Demystifying FEMA – Investment in Indiaxa.yimg.com/kq/groups/2610803/654757483/name/FEMA.pdfForeign Exchange Management Rules, 2000 issued by Central Government Regulations notified

Demystifying FEMA –Investment in India

Dhinal ShahChartered Accountant

23 April 2012 Page 2

Table of contents

4

Current Account Transactions

Foreign Investments in India

Foreign Direct Investment5

6

7

Forms of Business Presence

Introduction

2

1

3

Capital Account Transactions

8

Types of Investment Instruments

9

Portfolio Investment Scheme

10

External Commercial Borrowings

Investment in Properties

11 Remittances of Assets/ Incomes


Introduction


Indian Exchange Control Regulations - Framework

► Foreign Exchange Management Act, 1999 – Basic legal frameworkPractical Aspects

► Foreign Exchange Management Rules, 2000 issued by Central Government

► Regulations notified by RBI

► Directions to AD vide A.P. (DIR) Series Circulars / Master Circulars / FAQs

► Internal guidelines / Regulators interpretation (Practical Experience + Contact with Regulators)

► FDI policy of GOI including Press Notes / Press Releases

Frequent changes - Continuous UpdationProvisions not recorded at one place


Forex transactions – overview

Prohibited unlessspecifically permitted

Freely permitted

Subject to ceilings

Reserve Bank of India Authorised Dealers*

Central Government/RBI

Remittance

Approvingauthority

Illustrations

î Pre incorporation expenses upto $100,000

î Consultancy payments upto $1,000,000î Investment in immovable property in India

î Foreign currency accounts in India

Whereceilings

breachedapprovalsrequired

Capital Account Current Account

* Banks approved by RBI to deal in foreign exchange


Capital Account Transactions


Definition

► Transaction that alters the assets or liabilities, including contingent liabilities, position:► Outside India for a person resident in India ► In India for a person resident outside India

► Any person may sell/ draw forex to/ from an authorized person for permissible capital account transactions, subject to limits specified by RBI (Sec 6(2))

► A resident can hold/ own/ transfer/invest in foreign currency/ security/ immovable property outside India, if they are acquired/ held when he was non-resident (or) inherited from/ gifted by non-resident

Capital Account Transactions Sec 2(e) & 6

Restricted unless specifically permitted


► A non-resident can hold/ own/ transfer/invest in foreign currency/ security/ immovable property in India, if they are acquired/ held when he was resident (or) inherited from/ gifted by residents

Capital Account Transactions Sec 2(e) & 6


Current Account Transactions


Current account transactions – Sec 2(j) & 5

► Means a transaction other than a capital account transaction and includes:► Payment due in connection with foreign trade, current business, services and short

term banking and credit facilities in the ordinary course of business

► Payment due as interest on loans and as net income from investments

► Remittances for living expenses of parents, etc

► Expenses in connection with foreign travel, education and medical care of parents, spouse and children

Current Account Transactions - definition

Permitted unless specifically restricted


► Any person is free to sell and buy forex from an authorised person if such sale or drawal is on account of a current account transaction

► However, the Government has in public interest and in consultation with the RBI framed the Current Account Transactions Rules

Current Account Transactions - definition


Current Account Transaction Rules

► Government has in public interest and in consultation with the RBI framed the Current Account Rules

► Determine whether current account transaction prohibited/restricted

► Schedule I - Prohibited transactions (lottery purchase/winnings, gambling transactions, payment related to Call back services, etc.) and travel to Nepal/Bhutan or transactions with residents of Nepal/Bhutan – Rule 3

► Schedule II - Transaction permitted against specific approval of relevant ministry/ Government department (Cultural tours, hiring charges for transponders, multi-modal transport operators remitting to overseas agents) – Rule 4

► Schedule III – Specified remittances exceeding certain limits require prior RBI approval – Rule 5


Current Account Transaction Rules

► Determine whether exceptions would apply

► Resident Foreign Currency (‘RFC’) funds utilized - Schedule II and III restrictions will not apply.

► Exchange Earners Foreign Currency (‘EEFC’) funds utilized - Schedule II and III restrictions will not apply, except gift /donation remittances, Commission to agents abroad for sale of flats or plots in India, remittance for reimbursement of pre-incorporation expenses

► Schedule III restrictions do not apply if International Credit Card is used for making payment by person on a visit outside India


Foreign Investments in Indian Companies


Foreign Investment in India

Investment on Non-repatriable

basis

Foreign Direct Investments

Foreign PortfolioInvestments

Automatic route

Govt. Route FIIs NRIs,

PIOs

By Non residents, NRIs & PIOs (other than citizens of Pakistan and Bangladesh

ForeignInvestments

External Commercial Borrowing

NRIs,PIOs


Foreign Direct Investments in Indian Companies


FDI – The Roadmap

Allowed selectively up to 40%

Up to 51% under ‘Automatic

Route’ for 35 Priority Sectors

Up to 74/51/50% in 111 Sectors under

‘Automatic Route’100% in some sectors

Up to 100% under ‘Automatic Route’ in

all sectors except a small negative list

Sectoral caps raised;Conditions relaxed;


Who can invest in India

► Non-resident entities (except citizen or entity incorporated in Pakistan)► Bangladeshi citizen/ entities can invest only under approval route

► FIIs (under Portfolio Investment Scheme or FDI Policy)► Individually 10% of paid-up capital of company; or► Up to the sectoral cap on an aggregate basis

► SEBI registered Foreign Venture Capital Investor (‘FVCI’)► Under automatic route –

► In capital of an Indian Venture Capital Undertaking (‘IVCU’)► In a Domestic Venture Capital Fund (‘DVCF’), if it is company

► Under approval route if invested in an DVCF being a trust► As per the FDI policy where invested in any other companies

► Qualified Foreign Investors ► Individually 5% of paid-up capital of company; or► Up to 10% on an aggregate basis


How do you invest in India?

