the non-resident account holder:

“I am the joint account holder of SB/FD/RD/Current Account bearing No ……. which stands in my name and in the name of Shri/Smt. ……….. who is my ………. (state relationship). I hereby undertake that I shall not use the proceeds lying in the above account for any transaction in contravention of the provisions of the Foreign Exchange Management Act (FEMA) 1999, Rules/Regulations made thereunder and the related circulars/instructions issued by the Reserve Bank from time to time. I further undertake that if any such transaction is put through the said account in contravention of the FEMA, 1999 or Rules/Regulations made thereunder, I shall be held responsible for the same. I shall intimate my bank in the event of any change in my Non-resident / Resident status.”

4) Meeting of Medical expenses of NRI close relatives by Resident Individuals

Where the medical expenses in respect of NRI close relative (NRI as defined in regulation 2(vi) of Notification No FEMA 5/2000-RB dated May 3, 2000, as amended from time to time and relative as defined in Section 6 of the Companies Act, 1956) are paid by a resident individual when the NRI is on a visit to India, such a payment, although being in the nature of a resident to resident transaction, will be covered under the term “services related thereto” under Regulation 2(i) Notification No. FEMA 16/ 2000- RB dated May 3, 2000, ibid.

5) Routing of funds raised abroad to India

(a) Indian companies or their AD Category – I banks are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding/ associate/ subsidiary/ group companies except for the purposes explicitly permitted in the relevant Regulations.

(b) Further, funds raised abroad by overseas holding/ associate/ subsidiary/ group companies of Indian companies with support of the Indian companies or their AD Category – I banks as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations.

(c) Indian companies or their AD Category – I banks using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.

6) Constitution of Special Investigating Team – sharing of information

In pursuance of the Hon’ble Supreme Court Judgment dated July 4, 2011, Government of India constituted a Special Investigation Team (SIT) under the Chairmanship of Hon’ble Justice M.B. Shah. In this regard, the Hon’ble Supreme Court has directed that:

“All organisations, agencies, departments and agents of the State, whether at the level of the Union of India, or the State Government, including but not limited to all statutorily formed individual bodies, and other constitutional bodies extend all the cooperation necessary for the functioning of the Special Investigation Team.

The Union of India and where needed the State Government will facilitate the conduct of the investigations, in their fullest measures, by the Special Investigation Team and functioning, by extending all necessary financial, material, legal, diplomatic and intelligence resources, whether such investigations or portions of such investigations occur inside the country or abroad.” All Authorised Persons are advised to ensure that information/ documents required by the SIT are made available, as and when required.

7) Crystallization of Inoperative Foreign Currency Deposits – Reserve Bank (Depositor Education and Awareness Fund) Scheme, 2014

With the objective of aligning the instructions in respect of foreign currency accounts with the Reserve Bank (Depositor Education and Awareness Fund) Scheme, 2014, Authorised Dealer banks are required to crystallise, that is, convert the credit balances in any inoperative foreign currency denominated deposit into Indian Rupee, in the manner indicated below:

(a) In case a foreign currency denominated deposit with a fixed maturity date remains inoperative for a period of three years from the date of maturity of the deposit, at the end of the third year, the authorised bank shall convert the balances lying in the foreign currency denominated deposit into Indian Rupee at the exchange rate prevailing as on that date. Thereafter, the depositor shall be entitled to claim either the said Indian Rupee proceeds and interest thereon, if any, or the foreign currency equivalent (calculated at the rate prevalent as on the date of payment) of the Indian Rupee proceeds of the original deposit and interest, if any, on such Indian Rupee proceeds.

(b) In case of foreign currency denominated deposit with no fixed maturity period, if the deposit remains inoperative for a period of three years (debit of bank charges not to be reckoned as operation), the authorised bank shall, after giving a three month notice to the depositor at his last known address as available with it, convert the deposit from the foreign currency in which it is denominated to Indian Rupee at the end of the notice period at the prevailing exchange rate. Thereafter, the depositor shall be entitled to claim either the said Indian Rupee proceeds and interest thereon, if any, or the foreign currency equivalent (calculated at the rate prevalent as on the date of payment) of the Indian Rupee proceeds of the original deposit and interest, if any, on such Indian Rupee proceeds.

8) Operational guidelines on International Financial Services Centre (IFSC)

In terms of the Foreign Exchange Management (International Financial Services Centre) Regulations, a financial institution or a branch of a financial institution set up in the IFSC and permitted / recognised as such by the Government or a Regulatory Authority will be treated as person resident outside India. Therefore, their transaction with a person resident in India will be treated as a transaction between a resident and non- resident and shall be subject to the provisions of Foreign Exchange Management Act, 1999 and the Rules/ Regulations/ Directions issued thereunder.

The financial transaction in this context shall mean making or receiving payment, drawing, issuing or negotiating any bills of exchange or promissory note, transferring any security or acknowledging any debt. Similarly, financial service shall mean any activity which a financial institution is permitted to carry on by the respective Act of the Parliament or Government of India or any Regulatory Authority empowered to regulate the concerned financial institution.

9) Regularisation of assets held abroad by a person resident in India under Foreign Exchange Management Act, 1999

To effectively deal with assets held abroad by persons resident in India in violation of the Foreign Exchange Management Act, 1999 (FEMA) for which declarations have been made and taxes and penalties have been paid under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, it is clarified that:

a) No proceedings shall lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid.

b) No permission under FEMA will be required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration.

c) In case the declarant wishes to hold the asset so declared, she/ he may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application. Such applications will be dealt by the Reserve Bank of India as per extant regulations. In case such permission is not granted, the asset will have to be disposed of within 180 days from the date of receipt of the communication from the Reserve Bank conveying refusal of permission or within such extended period as may be permitted by the Reserve Bank and proceeds brought back to India immediately through the banking channel.

10) Operating framework for facilitating Outward Remittance services by non-bank entities through Authorized Dealer (Category I) banks in India

The non-bank entities may obtain specific approval for each tie-up arrangement from the Reserve Bank for facilitating outward remittance services through Authorized Dealer (Category I) banks in India to effect outward remittances.

The governing conditions for this arrangement are as under:

  1. The Authorized Dealer (Category I) bank through which the service is being offered shall be responsible for ensuring that each outward remittance transaction is in compliance with the provisions of governing regulations in India.
  2. The said Authorized Dealer (Category I) bank shall be responsible for ensuring compliance to KYC/ AML standards/ CFT issued by the Reserve Bank.
  3. The remittances facilitated under this model shall comprise small value transactions, not exceeding USD 5000 per transaction. Remittances by resident individuals will be subject to the limit prescribed under the Liberalised Remittance Scheme (LRS).
  4. Only current account transactions, in the nature of personal remittances, shall be permitted under this model. The transactions permitted are as follows:
    1. Private Visits,
    2. Remittance by tour operators / travel agents to overseas agents / principals / hotels,
    3. Business Travel,
    4. Fee for participation in global conferences and specialized training,
    5. Remittance for participation in international events / competitions (towards training, sponsorship and prize money).
    6. Film shooting,
    7. Medical Treatment abroad,
    8. Disbursement of crew wages,
    9. Overseas Education,
    10. Remittance under educational tie up arrangements with universities abroad,
    11. Remittance towards fees for examinations held in India and abroad and additional score sheets for GRE, TOEFL etc.,
    12. Employment and processing, assessment fees for overseas job applications,
    13. Emigration and Emigration Consultancy Fees,
    14. Skills/ credential assessment fees for intending migrants,
    15. Visa fees,
    16. Processing fees for registration of documents as required by the Portuguese/ other Governments,
    17. Registration/ Subscription/ Membership fees to International Organizations.
  5. Trade transactions are permitted subject to limits and other conditions prescribed for imports under Online Payment Gateway Service Providers (OPGSP)
  6. The remittances shall be permitted only for fund transfers from one bank account to another bank account.
  7. Remittances shall be only made to beneficiaries in jurisdictions which are FATF compliant.
  8. The remitting service provider shall be a duly licensed entity by regulator of destination jurisdictions to facilitate remittances to beneficiaries in such jurisdictions.
  9. The remitter’s moneys should be kept distinct from service provider’s operating account and such moneys should be duly protected from insolvency risks of the facilitating service provider.
  10. The Authorized Dealer (Category I) bank may submit to the Reserve Bank every year a certificate stating that the conditions prescribed in the approval are adhered to.

FOREIGN INVESTMENT IN INDIA:
(Updated 06-04-2018)

1. Introduction

1.1 The Foreign Exchange Management Act, 1999 (FEMA) empowers the Reserve Bank to frame regulations to prohibit, restrict or regulate transfer or issue of any security by a person resident outside India. These regulations are notified as Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2017 under Notification No. FEMA 20(R)/2017-RB of November 7, 2017, [FEMA 20(R)].

1.2 An investment made by a person resident outside India in accordance with FEMA or the rules or the regulations framed thereunder and held on the date of commencement of FEMA 20(R), shall be deemed to have been made in accordance with FEMA 20(R) and shall accordingly be governed by FEMA 20(R).

1.3 A person resident outside India may hold, own, transfer or invest in a security in India if such security was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. Such investment will be held by such person on a non-repatriable basis.

2. Key terms

Some key terms used in this Master Direction are given below:

2.1 ‘Act’ is the Foreign Exchange Management Act, 1999 (42 of 1999).

2.2 ‘Capital Instruments’ are equity shares, debentures, preference shares and share warrants issued by an Indian company. The details of what shall construe capital instruments are at para 4 of this Master Direction.

2.3 ‘Convertible Note’ is 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.

2.4 ‘E-commerce’ is buying and selling of goods and services including digital products over digital & electronic network.

2.4.1 ‘E-commerce entity’ are the following entities conducting the e-commerce business

  1. a company incorporated under the Companies Act, 2013 or
  2. a foreign company covered under section 2 (42) of the Companies Act, 2013 or
  3. an office, branch or agency in India owned or controlled by a person resident outside India and

2.4.2 ‘Inventory based model of e-commerce’ means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

2.4.3 ‘Market place model of e-commerce’ means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

2.4.4 Foreign investment is not permitted in Inventory based model of e-commerce.

2.5 ‘FDI linked performance conditions’ is the sector specific conditions stipulated in regulation 16 of FEMA 20(R) for companies receiving foreign investment.

2.6 ‘Foreign Direct Investment’ (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

2.6.1 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.

2.6.2 Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

2.7 ‘Foreign Portfolio Investment’ is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company.

2.8 ‘Foreign Portfolio Investor (FPI)’ is a person registered in accordance with the provisions of Securities Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.

