Non-Resident Indian Investment

The following persons constitute Non-resident Indians :-

Indian citizens who stay abroad for employment or for carrying on any business or vocation or for any other purpose in circumstances indicating an indefinite period of stay outside India.

Indian citizens working abroad on assignments with foreign Governments, Government agencies or international/multinational agencies like United Nations Organisation (UNO), International Monetary Fund (IMF), World Bank (IBRD), etc.

Officials of Central and State Governments and public sector undertakings deputed abroad on assignments with foreign Governments/agencies/ organisations or posted to their own offices (including Indian Diplomatic Missions) abroad.

Non-Resident Indians become resident in India only when they come back to India for employment or for carrying on in India any business or vocation or for any other purpose indicating an indefinite period of stay in India. They are not regarded as persons resident in India during their short visits to India, say, on holiday, leave, etc.

Persons of Indian origin

For the purpose of the facility of opening and maintenance of various types of bank accounts and making investments in shares and securities in India, a Foreign citizen (not being a citizen of Pakistan or Bangladesh) is deemed to be a person of Indian origin if :

he at any time held an Indian passport, or

he or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955.

A spouse (not being a citizen of Pakistan or Bangladesh) of an Indian citizen or of a person of Indian origin is also treated as a person of Indian origin for the above purposes provided the bank accounts are opened or investments in shares/securities in India are made by such persons only jointly with their NRI spouses.

Overseas Corporate Bodies (OCBs)

Overseas corporate bodies predominantly owned by individuals of Indian nationality or origin resident outside India (OCBs) include Overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons.

The various facilities granted to NRIs are also available, with certain exceptions, to OCBs so long as the ownership/beneficial interest held in them by persons of Indian nationality/origin resident outside India continues to be at or above the level of 60%. In order to establish that the ownership interest of or beneficial interest in any OCB held by individuals of Indian nationality/origin resident outside India is not less than 60%, the concerned corporate body/trust should obtain and furnish, at the time of applying for the facility for the first time and thereafter as and when required by Reserve Bank/authorized dealer, a certificate from an overseas auditor/chartered accountant/certified public accountant in form OAC where the ownership/beneficial interest is directly held by NRIs, and in form OAC 1 where it is held indirectly by NRIs. Authorized dealers maintaining bank accounts or making investments in the names of OCBs should obtain an undertaking from each such corporate body/trust stating that it will promptly intimate to the authorized dealer if the ownership interest or the irrevocable beneficial interest held by NRIs in the OCB falls below the level of 60% at any time. The corporate body/trust should also submit a certificate in form OAC or OAC 1, as appropriate, to the authorized dealer on an annual basis and the authorized dealer should satisfy himself that the ownership/beneficial interest held by NRIs continues to be at or above the level of 60%. If such ownership/beneficial interest is reduced to a level below 60%, the authorized dealer should report the matter to Reserve Bank immediately for instructions together with full particulars of the investments made by the corporate body/trust in its name.

In the case of closely held OCBs i.e. where shareholders belong to the same family or are closely related to each other, certificate in form OAC / OAC 1 may be submitted in the first instance alongwith documentary evidence to the effect that the shareholders belong to the same family or are closely related to each other. Annual submission of OAC/OAC 1 thereafter is not necessary and it will suffice if a certificate signed by the Managing Director/Chief Executive Officer of the OCB is submitted stating that there is no change in the shareholding pattern since submission of the last certificate.

General permission to subscribe to the Memorandum and Articles of Association

In order to facilitate NRIs to set up new companies in India, Reserve Bank vide its Notification No.FERA.143/93-RB dated 26th April 1993, has granted general permission to NRIs to subscribe to the Memorandum and Articles of Association and to take up the shares of Indian companies for their incorporation. The general permission empowers such Indian companies to issue shares to NRIs provided the total face value of the shares to be issued does not exceed Rs.10,000/- and the company is not engaged in any activity relating to agricultural and plantation. The Indian company is required to file a declaration of the issue to Reserve Bank in form DSS within period of 90 days from the date of its incorporation. The repatriability or otherwise of this investment will be decided by Reserve Bank while granting permission for issue of further shares to NRIs.

