Direct Investment with Repatriation Benefits

What are the schemes available to NRIs for direct investment in India with repatriation benefits ?

NRIs can make investments in new issues of shares/convertible debentures of Indian companies under direct investment schemes such as 40% scheme/100% scheme. They can also invest in the schemes of domestic Mutual Funds floated by public/private sector institutions/companies and bonds issued by Public Sector Undertakings. Non-resident investors are not required to apply for permission to invest but the company concerned will have to obtain permission from Reserve Bank.

What is the 40% Scheme ?

Under the 40% Scheme, Indian companies engaged or proposing to engage in the following activities are allowed by Reserve Bank to issue shares/debentures to NRIs with repatriation benefits to the extent of 40% of the new issue.

Industrial and manufacturing units

Hotels with 3,4 or 5 star category

Hospitals and diagnostic centres

Shipping companies

Development of computer software

Oil exploration services.

Is remittance of interest/dividend to NRI investors freely allowed under the 40% Scheme ?

Yes. There is no ceiling or restriction on the amount of remittable dividend. Remittance of interest/dividend to NRI investors will be allowed by authorised dealers under the powers delegated to them.

Is dividend/interest earned in respect of investments made under the 100% Scheme freely remittable to the NRIs abroad ?

Dividend/interest can be remitted freely except in the case of consumer goods industries where the outflow on account of dividend is balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend. This requirement is enforced for a period of seven years from the commencement of commercial production.

How does an NRI obtain permission of Reserve Bank for investment under the 40% or 100% Scheme ?

The NRI investor need not apply to Reserve Bank. Application for necessary permission under the Schemes should be made by the Indian company/firm to the Central Office of Reserve Bank in Bombay in the prescribed form.

Besides the 40% and 100% Scheme, is there any other scheme for investment by NRIs in the equity of Indian companies ?

Yes. NRIs are permitted to undertake revival of sick industrial units by making bulk investment in them to the extent of 100 per cent either by way of purchase of existing equity shares or in the form of subscription to new equity issues.

Is the capital brought into India for revival of a sick industrial unit allowed to be repatriated ?

Repatriation of capital in such cases is allowed after a minimum period of five years, on the merits of individual cases.

How can an NRI obtain permission of Reserve Bank for investment in a sick industrial unit ?

Application for necessary permission should be made by the Indian company to the Central Office of Reserve Bank in Bombay in the prescribed form.

Under the new Industrial Policy, foreign investment upto 51% of the equity is allowed on repatriation basis in certain high priority industries. Can NRIs take up the balance 49% equity in such cases on repatriation basis ?

Yes.

Can NRIs make investment in companies engaged in real estate development in India ?

Yes. Investment upto 100% in the new issue of equity shares/ convertible debentures of Indian companies engaged in the following areas is allowed:

Development of serviced plots and construction of built-up residential premises;

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

Development of township;

City and region level urban infrastructure facilities including roads and bridges;

Manufacture of building material;

Financing of housing development

What is the procedure for obtaining Reserve Bank permission in this regard ?

Applications for the purpose should be made by the concerned Indian company to the Central Office of Reserve Bank in Bombay in the prescribed form.

Will repatriation of the original investment and/or dividend income be freely permitted ?

Yes. Repatriation of original investment will be permitted after a lock-in period of three years from the date of issue of the equity shares/convertible debentures. In addition, OCBs will be permitted to repatriate net profit (upto 16 per cent) arising from the sale of such investment after the lock-in period of three years. Annual dividend/interest on equity shares/debentures can, however, be freely remitted subject to payment of tax.

Are there any restrictions on repatriation of the investment made under this scheme or income earned thereon ?

No. However, repatriation of the investment and/or remittance of dividend only after the expiry of five years of operation and only out of accumulated net foreign exchange earnings.

What about investment in non-convertible debentures by NRIs on repatriation basis ?

Applications for necessary permission should be made to Reserve Bank (Central Office) by the concerned Indian company in the prescribed form. Such applications are considered on merits.

What is the procedure to be followed for making investment in the scheme of domestic Mutual Funds or public sector bonds with repatriation benefits ?

The concerned Fund/Public Sector Undertaking should obtain necessary permission from Reserve Bank for issue of units/bonds to NRIs.

Can NRIs invest in 100% Export Oriented Units on repatriation basis ?

Yes. NRIs are permitted to invest upto 100% in Indian companies primarily engaged in export trading activities or in 100% Export Oriented Units or units located in Export processing Zones. Applications for the purpose are required to be made in the prescribed form to the concerned regional office of Reserve Bank along with copy of Government.