2.8.1 Any Foreign Institutional Investor (FII) or a sub account registered under the Securities Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 and holding a valid certificate of registration from Securities and Exchange Board of India shall be deemed to be a FPI till the expiry of the block of three years from the enactment of the Securities Exchange Board of India (FPI) Regulations, 2014.

2.9 ‘Foreign Investment’ is 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.

2.9.1 Issue/ transfer of ‘participating interest/ right’ in oil fields by Indian companies to a person resident outside India would be treated as foreign investment.

2.9.2 If a declaration is made by persons as per the provisions of the Companies Act, 2013 about a beneficial interest being held by a person resident outside India, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.

2.9.3 A person resident outside India may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any particular Indian company.

2.10 ‘Group company’ is two or more enterprises which, directly or indirectly, are in a position to (a) exercise 26 percent, or more of voting rights in other enterprise; or (b) appoint more than 50 percent of members of board of directors in the other enterprise.

2.11 ‘Indian entity’ is an Indian company or an LLP.

2.12 ‘Investment’ is to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India.

2.12.1 Investment will include acquisition, holding or transfer of depository receipts issued outside India, the underlying of which is a security issued by a person resident in India.

2.12.2 For the purpose of an LLP, investment shall mean capital contribution or acquisition/ transfer of profit shares.

2.13 ‘Investment on repatriation basis’ is an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be repatriated and the expression ‘Investment on non­repatriation basis’, will be construed accordingly.

2.14 ‘Investment Vehicle’ is an entity registered and regulated under relevant regulations framed by SEBI or any other authority designated for the purpose and will be Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012.

2.14.1 A Venture Capital Fund (VCF) established in the form of a trust or a company or a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 will not be considered as an Investment Vehicle for the purpose of FEMA 20 (R) and this Master Direction.

2.15 ‘Limited Liability Partnership (LLP)’ is a partnership formed and registered under the Limited Liability Partnership Act, 2008

2.16 ‘Listed Indian Company’ is an Indian company which has any of its capital instruments listed on a recognized stock exchange in India and the expression ‘Unlisted Indian Company’ shall be construed accordingly

2.17 ‘Non-Resident Indian (NRI)’ is an individual resident outside India who is citizen of India.

2.18 ‘Overseas Citizen of India (OCI)’ is an individual resident outside India who is registered as an Overseas Citizen of India Cardholder under Section 7(A) of the Citizenship Act, 1955.

2.19 ‘Resident Indian citizen’ is an individual who is a person resident in India and is citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955.

2.20 ‘Real estate business’ is 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. Earning of rent income on lease of the property, not amounting to transfer, will not amount to real estate business. Real estate broking services is excluded from the definition of “real estate business” and 100% foreign investment is allowed in real estate broking services under automatic route.

2.21 ‘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.

2.21.1 FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the sectoral cap.

2.21.2 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.

2.22 ‘Unit’ is the beneficial interest of an investor in an investment vehicle.

3. Prohibited sectors/ persons

3.1 Investment by a person resident outside India is prohibited in the following sectors:

  1. Lottery Business including Government/ private lottery, online lotteries.
  2. Gambling and betting including casinos.
  3. Chit funds (except for investment made by NRIs and OCIs on a non-repatriation basis).
  4. Nidhi company.
  5. Trading in Transferable Development Rights (TDRs).
  6. Real Estate Business or Construction of Farm Houses.
  7. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. The prohibition is on manufacturing of the products mentioned and foreign investment in other activities relating to these products including wholesale cash and carry, retail trading etc. will be governed by the sectoral restrictions laid down in Regulation 16 of FEMA 20(R).
  8. Activities/ sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations
  9. Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

3.2 Any investment by a person who is a citizen of Bangladesh or Pakistan or is an entity incorporated in Bangladesh or Pakistan requires prior Government approval.

3.3 A person who is a citizen of Pakistan or an entity incorporated in Pakistan can, only with the prior Government approval, invest in sectors/ activities other than defence, space, atomic energy and sectors/ activities prohibited for foreign investment.

4. Capital Instruments

4.1 An Indian company is permitted to receive foreign investment by issuing capital instruments to the investor. The capital instruments are equity shares, debentures, preference shares and share warrants issued by the Indian company.

4.2 Equity shares: Equity shares are those issued in accordance with the provisions of the Companies Act, 2013 and will include equity shares that have been partly paid.

4.3 Partly paid shares: Partly paid shares issued on or after July 8, 2014 will be considered as capital instruments.

4.3.1 Partly paid shares that have been issued to a person resident outside India should be fully called-up within twelve months of such issue.

4.3.2 Twenty five percent of the total consideration amount (including share premium, if any), has to be received upfront and the balance consideration towards fully-paid equity shares should be received within a period of twelve months from the date of issue of partly-paid shares.

4.3.3 The time period of 12 months for receipt of the balance consideration need not be insisted upon where the issue size exceeds rupees five hundred crore and the issuer complies with Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements(ICDR)) Regulations, 2009 regarding monitoring agency.

4.3.4 In case of an unlisted Indian company, the balance consideration amount can be received after 12 months where the issue size exceeds rupees five hundred crore. However, the investee company should appoint a monitoring agency on the same lines as required in case of a listed Indian company under the SEBI (ICDR) Regulations. Such monitoring agency (AD Category -1 bank) should report to the investee company as prescribed by the SEBI regulations, ibid, for the listed companies.

4.3.5 In case of non-payment of call money, the forfeiture of the amount paid upfront will be in accordance with the provisions of the Companies Act, 2013 and the Income Tax provisions, as applicable.

4.4 Share warrants: Share warrants issued on or after July 8, 2014 will be considered as capital instruments.

4.4.1 Share Warrants are those issued by an Indian Company in accordance with the Regulations issued by the Securities and Exchange Board of India in this regard.

4.4.2 At least twenty five percent of the consideration has to be received upfront and the balance amount within eighteen months of issuance of share warrants.

4.4.3 In case of non-payment of balance consideration, the forfeiture of the amount paid upfront will be in accordance with the provisions of the Companies Act, 2013 and the Income Tax provisions, as applicable

4.5 The deferment of payment of consideration amount by the foreign investors or shortfall in receipt of consideration amount as per applicable pricing guidelines will not be treated as subscription to partly paid shares and warrants.

4.6 Debentures: Debentures are fully, compulsorily and mandatorily convertible debentures.

4.6.1 Amendment of the tenure of compulsorily and mandatorily convertible debentures shall be in compliance with the Companies Act, 2013.

4.6.2 Optionally convertible/ partially convertible debentures issued up to June 7, 2007 or for which funds were received for such issue prior to June 7, 2007 are deemed to have been issued in accordance with FEMA 20(R) till their original maturity. Any extension of maturity prior to June 7, 2007 will be considered as original maturity.

4.7 Preference shares: Preference shares are fully, compulsorily and mandatorily convertible preference shares.

4.7.1 Amendment of the tenure of fully, compulsorily and mandatorily convertible preference shares shall be in compliance with the Companies Act, 2013

4.7.2 Non-convertible/ optionally convertible/ partially convertible preference shares issued up to April 30, 2007 are deemed to have been issued in accordance with FEMA 20(R) till their original maturity. They, however, will continue to be outside the sectoral caps till their original maturity. Any extension of maturity prior to April 30, 2007 will be considered as original maturity.

4.7.3 Non-convertible/ optionally convertible/ partially convertible preference shares funds for which have been received on or after May 1, 2007 shall be treated as debt and shall conform to External Commercial Borrowing (ECB) guidelines framed under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000. Accordingly, all the norms applicable for ECBs, viz. eligible borrowers, recognised lenders, amount and maturity, end use stipulations, etc. would apply. Since these instruments would be denominated in rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the spread as permissible for ECBs of corresponding maturity.

4.8 Capital instruments issued on or after December 30, 2013 can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price.

5. Entry routes and Permitted sectors

5.1 Entry Routes

5.1.1 Automatic Route is the entry route through which investment by a person resident outside India does not require the prior Reserve Bank approval or Government approval.

5.1.2 Government Route is 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.

5.1.3 ‘Government approval’ is approval from the erstwhile Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India and/ or the erstwhile Foreign Investment Promotion Board (FIPB) and/ or any of the ministry/ department of the Government of India, as the case may be.

5.1.4 Aggregate Foreign Portfolio Investment up to 49 percent of the paid-up equity capital on a fully diluted basis or the sectoral/ statutory cap, whichever is lower, will not require Government approval or compliance of sectoral conditions as the case may be, if such investment does not result in transfer of ownership and control of the resident Indian company from resident Indian citizens or transfer of ownership or control to persons resident outside India. Other investments by a person resident outside India will be subject to conditions of Government approval and compliance of sectoral conditions as laid down in Regulation 16 of FEMA 20(R).

5.2 Sectoral caps

5.2.1 Foreign investment in the sectors/ activities given in Regulation 16 of FEMA 20(R) is permitted up to the limit indicated against each sector/ activity, subject to applicable laws/ regulations, security and other conditionalities.

5.2.2 Sectoral cap for the sectors/ activities is the limit indicated against each sector. The total foreign investment shall not exceed the sectoral/ statutory cap

5.2.3 Foreign investment is permitted up to 100% on the automatic route, subject to applicable laws/ regulations, security and other conditionalities, in sectors/ activities not listed in Regulation 16 of FEMA 20(R) and not prohibited under Regulation 15 of FEMA 20(R). This condition is not applicable for activities in financial services.

5.2.4 Foreign investment in financial services other than those indicated under serial number “F” in Regulation 16 of FEMA 20(R) would require prior Government approval.

5.2.5 Wherever there is a requirement of minimum capitalization, it will include premium received along with the face value of the capital instrument, only when it is received by the company upon issue of such instruments to a person resident outside India. Amount paid by the transferee during post-issue transfer beyond the issue price of the capital instrument, cannot be taken into account while calculating minimum capitalization requirement.

5.2.6 Foreign investment in investing companies:

5.2.6.1 Foreign Investment in investing companies not registered as Non-Banking Financial Companies with the Reserve Bank and in core investment companies (CICs), both engaged in the activity of investing in the capital of other Indian entities, will require prior Government approval.

5.2.6.2 The core investment companies should additionally comply with the regulatory framework prescribed for such entities as NBFCs under the Reserve Bank of India Act, 1934 and regulations framed thereunder.

5.2.6.3 Foreign investment in investing companies registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank, will be under 100% automatic route.

5.2.7 For undertaking activities which are under automatic route and without FDI linked performance conditions, an Indian company which does not have any operations and also has not made any downstream investment, may receive investment in its capital instruments from persons resident outside India under automatic route. However, Government approval will be required for such companies for undertaking activities which are under Government route. As and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

5.2.8 The onus of compliance with the sectoral/ statutory caps on foreign investment and attendant conditions if any, will be on the company receiving foreign investment.