Direct Investment in Firms/Companies in India

NRIs are permitted to make direct investment in partnership/proprietorship concerns in India as also by way of subscription to shares/debentures of Indian companies. They are also permitted to place funds in company deposits. Similar facilities are also available to OCBs with certain exceptions. Wherever the investments are allowed with repatriation benefits, the funds for the purpose should be received by inward remittances from abroad or from the investor's NRE/FCNR Accounts. However, in respect of investment on non-repatriation basis, funds in NRO Accounts could also be used.

Investment facility for NRIs resident in Nepal

Non-resident Indians resident in Nepal will be permitted to make investments in India provided the funds for the purpose are remitted in free foreign exchange through proper banking channels. Such investments will either be on repatriation or on non-repatriation basis depending on the terms and conditions applicable under the existing schemes for NRI investment.

Investments without Repatriation Benefits

NRIs/OCBs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non-repatriation basis. The incomes earned on these investments as and when accrued are required to be credited to the Ordinary Non-resident Rupee (NRO rupee) account of the investor. Reserve Bank would, however, permit repatriation of the net (i.e. after payment of tax) income/interest earned on such investments/deposits.

1. Investment in Partnership/Proprietorship Concerns :

The Reserve Bank has granted general permission to NRIs to invest by way of capital contribution in any proprietary or partnership concern in India engaged in any industrial, trading or commercial activity on non-repatriation basis subject to the following conditions:-

The amount invested should be remitted from abroad through normal banking channels or by transfer of funds held in investor's bank accounts in India.

The concern or the NRI does not engage in any agricultural/plantation activity or real estate business i.e. dealing in land and immovable property with a view to earning profit or income therefrom.

The amount invested and income accruing thereon are not eligible for repatriation outside India and are payable only in non-convertible Indian rupees.

Consequently, it will not be necessary for such partnership/ proprietorship concerns in India to obtain prior permission of Reserve Bank for receiving capital contribution from NRIs provided the conditions mentioned in the Notification are satisfied. The firm should, however, submit the declaration in form DIN to the concerned Regional Office of the Reserve Bank in whose jurisdiction it is situate within a period of 90 days from the date of receipt of investment. The profits due to the NRI investor may be credited to his ordinary Non-Resident Account maintained with a bank in India.

2. Investment in New Issues of Shares/Debentures of Indian Companies

The Reserve Bank has granted general permission to NRIs/OCBs to subscribe to the shares/convertible debentures of an Indian company on non-repatriation basis, and to an Indian company to issue shares or convertible debentures by way of new/rights/bonus issue to NRIs/OCBs on non-repatriation basis provided that the investee company is not engaged in agricultural/plantation activities or real estate business (excluding real estate development i.e. development of property or construction of houses) or chit fund or is not a Nidhi company. The payment for these shares should, however, be received from the NRIs/OCBs by inward remittance or by debit to their NRE/FCNR/NRO accounts maintained with an authorized dealer or an authorized bank in India. Consequently, it will be in order for companies in India to issue shares/convertible debentures to NRIs/OCBs on non-repatriation basis by way of new, rights or bonus issues without the prior approval of Reserve Bank provided the conditions mentioned in the Notification are satisfied. The company should, however, file a declaration in form DIN within 90 days from the date of receipt of the investment to the concerned Regional Office of the Reserve Bank in whose jurisdiction its registered office is situated. The company may also credit the dividend/interest in respect of the shares/convertible debentures to the investor's NRO account with a bank in India.

Proposals for investment in non-convertible debentures of Indian companies by NRIs/OCBs on non-repatriation basis will be considered by Reserve Bank on case to case basis. Applications for the purpose may be made by Indian companies concerned.