5.2.9 Wherever the person resident outside India who has made foreign investment specifies a particular auditor/ audit firm having international network for the audit of the Indian investee company, then audit of such investee company should be carried out as joint audit wherein one of the auditors is not part of the same network.

6. Permitted Investments by persons resident outside India

Unless otherwise specifically stated, any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or the investment limits, as the case may be, and the attendant conditionalities for making such investment. A person resident outside India may make investment as stated hereinafter.

6.1 Subscribe/ purchase/ sale of capital instruments of an Indian company is permitted as per the directions laid down in Annex 1.

6.2 Purchase/ sale of capital instruments of a listed Indian company on a recognised stock exchange in India by Foreign Portfolio Investors is permitted as per the directions laid down in Annex 2.

6.3 Purchase/ sale of Capital Instruments of a listed Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis is permitted as per the directions laid down in Annex 3.

6.4 Purchase/ sale of Capital Instruments of an Indian company or Units or contribution to capital of a LLP or a firm or a proprietary concern by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on a Non-Repatriation basis is permitted as per the directions laid down in Annex 4.

6.5 Purchase/ sale of securities other than capital instruments by a person resident outside India is permitted as per the directions laid down in Annex 5.

6.6 Investment in a Limited Liability Partnership (LLP) is permitted as per the directions laid down in Annex 6.

6.7 Investment by a Foreign Venture Capital Investor (FVCI) is permitted as per the directions laid down in Annex 7.

6.8 Investment in an Investment Vehicle is permitted as per the directions laid down in Annex 8.

6.9 Issue/ transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s) is permitted as per the directions laid down in Annex 9.

6.10 Purchase/ sale of Indian Depository Receipts (IDRs) issued by Companies Resident outside India is permitted as per directions laid down in Annex 10.

6.11 Acquisition through rights issue or bonus issue

6.11.1 A person resident outside India having investment in an Indian company is permitted to invest in the capital instruments (other than share warrants) issued by such company as a rights issue or a bonus issue subject to the following conditions:

  1. The offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013;
  2. The issue does not result in a breach of the sectoral cap applicable to the company;
  3. The shareholding on the basis of which the rights issue or the bonus issue has been made must have been acquired and held as per the provisions of FEMA 20(R);
  4. The capital instruments (other than share warrants) acquired by the person resident outside India as bonus or rights issue will be subject to the same conditions including restrictions in regard to repatriability as applicable to the original holding against which rights or bonus issue has been made;
  5. In case of a listed Indian company, the rights issued to persons resident outside India shall be at a price determined by the company;
  6. In case of an unlisted Indian company, the rights issued to persons resident outside India should not be at a price less than the price offered to persons resident in India;
  7. Such investment made through rights issue or bonus issue is subject to the conditions as are applicable at the time of such issue;
  8. The amount of consideration may be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016;
  9. If the original investment has been made on a non-repatriation basis, the amount of consideration may also be paid by debit to the NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

6.11.2 An individual who is a person resident outside India exercising a right which was issued when he/ she was a person resident in India can hold the capital instruments so acquired on exercising the right on a non-repatriation basis.

6.11.3 With effect from November 12, 2002, the Indian investee company could, on an application made to it, allot to existing shareholders who are persons resident outside India additional capital instruments (other than share warrants) as a rights issue over and above their rights entitlement subject to individual or sectoral caps, as the case may be.

6.11.4 Renunciation of rights

  1. A person resident in India and a person resident outside India may subscribe for additional shares over and above the shares offered on rights basis by the company and also renounce the shares offered either in full or part thereof in favour of a person named by them.
  2. The facility at para 6.11.3 and para 6.11.4(1) would not be available to investors who have been allotted such shares as Overseas Corporate Bodies (OCBs).
  3. A person resident outside India who has acquired a right from a person who has renounced it may acquire capital instruments (other than share warrants) against the said rights at the price laid down in para 6.11.1(5) and 6.11.1(6), as applicable.
  4. The capital instruments to be acquired on renunciation of rights shall be subject to the same conditions including restrictions in regard to repatriability as applicable to the original holding against which rights issue has been made.

6.12 Issue of Employees’ Stock Options Scheme (ESOP) and Sweat Equity Shares

6.12.1 An Indian company is permitted to issue “employees’ stock option” and/ or “sweat equity shares” to its employees/ directors or employees/ directors of its holding company or joint venture or wholly owned overseas subsidiary/ subsidiaries who are resident outside India, subject to the following conditions:

  1. The ESOP is drawn either in terms of regulations issued under the Securities and Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013;
  2. The “employee’s stock option”/ “sweat equity shares” are in compliance with the sectoral cap applicable to the said company;
  3. Issue of “employee’s stock option”/ “sweat equity shares” in a company where investment by a person resident outside India is under the approval route requires prior Government approval;
  4. Issue of “employee’s stock option”/ “sweat equity shares” to a citizen of Bangladesh/ Pakistan requires prior Government approval.
  5. Issue of “sweat equity shares” to a person resident outside India was permitted with effect from June 11, 2015.

6.12.2 An individual who is a person resident outside India exercising an option which was issued when he/ she was a person resident in India shall hold the capital instruments so acquired on exercising the option on a non-repatriation basis.

6.13 Issue of Convertible Notes by an Indian startup company

6.13.1 A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), is permitted to invest in convertible notes issued by an Indian startup company up to twenty five lakh rupees or more in a single tranche.

6.13.2 A startup company, engaged in a sector where investment by a person resident outside India requires Government approval, can issue convertible notes to a person resident outside India only with such approval.

6.13.3 Issue of equity shares against such convertible notes should be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment.

6.13.4 The payment consideration can be received by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. The escrow account maintained for this purpose should be closed immediately after the requirements are completed or within a period of six months, whichever is earlier. Such an escrow account shall not be permitted to continue beyond a period of six months.

6.13.5 An NRI or an OCI may acquire convertible notes on a non-repatriation basis in accordance with the instructions at para 6.4 of the Master Direction.

6.13.6 A person resident outside India can acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines laid down in this Master Direction.

6.13.7 Convertible notes as an investment option was permitted for startup companies with effect from January 10, 2017.

6.14 Merger or demerger or amalgamation of Indian companies

6.14.1 In case a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an Indian company has been approved by the National Company Law Tribunal (NCLT)/ Competent Authority, the transferee company or the new company, as the case may be, can issue capital instruments to the existing holders of the transferor company who are resident outside India, subject to the following conditions:

  1. The transfer or issue should comply with entry routes, sectoral caps or investment limits, as the case may be, and the attendant conditionalities of foreign investment.
  2. In case the foreign investment is likely to breach the Sectoral caps or the attendant conditionalities, the transferor company or the transferee or the new company should obtain necessary Government approval.
  3. The transferor company or the transferee company or the new company should not be in a sector prohibited for foreign investment.

6.14.2 In case a Scheme of Arrangement for an Indian company has been approved by National Company Law Tribunal (NCLT)/ Competent Authority, the Indian company can, with effect from December 31, 2013, issue non-convertible redeemable preference shares or non-convertible redeemable debentures to shareholders who are resident outside India, including depositories that act as trustees for the ADR/ GDR holders, out of its general reserves by way of distribution as bonus, subject to the following conditions:

  1. The original investment made in the Indian company by a person resident outside India is in accordance with FEMA 20(R) and the conditions specified therein;
  2. The said issue is in accordance with the provisions of the Companies Act, 2013 and the terms and conditions, if any, stipulated in the scheme approved by National Company Law Tribunal (NCLT)/ Competent Authority;
  3. The Indian company is not engaged in any activity/ sector in which foreign investment is prohibited.

7. Transfer of capital instruments of an Indian company by or to a person resident outside India

A person resident outside India who has invested in capital instruments of an Indian company or units in accordance with FEMA 20(R) can transfer the capital instruments or units so held subject to the terms and conditions specified in this para.

7.1 Transfer from a person resident outside India by way of sale or gift to any person resident outside India

7.1.1 A person resident outside India, not being a non-resident Indian or an overseas citizen of India or an overseas corporate body, may transfer by way of sale or gift the capital instruments of an Indian company or units held by him to any person resident outside India.

7.1.2 It shall also include transfer of capital instruments of an Indian company pursuant to merger, de-merger and amalgamation of entities/ companies incorporated or registered outside India.

7.1.3 Prior Government approval is required to be obtained for any transfer in case the company is engaged in a sector which requires Government approval.

7.1.4 Where the person resident outside India is an FPI and the acquisition of capital instruments made under para 6.2 of this Master Direction has resulted in a breach of the applicable aggregate FPI limits or sectoral limits, the FPI is required to sell such capital instruments within five trading days after settlement to a person resident in India eligible to hold such instruments. The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale, provided the sale is within the prescribed five trading days after settlement, will not be reckoned as a contravention under FEMA 20(R). The guidelines issued by SEBI in this regard shall be applicable.

7.1.5 Indian companies which have foreign investment are required to upload their total foreign investment limits and permissible aggregate/ sectoral limits on portals of the Indian depositories. Headroom available for proximate scrips would be displayed on the sites of the depositories and exchanges.

7.1.6 Directions at 7.1.4 and 7.1.5 above will be effective from the date the second proviso to sub-regulation 1 of regulation 10 of FEMA 20(R) is notified in the gazette of India.

7.2 Transfer by an overseas corporate body (OCB)

7.2.1 An OCB may transfer capital instruments in accordance with the instructions given in the FAQs on de-recognition of OCBs issued vide AP (DIR Series) Circular No.14 dated September 16, 2003.

7.3 Transfer by an NRI/ OCI by way of gift or sale to any person resident outside India

7.3.1 An NRI or an OCI holding capital instruments of an Indian company or units on repatriation basis can transfer the same by way of sale or gift to any person resident outside India.

7.3.2 Prior Government approval is required for any transfer in case the company is engaged in a sector which requires Government approval.

7.3.3 Where the capital instruments acquired by an NRI or an OCI under the provisions of para 6.3 of this Master Direction has resulted in a breach of the applicable aggregate NRI/ OCI limit or sectoral limits, the NRI or the OCI is required to sell the capital instruments so acquired within five trading days after settlement to a person resident in India eligible to hold such instruments. The breach of the said aggregate or sectoral limit, as the case may be, on account of such acquisition for the period between the acquisition and sale, provided the sale is within the prescribed five trading days after settlement, shall not be reckoned as a contravention under FEMA 20(R).

7.3.4 Directions at 7.3.3 above will be effective from the date the second proviso to sub-regulation 2 of regulation 10 of FEMA 20(R) is notified in the gazette of India.

7.4 Transfer by a NRI/ OCI holding capital instruments on a non-repatriable basis or a person resident in India by way of sale to any person resident outside India

7.4.1 A person resident in India holding capital instruments of an Indian company or units, or an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs holding capital instruments of an Indian company or units on a non-repatriation basis, may transfer the same to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions as applicable for foreign investment and documentation and reporting requirements for such transfers.

7.4.2 The entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions, however, will not apply in case the transferee is an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs acquiring such investment on a non-repatriation basis.

7.5 Transfer by an NRI/ OCI holding capital instruments on a non-repatriable basis by way of gift to another NRI/ OCI who will hold such capital instruments on a non-repatriable basis

7.5.1 An NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs holding capital instruments of an Indian company or units on a non-repatriation basis, is permitted to transfer the same by way of gift to an NRI or an OCI or a company/ trust/ partnership firm incorporated outside India and owned and controlled by NRIs or OCIs and the the transferee shall hold them on a non-repatriable basis.

7.6 Sale by a person resident outside India on a recognised stock exchange in India

7.6.1 A person resident outside India, holding capital instruments of an Indian company or units in accordance with FEMA 20(R) is permitted to transfer the same to a person resident in India by way of sale/ gift or may sell the same on a recognised stock exchange in India in the manner prescribed by SEBI.

7.6.2 The transfer by way of sale is required to be in compliance with and is subject to the adherence to pricing guidelines, documentation and reporting requirements prescribed for such transfers.

7.6.3 Where the capital instruments are held by the person resident outside India on a non-repatriable basis, conditions at 7.6.2 above will not apply.

7.7 Transfer by way of gift by an NRI/ OCI holding securities on a non-repatriable basis or a resident to a person resident outside India

7.7.1 An NRI or an OCI holding securities of an Indian company on a non-repatriation basis or a person resident in India may transfer the securities so held by them to a person resident outside India by way of gift with the prior approval of the Reserve Bank and subject to the following conditions:

  1. The donee is eligible to hold the securities under FEMA 20(R);
  2. The gift does not exceed 5 percent of the paid up capital of the Indian company/ each series of debentures/ each mutual fund scheme; this limit is a cumulative limit for a donor to one particular donee.
  3. The applicable sectoral cap in the Indian company is not breached;
  4. The donor and the donee are relatives as defined in section 2(77) of the Companies Act, 2013;
  5. The value of security to be transferred by the donor together with any security transferred to any person residing outside India as gift during the financial year does not exceed the rupee equivalent of USD 50,000;
  6. The application to the Reserve Bank shall be made through the Authorised Dealer Bank.

7.8 Transfer by a person resident outside India of capital instruments containing an optionality clause

7.8.1 A person resident outside India holding capital instruments of an Indian company containing an optionality clause in accordance with FEMA 20(R) and exercising the option/ right, can exit without any assured return, subject to the pricing guidelines prescribed under FEMA 20(R) and a minimum lock-in period of one year or minimum lock-in period under FEMA 20(R), whichever is higher.

7.9 Deferred payment consideration

7.9.1 In case of transfer of capital instruments between a person resident in India and a person resident outside India, an amount not exceeding twenty five per cent of the total consideration,

  1. can be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement; or
  2. can be settled through an escrow arrangement between the buyer and the seller for a period not exceeding eighteen months from the date of the transfer agreement; or
  3. can be indemnified by the seller for a period not exceeding eighteen months from the date of the payment of the full consideration, if the total consideration has been paid by the buyer to the seller.

7.9.2 The total consideration finally paid for the shares must be compliant with the applicable pricing guidelines.

7.10 Opening of Escrow account

7.10.1 In case of transfer of capital instruments between a person resident in India and a person resident outside India, the person resident outside India is permitted to open an Escrow account in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

7.10.2 Such Escrow account can be funded by way of inward remittance through banking channels and/ or by way of guarantee issued by an authorized dealer bank, subject to terms and conditions as specified in the Foreign Exchange Management (Guarantees) Regulations, 2000.

7.10.3 Where the transaction is governed by SEBI guidelines/ regulations, operation of the Escrow accounts for securities shall be in accordance with the relevant SEBI regulations, if any.

7.11 Transfer by way of pledge

7.11.1 Any person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowing (ECB) in compliance with the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000 may pledge the capital instruments of the borrowing company or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company subject to the following conditions:

  1. the period of such pledge shall be co-terminus with the maturity of the underlying ECB;
  2. in case of invocation of pledge, transfer shall be in accordance with Regulations laid down in FEMA 20(R);
  3. the Statutory Auditor has certified that the borrowing company will utilise/ has utilised the proceeds of the ECB for the permitted end­use/s only;
  4. no person shall pledge any such capital instruments unless a no-objection has been obtained from an Authorised Dealer bank that the above conditions have been complied with.

7.11.2 Any person resident outside India holding capital instruments in an Indian company or units may pledge the capital instruments or units, as the case may be:

(a) In favour of a bank in India to secure the credit facilities being extended to such Indian company for bona-fide purposes subject to the following conditions:

  1. in case of invocation of pledge, transfer should be in accordance with instructions in vogue at the time of creation of pledge;
  2. submission of a declaration/ annual certificate from the statutory auditor of the investee company that the loan proceeds will be/ have been utilized for the declared purpose;
  3. the Indian company has to follow the relevant SEBI disclosure norms, if any; and
  4. pledge in favour of the lender (bank) would be subject to compliance with the Section 19 of the Banking Regulation Act, 1949.
  5. the conditions at (i) to (iv) above will apply suitably for units.

(b) In favour of an overseas bank to secure the credit facilities being extended to such person or a person resident outside India who is the promoter of such Indian company or the overseas group company of such Indian company, subject to the following conditions:

  1. loan is availed only from an overseas bank;
  2. loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India;
  3. overseas investment should not result in any capital inflow into India;
  4. in case of invocation of pledge, transfer should be in accordance with the policy in vogue at the time of creation of pledge; and
  5. submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be/ have been utilized for the declared purpose;
  6. the conditions at (i) to (v) above will apply suitably for units.

(c) In favour of a Non-Banking Financial Company registered with the Reserve Bank to secure the credit facilities being extended to such Indian company for bona fide purposes, subject to the following conditions:

  1. in case of invocation of pledge, transfer of capital instruments should be in accordance with the credit concentration norm as stated in the Master Direction – Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 (Para 22) and Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (Para 22)
  2. The AD may obtain a board resolution ‘ex ante’, passed by the Board of Directors of the investee company, that the loan proceeds received consequent to pledge of capital instruments will be utilised by the investee company for the declared purpose;
  3. the AD may also obtain a certificate ‘ex post’, from the statutory auditor of investee company, that the loan proceeds received consequent to pledge of shares, have been utilised by the investee company for the declared purpose;
  4. the Indian company has to follow the relevant SEBI disclosure norms, as applicable;
  5. under no circumstances, the credit concentration norms should be breached by the NBFC. If there is a breach on invocation of pledge, the capital instruments should be sold and the breach shall be rectified within a period of 30 days from the date of invocation of pledge.

7.11.2.1 The Authorised Dealer bank should satisfy itself of the compliance of the stipulated conditions.

7.11.3 Capital instruments of an Indian company or units transferred by way of pledge should be unencumbered.

7.11.4 The company shall obtain no-objection certificate from the existing lenders, if any.

7.11.5 In case of invocation of pledge, transfer of capital instruments of an Indian company or units pledged shall be in accordance with entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions at the time of creation of pledge.

7.11.6 Any other transfer by way of pledge would require the prior approval of the Reserve Bank. Cases may be forwarded to the Reserve Bank with the following documents:

  1. A copy of the Board Resolution passed by the non-resident company/ies approving the pledge of security acquired in terms of FEMA 20 (R) (number/ percentage of securities to be pledged) of Investee Company held by them for securing the loan facility in favour of the lender/s.
  2. A copy of the Board Resolution passed by the investee company approving pledge of securities acquired in terms of FEMA 20 (R) in favour of the lender for the loan facility availed by the investee company.
  3. A copy of the loan agreement/ pledge agreement containing security clause duly certified by the company secretary, requiring the pledge of shares of Investee Company.
  4. The details of the facility availed/ proposed to be availed.
  5. The details of reporting of the acquisition of the security as prescribed in terms of FEMA 20 (R), if any.

7.12. Transfer from a resident to a person resident outside India where the investee company is in the financial sector

7.12.1 In case of transfer of capital instruments of a company in the financial sector from a resident to a person resident outside India, ‘fit and proper/ due diligence’ requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with by the AD bank.

7.13 Mode of payment

7.13.1 The amount of consideration for transfer of capital instruments between a person resident in India and a person resident outside India should be received from abroad or remitted from India, as the case may be, through banking channels in India or paid out from or received in, as the case may be, NRE/ FCNR(B)/ Escrow accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

7.13.2 In case an investment is held on a non-repatriation basis, in addition to 7.13.1 above, the amount of consideration for transfer may be paid out from or received in, as the case may be, NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

8. Pricing guidelines

8.1 Capital instruments issued by a company to a person resident outside India

8.1.1 The price of capital instruments of an Indian company issued by it to a person resident outside India should not be less than:

  1. the price worked out in accordance with the relevant SEBI guidelines in case of a listed Indian company or in case of a company going through a delisting process as per the SEBI (Delisting of Equity Shares) Regulations, 2009; or
  2. the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company.

8.1.2 In case of convertible capital instruments, the price/ conversion formula of the instrument is required to be determined upfront at the time of issue of the instrument. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations.

8.2 Capital instruments transferred by a person resident in India to a person resident outside India

8.2.1 The price of capital instruments of an Indian company transferred by a person resident in India to a person resident outside India should not be less than:

  1. the price worked out in accordance with the relevant SEBI guidelines in case of a listed Indian company; or
  2. the price at which a preferential allotment of shares can be made under the SEBI Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a delisting process as per the SEBI (Delisting of Equity Shares) Regulations, 2009. The price should be determined for such duration as specified in the SEBI Guidelines, preceding the relevant date, which shall be the date of purchase or sale of shares. In case of a company which has completed a delisting process, the price as determined for such duration as specified in the SEBI Guidelines will apply for those shares which have not been tendered to the company during the delisting process; or
  3. the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company.