Purchase of Shares of Indian Companies by Private Arrangement NRIs/OCBs require permission of Reserve Bank. For this purpose, application in form FNC 7 together with the non-repatriation undertaking in form NRU may be submitted by the non-resident investor to the office of the Reserve Bank in whose jurisdiction the company's Head/Registered Office is situated.

Investment in Domestic Public Sector :

NRIs/OCBs will be permitted to invest in Mutual Funds floated by domestic public sector and private sector mutual funds on non-repatriation basis. Applications for the purpose should be made to Reserve Bank in form ISD by the concerned bank/institution. The non-resident investors do not need separate approval from Reserve Bank for the purpose.

Investment in Money Market Mutual Funds (MMMFs)NRIs/OCBs will be permitted to invest, on non-repatriation basis, in Money Market Mutual Funds (MMMFs) floated by commercial banks and public sector/private sector financial institutions, with authorization from Reserve Bank of India/Securities and Exchange Board of India (SEBI). Applications for the purpose should be made to the Reserve Bank in form ISD(R) by the concerned bank/institution. The NRI/OCB investors do not need separate permission from Reserve Bank for the purpose.

6. Deposits with Companies

NRIs/OCBs will be permitted to place funds in deposits with firms/companies in India on non-repatriation basis. The application for this purpose may be made by the depositor or the deposit accepting firm/company to the office of Reserve Bank under whose jurisdiction its Head/Registered Office is situated. In case of acceptance of deposits from NRIs/OCBs under the public deposit scheme, the application for permission should be made by the deposit accepting firm/company through an authorized dealer to the concerned office of Reserve Bank under whose jurisdiction the registered office of the firm/company is situate. No separate application from the non-resident depositor is necessary in such cases. Indian companies wishing to raise deposits by issue of Commercial Paper (CP) have to comply with the Non-Banking Companies (Acceptance of Deposits through Commercial Paper) Directions, 1989 issued by Reserve Bank (IECD). Reserve Bank (ECD) has granted general permission to Indian companies for issue of CP to NRIs/OCBs vide Notification No.F.E.R.A. 85/89-RB dated 9th October 1989 as amended by Notification No.F.E.R.A. 205/99-RB dated 3rd July 1999 subject to the company complying with the conditions stipulated by Reserve Bank (IECD) and (ECD). Indian companies may accordingly raise deposits from NRIs/OCBs through issue of CP without obtaining specific permission of Reserve Bank (ECD) provided the amount invested will not be allowed to be repatriated outside India and the CP will not be transferable. Payment for investment in CP should be received by remittance from abroad through normal banking channel or by debit to investor's NRE/FCNR/NRO/NRSR account and maturity proceeds should be paid by credit to NRO/NRSR account of the non-resident investor with a bank in India.

Investments with Repatriation Benefits

NRIs/OCBs are also permitted to make investments in Indian firms/companies with repatriation benefits i.e. capital invested and dividend/income earned thereon are allowed to be repatriated outside India, under various schemes.

1. Investment in New issues of Indian Companies under 40% Scheme

NRIs/OCBs are permitted to subscribe to new issues of shares (both equity and preference) and convertible debentures of any new or existing company, with the right of repatriation of capital invested and income earned thereon subject to payment of applicable taxes, provided :-

The issue of equity/preference shares and convertible debentures to NRIs/OCBs with repatriation facility does not exceed 51 per cent of the face value of each new issue of the company concerned

The shares of the company are not listed on any stock exchange

The company is engaged in manufacturing activity not being an activity specified in Annexure III to the Statement of Industrial Policy 1991 of Government of India, amended from time to time.

Investment under this scheme can be made for setting up new manufacturing projects or for expansion/diversification of their existing manufacturing activities.