8.3 Capital instruments transferred by a person resident outside India to a person resident in India

8.3.1 The price of capital instruments of an Indian company transferred by a person resident outside India to a person resident in India should not exceed:

  1. the price worked out in accordance with the relevant SEBI guidelines in case of a listed Indian company;
  2. the price at which a preferential allotment of shares can be made under the SEBI Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a delisting process as per the SEBI (Delisting of Equity Shares) Regulations, 2009. The price is determined for such duration as specified in the SEBI Guidelines, preceding the relevant date, which shall be the date of purchase or sale of shares;
  3. the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company.

8.3.2 The guiding principle would be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment/ agreement and shall exit at the price prevailing at the time of exit.

8.4 Swap of capital instruments

8.4.1 In case of swap of capital instruments, irrespective of the amount, valuation will have to be made by a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country.

8.5 Subscription to Memorandum of Association

8.5.1 Where shares in an Indian company are issued to a person resident outside India in compliance with the provisions of the Companies Act, 2013, by way of subscription to Memorandum of Association, such investments shall be made at face value subject to entry route and sectoral caps.

8.6 Partly paid shares

8.6.1 The pricing of the partly paid equity shares shall be determined upfront.

8.7 Share warrants

8.7.1 In case of share warrants, their pricing and the price/ conversion formula shall be determined upfront.

8.7.2 The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants.

8.8 Investment in an LLP

8.8.1 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 should be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.

8.9 Transfer of capital contribution/ profit share of an LLP

8.9.1 In case of transfer of capital contribution/ profit share of an LLP from a person resident in India to a person resident outside India, the transfer should be for a consideration not less than the fair price of capital contribution/ profit share of an LLP.

8.9.2 In case of transfer of capital contribution/ profit share of an LLP from a person resident outside India to a person resident in India, the transfer should be for a consideration which is not more than the fair price of the capital contribution/ profit share of an LLP.

8.10 Non-applicability of pricing guidelines

8.10.1 The pricing guidelines will not apply for investment in capital instruments by a person resident outside India on non-repatriation basis.

8.10.2 The pricing guidelines will not be applicable for any transfer by way of sale done in accordance with SEBI regulations where the pricing is prescribed by SEBI. A Chartered Accountant’s Certificate to the effect that relevant SEBI regulations/ guidelines have been complied with has to be attached to the form FC-TRS filed with the AD bank

9. Downstream Investment

9.1 Definitions

9.1.1 ‘Ownership of an Indian company’ is the beneficial holding of more than 50 percent of the capital instruments of such company.

9.1.2 ‘Ownership of an LLP’ is the contribution of more than 50 percent in its capital and having majority profit share.

9.1.3 ‘Company owned by resident Indian citizens’ is an Indian company where ownership is vested in resident Indian citizens and/ or Indian companies, which are ultimately owned and controlled by resident Indian citizens.

9.1.4 An ‘LLP owned by resident Indian citizens’ is an LLP where ownership is vested in resident Indian citizens and/ or Indian entities, which are ultimately owned and controlled by resident Indian citizens.

9.1.5 ‘Company owned by persons resident outside India’ is an Indian company whose ownership is vested in persons resident outside India.

9.1.6 An ‘LLP owned by persons resident outside India’ is an LLP whose ownership is vested with persons resident outside India.

9.1.7 ‘Control’ of a company is the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreement.

9.1.8 For the purpose of LLP, ‘Control’ is the right to appoint majority of the designated partners, where such designated partners, with specific exclusion to others, have control over all the policies of an LLP.

9.1.9 ‘Company controlled by resident Indian citizens’ is an Indian company, the control of which is vested in resident Indian citizens and/ or Indian companies which are ultimately owned and controlled by resident Indian citizens.

9.1.10 An ‘LLP controlled by resident Indian citizens’ is an LLP, the control of which is vested in resident Indian citizens and/ or Indian entities, which are ultimately owned and controlled by resident Indian citizens.

9.1.11 ‘Company controlled by persons resident outside India’ is an Indian company the control of which is vested with persons resident outside India.

9.1.12 An ‘LLP controlled by persons resident outside India’ is an LLP the control of which is vested with persons resident outside India.

9.1.13 ‘Downstream Investment’ is investment made by an Indian entity which has received foreign investment or an Investment Vehicle in the capital instruments or the capital, as the case may be, of another Indian entity.

9.1.14 ‘Holding Company’ will have the same meaning as defined in Companies Act, 2013.

9.1.15 ‘Indirect Foreign Investment’ is downstream investment received by an Indian entity from:

  1. another Indian entity (IE) which has received foreign investment and which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India; or
  2. an investment vehicle whose sponsor or manager or investment manager is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India.

9.1.16 ‘Total Foreign Investment’ is the sum of foreign investment and indirect foreign investment which will be reckoned on a fully diluted basis;

9.1.17 ‘Strategic downstream investment’ means downstream investment by banking companies incorporated in India in their subsidiaries, joint ventures and associates.

9.2 Prohibition

9.2.1 No person resident in India other than an Indian entity can receive Indirect Foreign Investment.

9.3 Conditions for downstream investment that is treated as Indirect Foreign Investment for the investee Indian Entity

9.3.1 An Indian entity which has received indirect foreign investment is required to comply with the entry route, sectoral caps, pricing guidelines and other FDI linked performance conditions as applicable for foreign investment.

9.3.2 Downstream investment by an LLP which has received foreign investment and is not owned and not controlled by resident Indian citizens or owned or controlled by persons resident outside India is allowed in an Indian company operating in sectors where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.

9.3.3 Indirect foreign Investment is permitted in an LLP in sectors where foreign investment is allowed 100% under automatic route and there are no FDI linked performance conditions.

9.3.4 If the sponsors/ managers/ investment managers of an investment vehicle are individuals, for the downstream investment made by such investment vehicle not to be considered as Indirect Foreign Investment for the investee, the sponsors/ managers/ investment managers of the investment vehicle should be resident Indian citizens. In case the sponsor/ manager/ investment manager is organised in any other form, SEBI will determine whether it is foreign owned and/ or controlled or not.

9.3.5 The downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity should have the approval of the Board of Directors as also a Shareholders’ Agreement, if any, of the investing Indian entity.

9.3.6 The Indian entity making the downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity is required to bring in the requisite funds from abroad and not use funds borrowed in the domestic markets. Subscription by persons resident outside India to non-convertible debentures issued by an Indian company will not be construed as funds borrowed/ leveraged in the domestic market. However, raising of debt and its utilisation will have to comply with the Act and the rules or regulations made thereunder.

9.3.7 Downstream investments which is treated as Indirect Foreign Investment for the investee Indian entity can be made through internal accruals. For this purpose, internal accruals will mean profits transferred to reserve account after payment of taxes.

9.3.8 When a company which does not have any operations makes downstream investment which is treated as Indirect Foreign Investment for the investee Indian entity or commences business(s), it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

9.4 Downstream investment/s under Corporate Debt Restructuring (CDR), mechanism

9.4.1 With effect from July 31, 2012, downstream investment/s made by a banking company (as defined in clause (c) of section 5 of the Banking Regulation Act, 1949, incorporated in India) which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading book, or for acquisition of shares due to defaults in loans, will not be considered as indirect foreign investment.

9.4.2 Strategic downstream investment by a banking company referred to at 9.4.1 above will be considered as indirect foreign investment for the investee company.

9.5. Guidelines for calculation of total foreign investment in Indian companies

9.5.1 Any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned for total foreign investment.

9.5.2 FCCBs and DRs having underlying of instruments in the nature of debt will not be reckoned for total foreign investment.

9.5.3 The methodology for calculating total foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company.

9.5.4 For the purpose of downstream investment, the portfolio investment held as on March 31 of the previous financial year in the Indian company making the downstream investment will be considered for computing the total foreign investment of the investee Indian entity.

9.5.5 The indirect foreign investment received by a wholly owned subsidiary of an Indian company will be limited to the total foreign investment received by the company making the downstream investment

9.6 Conditions for exit

9.6.1 Capital instrument of an Indian company held by another Indian company which has received foreign investment and is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India may be transferred to:

  1. a person resident outside India, subject to reporting requirements in Form FCTRS. However, pricing guidelines will not apply for such a transfer.
  2. a person resident in India subject to adherence to pricing guidelines.
  3. an Indian company with foreign investment and not owned and not controlled by resident Indian citizens or owned or controlled by persons resident outside India. Pricing and reporting guidelines will not apply.

9.6.2 The instructions at 9.6.1 above will be construed accordingly for an LLP.

9.7 Responsibility for compliance

9.7.1 The first level Indian company making downstream investment will be responsible for ensuring compliance with the provisions of these regulations for the downstream investment made by it at second level and so on and so forth. Such first level company shall obtain a certificate to this effect from its statutory auditor on an annual basis. Such compliance of FEMA provisions shall be mentioned in the Director’s report in the Annual Report of the Indian company.

9.7.2 In case the statutory auditor has given a qualified report, the same should be immediately brought to the notice of the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company is located and shall also obtain acknowledgement from the RO.

9.7.3 The instructions at 9.7.1 above will be construed accordingly for an LLP

9.8 Applicability of downstream investment guidelines

9.8.1 Downstream investment which is treated as indirect foreign investment for the investee Indian entity made prior to February 13, 2009 would not require any modification to conform to FEMA 20(R). All other investments, after the said date, would come under its ambit.

9.8.2 Downstream investments which is treated as indirect foreign investment for the investee Indian entity made between February 13, 2009 and June 21, 2013 which was not in conformity with the downstream investment guidelines should have been intimated to the Reserve Bank by October 3, 2013 for treating such cases as compliant with FEMA 20(R).

10. Taxes and remittance of sale proceeds

10.1 Taxes

10.1.1 All transaction relating to foreign investment in India are required to be undertaken through banking channels in India and are subject to payment of applicable taxes and other duties/ levies in India.

10.2 Remittance of sale proceeds

10.2.1 Remittance of sale proceeds of an Indian security held by a person resident outside India will have to be made only in accordance with FEMA 20(R).

10.2.2 An authorised dealer bank may permit the remittance of sale proceeds of a security (net of applicable taxes) to the seller resident outside India provided:

  1. the security was held by the seller on repatriation basis; and
  2. either the security has been sold in compliance with the pricing guidelines or the Reserve Bank’s approval has been obtained in other cases for sale of the security and remittance of the sale proceeds thereof.

Annex 1

Purchase/ Sale of capital instruments of an Indian company

1. Purchase/ sale of capital instruments of an Indian company by a person resident outside India

1.1 Issue by an Indian company

1.1.1 An Indian company is permitted to issue capital instruments to a person resident outside India subject to entry routes, sectoral caps and attendant conditionalities specified for foreign investment;

1.2 Purchase on a stock exchange in India

1.2.1 A person resident outside India may purchase capital instruments of a listed Indian company on a stock exchange in India provided:

  1. The person resident outside India making the investment has already acquired control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 and continues to hold such control;
  2. The amount of consideration is paid as per the mode of payment prescribed in this annex or out of the dividend payable by the Indian investee company in which the person resident outside India has acquired and continues to hold control in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, provided the right to receive dividend is established and the dividend amount has been credited to an SNRR account opened in terms of Foreign Exchange Management (Deposit) Regulations, 2016 for acquisition of shares on the recognised stock exchange.