Reserve Bank, vide its Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 read with Notification No.F.E.R.A. 190/98-RB dated 2nd December 1998, has granted general permission to Indian companies for issue and export of equity shares/convertible debentures to NRI/OCB investors in respect of eligible investments. Indian companies seeking investment from NRIs/OCBs under the scheme and such unlisted Indian companies satisfying the conditions laid down in the said Notifications may issue shares/convertible debentures to NRIs/OCBs without prior approval of Reserve Bank and file a declaration in Form ISD(R) together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/convertible debentures. Accordingly, NRIs/OCBs who have been issued shares/convertible debentures under the general permission granted by this Notification would not need any specific approval from Reserve Bank.

The Indian company should report within 30 days from the date of receipt of remittance from NRIs/OCBs, full details of remittance like name, amount, date of receipt to the Regional Office of Reserve Bank under whose jurisdiction it is situated.

2. Investment in New issues of Indian Companies under 24% Scheme

NRIs/OCBs are permitted to subscribe to new issues of equity shares/convertible debentures of existing or new companies (both private and public limited) engaged/proposing to engage in any activity including finance, hire purchase, leasing, trading or other services etc., (except agricultural/plantation activities and real estate business) with repatriation benefits upto 24% of the new issue of the concerned Indian company. Reserve Bank, vide its Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 has granted general permission to Indian companies for issue and export of equity shares/convertible debentures to NRI/OCB investors in respect of the eligible investment. Indian companies seeking investment from NRIs/OCBs under the Scheme and satisfying the conditions laid down in the said Notification may issue equity shares/convertible debentures to NRIs/OCBs without prior approval of Reserve Bank and file a declaration in Form ISD together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/convertible debentures. Accordingly, NRIs/OCBs who have been issued shares/convertible debentures under the general permission granted by this notification would not need any specific approval from Reserve Bank.

3. Investment in Priority Industries under 100% Scheme

NRIs/OCBs are permitted to invest in priority industries (industries included in Annexure III to Ministry of Industry's Press Note No.14 (1997 series) dated 8th October 1997 and in Indian companies primarily engaged in export trading activity, with full repatriation benefits up to 100% of the new issue of shares. Reserve Bank, vide its Notification No. F.E.R.A. 180/98-RB dated 13th January 1998 (as amended up to 14th July 1998) has granted general permission to Indian companies for issue and export of equity shares to NRI/OCB investors in respect of the eligible investment. Indian companies seeking investment from NRIs/OCBs under the Scheme and satisfying the conditions laid down in the said Notification may issue equity shares to NRIs/OCBs, without prior approval of Reserve Bank and file a declaration in form ISD(R) together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered office is situated, within 30 days from the date of issue of shares. The scheme is open to new industries as well as for expansion/diversification of existing industrial undertakings. A company, existing on the date of the above Notification, which is not engaged in the Annexure III activities will also be eligible to issue shares if it embarks upon expansion programme predominantly in the Annexure III activities, subject to the condition that the equity raised by issue of equity shares to non-resident investors is utilized for such expansion.

In terms of Reserve Bank Notification dated 13th January 1998 referred to above, the general permission does not cover investment by :-

(a) Persons who are citizens of Pakistan, Bangladesh or Sri Lanka

(b) Companies incorporated in Pakistan or Bangladesh

(c) A company being -

(i) Manufacturer of items reserved for small scale sector;

(ii) Unit manufacturing items which require industrial license;

(iii) Unit manufacturing any item of aerospace and defence equipments whether specifically mentioned or not;

(iv) Unit manufacturing any item related to production or use of atomic energy including carrying out of any process, preparatory or ancillary to such production or use, under the Atomic Energy Act, 1962; and

(v) 100 % Export Oriented Unit and unit in Export Processing Zone.

Since the above mentioned general permission does not cover investment by individual NRIs in partnership firms, applications for necessary permission for seeking such investment should be made to Reserve Bank, Central Office, Mumbai in form ISD(R)by the non-resident investor or the Indian firm proposing to invite the investment.

Applications for foreign investment which do not satisfy the parameters prescribed for general permission as laid down in the Reserve Bank Notification dated 13th January 1998 as amended upto 14th July 1998 referred to above or in 100% Export Oriented Units are required to be made to the Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB), as the case may be. If the unit is located in any of the Export Processing Zones, applications should be made to the Development Commissioner of the Export Processing Zone concerned.

With a view to simplifying the procedure in respect of proposals approved by SIA/FIPB, Reserve Bank, vide its Notification No.F.E.R.A.182/98-RB dated 10th February 1998 has granted general permission to Indian companies for issue and export of shares/securities to foreign investors in respect of investments approved by SIA/FIPB. As a result of the general permission, Indian companies seeking foreign investments from NRIs/OCBs under the scheme based on the approvals granted by SIA/FIPB and satisfying the conditions laid down in the notification will not require any prior clearance of Reserve Bank. Such Indian companies may issue shares/securities to foreign investors and file a declaration in form ISD together with the required documents, with the concerned Regional Office of Reserve Bank under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares/securities to foreign investors.

4. Investment in Housing and Real Estate Development

NRIs/OCBs will be permitted to invest up to 100% in the new issue of equity shares convertible debentures of Indian companies engaged in the following areas:-

* 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;

* Manufacturing of building materials;

* Financing of housing development.

Repatriation of original investment in this case will be permitted by Reserve Bank only after a lock in period of three years from the date of issue of the equity shares/convertible debentures. Applications for the purpose should be made to Reserve Bank (Central Office) in form ISD(R). OCBs will be permitted to repatriate net profit (up to 16 per cent) arising from sale of such investment after the lock-in-period of three years.

5. Investment in Air Taxi Operations

NRIs/OCBs will be allowed to set up Indian companies with 100% equity participation for carrying on Air Taxi Operations in terms of the guidelines issued by the Director General of Civil Aviation for Air Taxi Operations. Applications for the purpose should be made to Reserve Bank (Central Office) in form ISD(R). Repatriation of the investment and/or remittance of dividend will be permitted only after the expiry of five years of operation of the Air Taxi Scheme and only out of accumulated net foreign exchange earnings.

6. Investment in Non-Convertible Debentures

Indian companies desiring to issue non-convertible debentures to NRIs and OCBs should submit their applications in form ISD to the Central Office of Reserve Bank for necessary permission. Such applications are considered by Reserve Bank on merits.

7. Investment in Sick Industrial Units

NRIs/OCBs will be permitted by Reserve Bank to undertake revival of sick industrial units by making bulk investment in them either by way of purchase of equity shares from existing shareholders or in the form of subscription to new equity issues of the sick units on the following basis :

The bulk investment can be made on private placement basis up to 100% of the equity capital of the sick company with full benefits of repatriation of capital invested and income earned thereon.

Issue/transfer of equity shares should be approved by the existing shareholders of the company through a Special Resolution.

For the purpose of investment under the scheme, a company should be declared as sick or there should be a rehabilitation programme approved by the public financial institution/commercial bank or a consortium of banks or by the Board for Industrial and Financial Reconstruction (BIFR).

Applications for permission for issue/transfer of equity shares to non-residents should be made by the concerned Indian company in form RSU to the Central Office of Reserve Bank together with the particulars/documents specified in the application form.

8. Investment in the Schemes of Domestic Mutual Funds

NRIs/OCBs will be permitted to invest in the schemes of all domestic public sector/private sector mutual funds floated on repatriation basis such investments on non-repatriation basis) provided the payment for investment is received by way of inward remittance in foreign exchange or by debit to the investor's NRE/FCNR account. Applications for necessary permission should be made by the concerned Mutual Fund to Reserve Bank (Central Office) giving the details of the structure of the Fund. The non-resident investors do not need separate approval from Reserve Bank for the purpose.

9. Investment in Bonds issued by Public Sector Undertakings

NRIs/OCBs will be permitted to invest in the Bonds issued by Public Sector Undertakings (PSUs) in India with repatriation benefits. The concerned PSU should obtain the necessary approval from Government of India for raising funds through issue of bonds and adhere to the guidelines issued by Government of India, Ministry of Finance, in this regard. Applications for necessary permission should be made by the concerned PSU to Reserve Bank (Central Office) in form ISD(R) along with a certified copy of the approval of Government of India for issue of bonds.