1.3 Issue by a wholly owned subsidiary

1.3.1 A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100 percent foreign investment is allowed under the automatic route and there are no FDI linked performance conditions, may issue capital instruments to the said non-resident entity against pre-incorporation/ preoperative expenses incurred by the said non-resident entity up to a limit of five per cent of its authorised capital (as defined in the Companies Act, 2013) or USD 500,000 whichever is less, subject to the following conditions:

  1. Form FC-GPR, as prescribed in the Master Direction on Reporting as amended from time to time, is filed by the Indian company within thirty days from the date of issue of capital instruments but not later than one year from the date of incorporation.
  2. A certificate issued by the statutory auditor of the Indian company that the amount of pre-incorporation/ pre-operative expenses against which capital instruments have been issued has been utilized for the purpose for which it was received should be submitted with the Form FC-GPR.

1.3.2 Pre-incorporation/ pre-operative expenses will include amounts remitted to the investee Company’s account or to the investor’s account in India if it exists or to any consultant or attorney or to any other material/ service provider for expenditure relating to incorporation or necessary for commencement of operations.

1.4 Other modes of issue

1.4.1 Ommited.

1.4.2 An Indian company may issue equity shares (excluding partly paid shares) to a person resident outside India against any funds payable by it to such person, the remittance of which is permitted under the Act or the rules or the regulations framed or directions issued thereunder or does not require prior permission of the Central Government or the Reserve Bank under the Act or the rules or the regulations framed or directions issued thereunder subject to the following conditions:

  1. Issue of such shares that require Government approval or import dues deemed as ECB or trade credit or payables against import of second hand machinery will be dealt in accordance with respective guidelines;
  2. The issue of such shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes

1.4.3 An Indian company may issue equity shares (other than partly paid shares) to a person resident outside India against any funds payable by it to such person, the remittance of which has been permitted by the Reserve Bank under the Act or the rules or the regulations framed or directions issued thereunder.

1.4.4 In case where permission has been granted by the Reserve Bank for making remittance as stated at 1.4.3 above, the Indian company may issue equity shares (other than partly paid shares) against such remittance provided all regulatory actions with respect to the delay or contravention under the Act or the rules or the regulations framed thereunder have been completed.

1.4.5 An Indian company may issue capital instruments to a person resident outside India under automatic route if the Indian investee company is engaged in a sector under automatic route or with prior Government approval if the Indian investee company is engaged in a sector under Government route against:

(a) Swap of capital instruments;

(b) Import of capital goods/ machinery/ equipment (excluding second-hand machinery) subject to the following conditions:

(i) The import of capital goods, machineries, etc., made by a person resident in India, is in accordance with the Foreign Trade Policy notified by the Directorate General of Foreign Trade (DGFT) and the regulations on imports issued under the Act;

(ii) There is an independent valuation of the capital goods/ machineries/ equipment by a third party entity, preferably an independent valuer from the country of import along with production of copies of documents/ certificates issued by the customs authorities towards assessment of the fair-value of such imports;

(iii) In case of applications submitted for Government approval:

  1. The applications should be accompanied by documents evidencing 1.4.5(b)(ii) above and a special resolution of the company;
  2. The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and
  3. Applications (complete in all respects) for capitalization should be submitted within 180 days from the date of shipment of goods.

(c) Pre-operative/ pre-incorporation expenses (including payments of rent etc.), subject to the following conditions:

(i) Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor;

(ii) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred;

(iii) Payments should be made by the foreign investor to the company directly or through the bank account opened by the foreign investor as provided under the Act or the rules or the regulations framed thereunder; and

(iv) In case of applications submitted for Government approval:

  1. The applications should be accompanied by documents evidencing 1.4.5(c)(i),(ii) and(iii) above and a special resolution of the company.
  2. The application (complete in all respects) for capitalization being made within a period of 180 days from the date of incorporation of the company.

2. Mode of payment, issue of capital instruments and refund

2.1 The amount of consideration should be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.2 The amount of consideration will include issue of equity shares by an Indian company against any funds payable by it to the investor and also swap of capital instruments where the Indian investee company is engaged in an automatic route sector.

2.3 If the capital instruments are not issued by the Indian company within sixty days from the date of receipt of the consideration, the amount so received has to be refunded to the person concerned by outward remittance through banking channels or by credit to his NRE/ FCNR(B) accounts, as the case may be, within fifteen days from the date of completion of sixty days.

2.4 In case of partly paid equity shares, the period of 60 days will be reckoned from the date of receipt of each call payment. The forfeiture of the amount paid upfront on non-payment of call money shall be in accordance with the provisions of the Companies Act, 2013 and Income Tax Act, 1961 as applicable

2.5 Refund may be permitted by an authorised dealer provided it is satisfied:

  1. with the bonafides of the applicant;
  2. that the funds were received as per the mode of payment prescribed in para 2.1 above;
  3. that no part of remittance represents interest on the funds received.

2.6 Prior approval of the Reserve Bank will be required for payment of interest, if any, as laid down in the Companies Act, 2013, for delay in refund of the amount so received. Non-compliance of instructions at 2.3 above shall be a contravention of FEMA 20(R) notwithstanding the fact that interest for delayed refund has been paid as per Companies Act, 2013.

2.7 The Indian company issuing capital instruments stated in this annex is permitted to open a foreign currency account with an Authorised Dealer in India in accordance with Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015.

3. Remittance of sale proceeds

3.1 The sale proceeds (net of taxes) of the capital instruments can be remitted outside India or credited to the NRE/ FCNR(B) account of the person concerned.


Annex 2

Purchase/ Sale of capital instruments of a listed Indian company on a recognised stock exchange in India by Foreign Portfolio Investors

1. Purchase/ sale of capital instruments

1.1 A Foreign Portfolio Investor (FPI) may purchase or sell capital instruments of an Indian company on a recognised stock exchange in India.

1.2 The total holding by each FPI or an investor group as referred in SEBI (FPI) Regulations, 2014, should be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or warrants issued by an Indian company and the total holdings of all FPIs put together should not exceed 24 per cent of paid-up equity capital on a fully diluted basis or paid up value of each series of debentures or preference shares or warrants. The limit of 10 percent and 24 percent will be called individual and aggregate limit, respectively.

1.3 The aggregate limit of 24 percent may be increased by the Indian company concerned up to the sectoral cap/ statutory ceiling, as applicable, with the approval of its Board of Directors and its General Body through a resolution and a special resolution, respectively.

1.4 In case the total holding of an FPI increases to 10 percent or more of the total paid-up equity capital on a fully diluted basis or 10 per cent or more of the paid-up value of each series of debentures or preference shares or warrants issued by an Indian company, the total investment so made by the FPI will be re-classified as FDI subject to the conditions as specified by SEBI in this regard and the investee company and the investor complying with the reporting requirements prescribed in Regulation 13 of FEMA 20(R).

1.5 For arriving at the ceiling on holdings of FPI, capital instruments acquired both through primary as well as secondary market will be included. However, the ceiling will not include investment made by the FPI through off-shore Funds, Global Depository Receipts and Euro-Convertible Bonds.

1.6 An FPI is permitted to purchase capital instruments of an Indian company through public offer/ private placement, subject to the individual and aggregate limits and the conditions specified below:

  1. in case of Public Offer, the price of the shares to be issued is not less than the price at which shares are issued to residents, and
  2. in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or not less than the fair price worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a SEBI registered Merchant Banker or Chartered Accountant, as applicable

1.7 An FPI may undertake short selling as well as lending and borrowing of securities as permitted by the RBI and SEBI subject to the following conditions:

  1. The short selling of equity shares by FPIs is permitted for equity shares of those companies where there is at least 2% headroom available for total foreign investment and/or aggregate FPI limit or is not in the caution list or ban list published by the Reserve Bank or any restrictive list published by any authority designated to do so by the Reserve Bank or SEBI.
  2. Borrowing of equity shares by FPIs will only be for the purpose of delivery into short sale.
  3. The margin/ collateral will be maintained by FPIs only in the form of cash. No interest shall be paid to the FPI on such margin/ collateral.
  4. The designated custodian banks shall separately report all transactions pertaining to short selling of equity shares and lending and borrowing of equity shares by FPIs in their daily reporting with a suitable remark (short sold/ lent/ borrowed equity shares) for the purpose of monitoring by the Reserve Bank.

1.8 Investments will be subject to the limits and margin requirements prescribed by the Reserve Bank/ SEBI.

2. Mode of payment

2.1 The amount of consideration for purchase of capital instruments should be received from abroad through banking channels through inward remittance or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.2 The foreign currency account and SNRR account can be used only and exclusively for transactions under this Annex.

3. Remittance of sale proceeds

3.1 The sale proceeds (net of taxes) of the investments made can be remitted outside India or may be credited to the foreign currency account or SNRR account of the FPI.

4. Saving

4.1 All investments made by deemed FPIs in accordance with the regulations prior to their registration as FPIs are valid and taken into account for computation of aggregate limits.


Annex 3

Purchase/ Sale of Capital Instruments of a listed Indian company on a recognised stock exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis

1. Purchase/ sale of capital instruments

1.1 A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) is allowed to purchase or sell capital instruments of a listed Indian company on repatriation basis, on a recognised stock exchange in India, subject to the following conditions:

  1. The purchase and sale is done through a designated authorised dealer branch;
  2. The total holding by any individual NRI or OCI should not exceed five percent of the total paid-up equity capital on a fully diluted basis or should not exceed five percent of the paid-up value of each series of debentures or preference shares or warrants issued by an Indian company and the total holdings of all NRIs and OCIs put together should not exceed ten percent of the total paid-up equity capital on a fully diluted basis or should not exceed ten percent of the paid-up value of each series of debentures or preference shares or warrants;
  3. the aggregate ceiling of ten per cent can be raised to twenty-four per cent if a special resolution to that effect is passed by the General Body of the Indian company;

2. Mode of payment

2.1 The amount of consideration for purchase of capital instruments should be received as an inward remittance from abroad through banking channels or out of funds held in a Non-Resident External (NRE) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.2 The NRE account will be designated as an NRE (PIS) Account and the designated account should be used exclusively for putting through transactions permitted under this annex.