8. General Permission to NRIs/OCBs to purchase shares of Public Sector Enterprises (PSEs)

Reserve Bank by its Notification No.FERA.159/94-RB dated 5th October 1994 has granted general permission to NRIs/OCBs to purchase the shares on repatriation basis disinvested by Government of India in certain Public Sector Enterprises (PSEs) and to PSEs to register in their books the overseas address of such NRIs/OCBs, subject to the conditions that

the holding of shares by a NRI or by an OCB, at any time, does not exceed one per cent of the paid up capital of the PSE concerned

the purchase consideration/bid money is received by way of remittance from abroad through normal banking channels or by transfer of funds held in investor's NRE/FCNR accounts

the application is submitted alongwith deposit of bid money/purchase consideration at the branch of State Bank of India designated by the Government of India for that purpose in the notice inviting the bids.

Opening of Foreign Currency Collection Accounts

In order to facilitate collection of subscriptions from NRIs/OCBs at foreign centres, Reserve Bank may allow Indian companies inviting NRI investments to open temporary foreign currency bank accounts at various foreign centres. After final allotment of shares/debentures to non-resident subscribers to the new issues, refund of excess subscriptions is allowed to be made out of funds lying in the overseas accounts. The temporary bank accounts have to be closed thereafter and the balance repatriated to India. Applications for opening temporary foreign currency accounts for the above purpose may be made by letter giving names and addresses of overseas bank branches with whom accounts are to be opened, full details of NRI issue, and number and date of Reserve Bank's approval for issue of shares/debentures to NRIs/OCBs, to the concerned office of Reserve Bank if the NRI investment is on non-repatriation basis or where the investment is to be made in 100% Export Oriented Unit and to Central Office of Reserve Bank in other cases.

Refund of Subscription

Where NRIs/OCBs intend to subscribe to new issues of Indian companies, authorized dealers may allow payment of subscription (application money) from the applicants NRE/FCNR accounts or NRO accounts, as the case may be. If the subscription or any portion thereof (inclusive of interest on delayed refunds of share application money) is to be refunded by the company, authorized dealers may re-credit the amount to the same account of the applicant from which it was drawn earlier. In cases where subscription to new issues of shares/securities were made by remittance from abroad or by debit to the investor's NRE/FCNR account, he will have the option of having the excess subscription refunded to him either by remittance of the amount abroad or by credit to his NRE/FCNR account. Remittance of funds abroad or credit thereof to the applicant's NRE/FCNR account may be allowed only if the relative refund order is accompanied by a certificate from the collecting bankers or the investee company's bankers indicating that the original subscription was received by way of remittance from abroad or by debit to the applicants' NRE/FCNR account. Authorized dealers may also ensure that the payment of interest in respect of delayed refund of share subscription is in accordance with the provisions indicated in the prospectus of the company in its public issue as vetted by Securities and Exchange Board of India (SEBI).

Deposits with Companies

NRIs and OCBs will be permitted to place funds in fixed deposits with public limited companies in India (including Government undertakings with limited liability) with full repatriation benefits for a period of three years. The total amount of fixed deposits permitted to be accepted will be stipulated by Reserve Bank in individual cases. The application for permission to accept deposits from non-residents with repatriation rights may be made by the Indian company through its bankers to the concerned office of Reserve Bank under whose jurisdiction its Head/Registered Office is situated, giving details of the deposit scheme. It is not necessary for non-resident depositors to seek separate permission from Reserve Bank in this regard. Reserve Bank will grant permission to the bank branch nominated by the company for accepting deposits. While granting permission, Reserve Bank will authorize the branch to allow remittance of interest and maturity proceeds of deposits or credit thereof to the depositor's NRE/FCNR account.