2.2.1 The specific credits permitted for the NRE (PIS) account are as follows:

  1. Inward remittances from abroad in foreign exchange through banking channels;
  2. Transfer from the NRI’s/ OCI’s other NRE accounts or FCNR (B) accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016;
  3. Sale proceeds (net of taxes) of capital instruments acquired on repatriation basis in accordance with instructions contained in this annex and sold on stock exchange; and
  4. Dividend or income earned on investment made on repatriation basis in accordance with instructions contained in this annex.

2.2.2 The specific debits permitted for the NRE (PIS) account are as follows:

  1. Outward remittances of dividend or income earned on investment made on repatriation basis in accordance with instructions contained in this annex;
  2. Amounts paid on account of purchase of capital instruments on repatriation basis on stock exchanges in accordance with instructions contained in this annex;
  3. Any charges on account of sale/ purchase of capital instruments in accordance with instructions contained in this annex; and
  4. Remittances outside India or transfer to NRE/ FCNR (B) accounts of the NRI/ OCI or any other person eligible to maintain such accounts in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Remittance of sale proceeds

The sale proceeds (net of taxes) of the capital instruments can be remitted outside India or may be credited to NRE (PIS) Account of the person concerned.

4. Saving

Any account designated as NRO (PIS) shall be re-designated as NRO account.


Annex 4

Investment on non-repatriation basis

A. Purchase or Sale of Capital Instruments or convertible notes of an Indian company or Units or contribution to the capital of an LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on Non-Repatriation basis

1. Purchase/ sale of capital instruments or convertible notes or units or contribution to the capital of an LLP

1.1 A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI), including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, is permitted to purchase/ contribute to the following on a non-repatriation basis:

  1. Any capital instrument issued by a company without any limit either on the stock exchange or outside it.
  2. Units issued by an investment vehicle without any limit, either on the stock exchange or outside it.
  3. The capital of a Limited Liability Partnership without any limit.
  4. Convertible notes issued by a startup company in accordance with FEMA 20(R).

1.2 The investment detailed at 1.1 above will be deemed to be domestic investment at par with the investment made by residents.

1.3 An NRI or an OCI including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, cannot invest in capital instruments or units of a Nidhi company or a company engaged in agricultural/ plantation activities or real estate business or construction of farm houses or dealing in Transfer of Development Rights.

2. Mode of Payment

2.1 The amount of consideration should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B)/ NRO accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Sale/ maturity proceeds

3.1 The sale/ maturity proceeds (net of applicable taxes) of capital instruments purchased or disinvestment proceeds of an LLP should be credited only to the NRO account of the investor, irrespective of the type of account from which the consideration was paid.

3.2 The amount invested in capital instruments of an Indian company or the consideration for contribution to the capital of an LLP and the capital appreciation thereon cannot be repatriated abroad.

B. Investment in a firm or a proprietary concern

1. Contribution to capital of a firm or a proprietary concern

1.1 An NRI or an OCI is permitted to invest, on a non-repatriation basis, by way of contribution to the capital of a firm or a proprietary concern in India.

1.2 The investee firm or proprietary concern should not be engaged in any agricultural/ plantation activity or print media or real estate business i.e., dealing in land and immovable property with a view to earning profit or earning income therefrom.

2. Mode of payment

2.1 The amount of consideration should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B)/ NRO accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Sale/ maturity proceeds

3.1 The disinvestment proceeds should be credited only to the NRO account of the person concerned, irrespective of the type of account from which the consideration was paid.

3.2 The amount invested for contribution to the capital of a firm or a proprietary concern and the capital appreciation thereon cannot be repatriated abroad.


Annex 5

Purchase and sale of securities other than capital instruments by a person resident outside India

1. Permission to person resident outside India

1.1 Permission to Foreign Portfolio Investors (FPIs)

1.1.1 An FPI is permitted to purchase the following instruments on repatriation basis subject to the terms and conditions specified by the Securities and Exchange Board of India and the Reserve Bank:

(a) Dated Government securities/ treasury bills.

  1. With effect from July 23, 2014, FPIs are not allowed to invest in treasury bills.
  2. FPIs are required to invest in Government securities with a minimum residual maturity of three years. There is, however, no lock-in period and FPIs are free to sell the securities to the domestic investors.
  3. FPIs can invest in government securities, the coupons received on their existing investments in government securities. These investments will be outside the applicable limit for investments by FPIs in government securities.

(b) Commercial papers issued by an Indian company. FPIs are not be allowed to make any further investment in CPs after February 03, 2015.

(c) Units of domestic mutual funds. FPIs are not permitted to make investment in liquid and money market mutual fund schemes.

(d) 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 (Tier I capital and Tier II capital as defined by Reserve Bank) provided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue and investment by a single FPI shall not exceed the limit of 10 percent of each issue.

(e) Non-convertible debentures/ bonds issued by an Indian company.

  1. All investments made by an FPI after February 03, 2015, within the limit for investment in corporate bonds, will have to be made in corporate bonds with a minimum residual maturity of three years. In addition, investments made after February 03, 2015 against the limits vacated when the current investment runs off either through sale or redemption, has to be made in corporate bonds with a minimum residual maturity of three years. There will, however, be no lock-in period and FPIs can sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors.
  2. FPIs can invest in primary issues of Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds/ NCDs is committed to be done within 15 days of such investment. In case the NCDs/ bonds issued to the FPIs are not listed within 15 days of issuance to the FPIs, for any reason, then the FPIs shall immediately dispose of these bonds/ NCDs either by way of sale to a third party or to the issuer. The terms of offer to FPIs should contain a clause that the issuer of such debt securities shall immediately redeem/ buyback the said securities from the FPIs in such an eventuality.
  3. FPIs are permitted to invest in unlisted NCDs/ bonds issued by an Indian company subject to a minimum residual maturity of three years and end-use restriction on investment in real estate business, capital market and purchase of land. The custodian banks shall ensure compliance with this condition.

(f) Non-convertible debentures/ bonds issued by Non-Banking Financial Companies categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank. This will include such instruments issued on or after November 3, 2011 and held by deemed FPIs.

(g) Rupee denominated bonds/ units issued by Infrastructure Debt Funds. This will include such instruments issued on or after November 22, 2011 and held by deemed FPIs.

(h) Credit enhanced bonds.

(i) Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 of FEMA 20(R).

(j) Security Receipts (SRs) issued by Asset Reconstruction Companies and securitization companies subject to directions/ guidelines of the Reserve Bank [Department of Non-Banking Regulations (DNBR)] and the following conditions:

  1. FPIs can invest up to 100 per cent of each tranche in SRs issued by ARCs, subject to provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
  2. The restriction on investments with less than three years residual maturity is not applicable to investment by FPIs in SRs issued by ARCs.
  3. Such investment should be within the FPI limits on corporate bonds prescribed by the Reserve Bank.
  4. Investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed investment limits prescribed for corporate bonds from time to time.

(k) Securitised debt instruments, including (i) any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s with banks, Financial Institutions or NBFCs as originators; and/ or (ii) any certificate or instrument issued and listed in terms of the Securities and Exchange Board of India (Regulations on Public Offer and Listing of Securitised Debt Instruments), 2008.

(l) FPI can acquire NCDs/ bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal instalment in the case of amortising bond. The revised maturity period of such NCDs/ bonds, restructured based on negotiations with the issuing Indian company, should be three years or more. The FPI should disclose to the Debenture Trustees the terms of the offer made to the existing debenture holders/ beneficial owners from whom the bonds are being acquired. Such investment should be within the overall limit prescribed for corporate debt from time to time.

1.1.2 FPIs can offer the following instruments as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts:

  1. domestic Government Securities (acquired in accordance with the provisions of Schedule 5 to FEMA 20(R) and subject to the overall limits specified by the SEBI from time to time);
  2. foreign sovereign securities with AAA rating;
  3. corporate bonds acquired by FPIs in accordance with provisions of Schedule 5 to FEMA 20(R);
  4. cash

Note: Cross-margining of Government Securities (placed as margins by the FPIs for their transactions in the cash segment of the market) is not allowed between the cash and the derivative segments of the market.

1.2 Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) – Repatriation basis

1.2.1 A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) can, without limit, purchase the following instruments on repatriation basis:

  1. Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds;
  2. Bonds issued by a Public Sector Undertaking (PSU) in India;
  3. 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;
  4. Bonds/ units issued by Infrastructure Debt Funds;
  5. Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 of these Regulations;

1.2.2 A NRI or an OCI can 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.

1.2.3 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.

1.2.4 A NRI 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, 2013. The annuity/ accumulated saving will be repatriable.

1.2.5 NRIs/ OCIs can offer instruments as may be specified by the Reserve Bank or SEBI as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts,

1.3 Permission to Non-resident Indians (NRIs) or Overseas Citizens of India (OCIs) – Non-Repatriation basis

1.3.1 A NRI or an OCI can, 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.

1.3.2 A NRI or an OCI can, without limit, purchase on non-repatriation basis, listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 of FEMA 20(R).

1.3.3 A NRI or an OCI can, without limit, on non-repatriation basis subscribe to the chit funds authorised by the Registrar of Chits or an officer authorised by the State Government in this behalf.

1.4 Permission to Foreign Central Banks or a Multilateral Development Bank for purchase of Government Securities

1.4.1 A Foreign Central Bank can purchase and sell dated Government securities/ treasury bills in the secondary market subject to conditions as may be prescribed by the Reserve Bank.

1.4.2 A Foreign Central Bank, may purchase and sell dated Government securities/ treasury bills subject to conditions as may be prescribed by the Reserve Bank.

1.4.3 A Multilateral Development Bank which is specifically permitted by Government of India to float rupee bonds in India can purchase Government dated securities subject to conditions as may be prescribed by the Reserve Bank.

1.5 Permission to other non-resident investors for purchase of securities

1.5.1 Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds which are registered with Securities and Exchange Board of India as eligible investors in Infrastructure Debt Funds can purchase on repatriation basis Rupee Denominated bonds/ units issued by Infrastructure Debt Funds.

1.5.2 Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks registered with Securities and Exchange Board of India can purchase, on repatriation basis the following instruments and subject to limits prescribed by the Reserve Bank and terms and conditions specified by SEBI and the Reserve Bank:

  1. Dated Government securities/ treasury bills. With effect from July 23, 2014, long term investors are not allowed to invest in treasury bills.
  2. Commercial papers issued by an Indian company. With effect from February 03, 2015, long term investors are not allowed to make any further investment in CPs.
  3. Units of domestic mutual funds. Long term investors are not allowed to make any further investment in CPs after February 03, 2015.
  4. 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 (Tier I capital and Tier II capital as defined by Reserve Bank) provided that the investment by all eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an aggregate ceiling of 49 percent of each issue, and investment by a single long term investor shall not exceed the limit of 10 percent of each issue.
  5. Listed non-convertible debentures/ bonds issued by an Indian company.
  6. Listed and unlisted non-convertible debentures/ bonds issued by an Indian company in the infrastructure sector. The term ‘Infrastructure Sector’ has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended/ updated.
  7. non-convertible debentures/ bonds issued by Non-Banking Finance Companies categorized by the Reserve Bank as ‘Infrastructure Finance Companies (IFCs)’.
  8. primary issues of non-convertible debentures/ bonds provided such non-convertible debentures/ bonds are committed to be listed within 15 days of such investment. In the event of the instruments not being listed within 15 days of issuance then the long term investor shall immediately dispose such instruments by way of sale to a third party or to the issuer. The terms of offer to the long term investors should contain a clause that the issuer of such instruments shall immediately redeem/ buyback those securities from the long term investors in such an eventuality;
  9. credit enhanced bonds;
  10. listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 9 FEMA 20(R);
  11. security Receipts (SRs) issued by Asset Reconstruction Companies up to 100 percent of each tranche, subject to directions/ guidelines of the Reserve Bank [Department of Non-Banking Regulations (DNBR)]
  12. security receipts (SRs) issued by securitization companies

1.5.3 The conditions prescribed at 1.1.1 of this annex for investment made by FPIs shall mutatis mutandis apply for investment made by long term investors under para 1.5.2 of this annex.

2. Mode of Payment

2.1 The amount of consideration for purchase of instruments by FPIs should be received from abroad through banking channels or paid out of funds held in a foreign currency account and/ or Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. The foreign currency account and SNRR account shall be used only and exclusively for transactions under this Annex.

2.2 The amount of consideration for purchase of instruments by NRIs or OCIs on repatriation basis should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.3 The amount of consideration for (a) purchase of instruments by NRIs or OCIs on non-repatriation basis and (b) subscriptions to the National Pension System by NRIs should be received from abroad through banking channels or paid out of funds held in NRE/ FCNR(B)/ NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.4 The amount of consideration for purchase of Government dated securities by a Foreign Central Bank or a Multilateral Development Bank should be received from abroad through banking channels or paid out of funds held in an account opened with the specific approval of the Reserve Bank.

2.5 The amount of consideration for purchase of instruments by other non-resident investors should be received from abroad through banking channels.

3. Permission for Sale of instruments

3.1 A person resident outside India who has purchased instruments in accordance with this annex can sell/ redeem the instruments.

4. Remittance/ credit of sale/ maturity proceeds

4.1 The sale/ maturity proceeds (net of taxes) of instruments held by Foreign Portfolio Investors (FPIs) can be remitted outside India or credited to the foreign currency account or SNRR account of the FPI.

4.2 The sale/ maturity proceeds (net of taxes) of instruments held by NRIs or OCIs, can be:

  1. Credited to the NRO account of the person concerned where the instruments were held on non-repatriation basis, or
  2. Credited to the NRO account of the person concerned where the payment for the purchase of the instruments sold was made out of funds held in NRO account, or
  3. Remitted abroad or at the NRI/ OCI investor’s option, credited to his NRE/ FCNR(B)/ NRO account, where the instruments were purchased on repatriation basis.

4.3 In all other cases, the sale/ maturity proceeds (net of taxes) can be remitted abroad or credited to an account opened with the prior permission of the Reserve Bank.

5. Limits

5.1 The limits for the various debt instruments will be specified through AP (Dir Series) Circulars.


Annex 6

Investment in a Limited Liability Partnership (LLP)

1. Investment in an LLP

1.1 Foreign Investment was permitted in an LLP with effect from May 20, 2011.

1.2 A 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), not being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), is permitted to contribute to the capital of an LLP operating in sectors/ activities where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.

1.3 Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.

1.4 Investment in an LLP is subject to the conditions prescribed in the Limited Liability Partnership Act, 2008.

1.5 A company having foreign investment, engaged in a sector where foreign investment up to 100 percent is permitted under the automatic route and there are no FDI linked performance conditions, can be converted into an LLP under the automatic route.

1.6 An LLP having foreign investment, engaged in a sector where foreign investment up to 100 percent is permitted under the automatic route and there are no FDI linked performance conditions, can be converted into a company under the automatic route.

2. Mode of payment

2.1 Payment by an investor towards capital contribution of an LLP should be made by way of an inward remittance through banking channels or out of funds held in NRE or FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Remittance of disinvestment proceeds

3.1 The disinvestment proceeds can be remitted outside India or may be credited to NRE or FCNR(B) account of the person concerned.


Annex 7

Investment by a Foreign Venture Capital Investor (FVCI)

1. Investment by Foreign Venture Capital Investor (FVCI)

1.1 Investment by an FVCI was permitted with effect from December 26, 2000

1.2 An FVCI is permitted to invest in securities (not listed on a recognised stock exchange at the time of issue), of an Indian company engaged in the following sectors:

  1. Biotechnology
  2. IT related to hardware and software development
  3. Nanotechnology
  4. Seed research and development
  5. Research and development of new chemical entities in pharmaceutical sector
  6. Dairy industry
  7. Poultry industry
  8. Production of bio-fuels
  9. Hotel-cum-convention centres with seating capacity of more than three thousand.
  10. Infrastructure sector. The term ‘Infrastructure Sector’ has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended/ updated.

1.3 An FVCI can invest in securities issued by a startup, irrespective of the sector in which the startup is engaged.

1.4 An FVCI can acquire units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF.

1.5 Investment by an FVCI in capital instruments of an Indian company will be subject to the reporting, sectoral caps, entry routes and attendant conditions.

1.6 An FVCI may purchase the securities/ instruments permitted for it either from the issuer of these securities/ instruments or from any person holding these securities/ instruments.

1.7 An FVCI may invest in securities on a recognized stock exchange subject to the provisions of the Securities and Exchange Board of India (FVCI) Regulations, 2000.

1.8 An FVCI may acquire/ transfer securities/ instruments permitted for it at a price that is mutually acceptable to the buyer and the seller/ issuer. In case of sale to a person resident outside India, the buyer should be an eligible acquirer.

1.9 An FVCI may also receive the proceeds of the liquidation of VCFs or of Cat-I AIFs or of schemes/ funds set up by the VCFs or Cat-I AIFs.

2. Mode of payment

2.1 The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.2 The foreign currency account and SNRR account shall be used only and exclusively for transactions under this annex.

3. Remittance of sale/ maturity proceeds

3.1 The sale/ maturity proceeds (net of taxes) may be remitted outside India or may be credited to the foreign currency account or SNRR account of the FVCI.


Annex 8

Investment by a person resident outside India in an Investment Vehicle

1. Investment in units of an Investment Vehicle

1.1 A 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) is permitted, with effect from November 13, 2016, to invest in units of Investment Vehicles.

1.2 The sale/ transfer/ redemption of units acquired/ purchased in accordance with this annex are subject to the regulations framed by Securities and Exchange Board of India or the directions issued by the Reserve Bank.

1.3 An Investment vehicle can issue its units to a person resident outside India against swap of capital instruments of a Special Purpose Vehicle (SPV) proposed to be acquired by such Investment Vehicle.

1.4 The portfolio investment by an AIF (Cat III) which has foreign investment is restricted to the securities/ instruments permitted for FPIs under FEMA 20(R).

2. Mode of payment

2.1 The amount of consideration should be paid as inward remittance from abroad through banking channels or by way of swap of shares of a Special Purpose Vehicle or out of funds held in NRE or FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Remittance of sale/ maturity proceeds

3.1 The sale/ maturity proceeds (net of taxes) of the units may be remitted outside India or credited to the NRE or FCNR(B) account of the person concerned.


Annex 9

Investment in Depository receipts by a person resident outside India

1. Issue/ transfer of eligible instruments to a foreign depository for the purpose of issuance of depository receipts by eligible person(s)

1.1 In terms of Depository Receipts Scheme, 2014 (DR Scheme, 2014), Depository Receipts can be issued against any security or unit in which a person resident outside India is allowed to invest under FEMA 20(R). These will be referred to as ‘eligible instruments’ for the purpose of this annex.

1.2 A person is permitted to issue or transfer eligible instruments to a foreign depository for the purpose of issuance of depository receipts in accordance with the DR Scheme, 2014 and guidelines issued by Central Government in this regard.

1.3 A domestic custodian can purchase eligible instruments on behalf of a person resident outside India, for the purpose of converting the instruments so purchased into depository receipts in terms of DR Scheme 2014.

1.4 The aggregate of eligible instruments which may be issued or transferred to foreign depositories, along with eligible instruments already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible instruments under the Act, rules or regulations framed thereunder.

1.5 The eligible instruments shall not be issued or transferred to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue or transfer of such instruments to domestic investors under the applicable laws.

2. Saving

2.1 Depository Receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the corresponding provisions of DR Scheme 2014 and have to comply with the provisions laid out in this annex.


Annex 10

Issue of Indian Depository Receipts (IDRs)

1. Issue of IDRs

1.1 Companies incorporated outside India may issue IDRs through a Domestic Depository, to a person resident in India and a person resident outside India.

1.2 The issue of IDRs should comply with the Companies (Registration of Foreign Companies) Rules, 2014 and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

1.3 Any issue of IDRs by financial/ banking companies having presence in India, either through a branch or subsidiary, shall require prior approval of the sectoral regulator(s);

1.4 IDRs shall be denominated in Indian Rupees only;

1.5 The proceeds of the issue of IDRs shall be immediately repatriated outside India by the companies issuing such IDRs.

2. Purchase/ sale of IDRs:

2.1 An FPI or an NRI or an OCI may purchase, hold or sell IDRs

2.2 NRIs or OCIs may invest in the IDRs out of funds held in their NRE/ FCNR(B) account, maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

2.3 There would be an overall cap of USD 5 billion for raising of capital by issuance of IDRs by eligible foreign companies in Indian markets. This limit would be monitored by SEBI

3. Transfer, redemption and two way fungibility of IDRs

3.1 Redemption/ conversion of IDRs into underlying equity shares of the issuing company shall comply with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.

3.2 IDRs shall not be redeemable into underlying equity shares before the expiry of one year from the date of issue.

3.3 Limited two way fungibility of IDRs is permissible.

3.4 The guidelines to be followed for 3.1, 3.2 and 3.3 above are as follows:

  1. Listed Indian companies may either sell or continue to hold the underlying shares subject to compliance with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.
  2. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to compliance with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.
  3. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.

3.5 The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FPIs.

 

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