FDI in India can be undertaken through two routes:

Automatic Route

Government Approval Route

• No prior permission required. Only requirement to inform Central Bank (‘Reserve Bank of India’) within 30 days of inflow / issue of shares

• Prior government (ie Foreign Investment Promotion Board) (‘FIPB’) approval needed. The approval required for FDI in the following cases:–Where provisions of Press Note 1 (2005 Series) are attracted;

or–Proposals for foreign equity beyond 24% in SSI reserved

sector; and–Proposals falling outside notified sectoral policy/ caps

Decision generally communicated within 6-8 weeks. Intimation as mentioned in automatic approval route still needs to be complied with


FDI prohibited in certain sectors

► Retail trading (except single brand products retailing)► Lottery business► Gambling and Betting► Trading in Transferable Development Rights (‘TDR’)► Real Estate Business (except for investments by NRI in prescribed areas)► Agriculture (excluding floriculture, horticulture, development of seeds, etc.

and services related to agro and allied sectors) and Plantations (other than tea plantations)

► Business of Chit Fund / Nidhi Company► Sector not opened to private sector investment e.g. Atomic Energy, Railway

transport


FDI - Automatic Route

Majority of the sectors under the Automatic route. Illustrative list where 100% FDI permitted under the Automatic route:

Manufacturing Infrastructure Services

Food processing Electricity generation, transmission and distribution Hospitals

Electronic hardware Mass Rapid Transport System Software development

Pollution control and management Roads and highways Tourism

Drugs and pharmaceuticals* Vehicular bridges Engineering services

Automobiles and ancillaries Ports and harbours Architectural services

* 100% FDI in existing pharmaceutical companies is now under approval route

Investment in MSE company only upto 24% under automatic route:


Investment in Real Estate Business

▶ FDI is prohibited in Real Estate business

▶ Real estate business means dealing in land and immovable property with a

view to earning profit or earning income there from

▶ Real estate business does not include development of townships,

construction of residential / commercial premises, roads or bridges,

educational institutions, recreational facilities, city and regional level

infrastructure, townships.

▶ Business of construction and development of real estate projects – 100%

under Automatic route subject to prescribed conditions

▶ No conditions prescribed for investment by NRIs into real estate projects


Investment in Real Estate Business

FDI in Construction / Development of real

estate properties

Construction activities carried by Company

Construction activities undertaken by Partnership Firm / Sole proprietorship

Construction Activities undertaken by LLP

Inv. by Foreign Company / Foreign

IndividualsInv. by NRIs





100% permissible under Automatic Route subject to fulfillment of certain conditions

100% permissible under Automatic Route without conditions

Not Permissible 100% permissible under Auto route on non-repatriation basis

Not Permissible Not Permissible


Investment Regulations


25

Consolidated FDI Policy

► The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (‘DIPP’) releases the consolidated FDI policy on a half yearly basis i.e. April and October every year► Unlike past years, the Consolidated FDI policy issued on 10 April 2012 will

be valid for 1 year and reviewed on annual basis

► The FDI policy is a consolidated document containing all prior press notes/ press releases/ clarification etc

► The circular contains six chapters dealing with following issues –► Intent & objective► Definitions► Origin, type, eligibility, conditions and issue/transfer of investment► Calculation, entry route, caps, entry conditions of investment policy on

route and sectoral caps and► Remittance, reporting and violations related to FDI


Forms of Investment

Fully Convertible DebentureNo rate of interest prescribed

Equity SharesNo restriction on dividend repatriation

Under FDI, non-resident investor can invest in Indian Company in the following manner

Fully convertible preference sharesDividend pegged at SBI’s PLR+3%

Regulations for upfront pricing of convertible instruments relaxed – Conversion price can be specified at the time of conversion provided ► the conversion formula is specified upfront; and ► the conversion price is not lower than the fair value determined at issue of such instruments


Key considerations

► Share Allotment money should be remitted to the Indian company’s bank account – RBI approval for retaining money outside India

► Share issue (including other equity instruments) within 180 days of inward remittance or date of debit to NRE/ FCNR(B) account. ► Refund beyond 180 days - RBI approval only in exceptional circumstances

► External Commercial Borrowing/ royalty payments, permitted to be converted into shares under the automatic route

► Regulations relating to Issuance of equity shares against non-cash consideration relaxed – In addition to ECB/ royalty, under the approval route shares can now be issued against –► Share swap► Import of capital goods/ machinery etc► Pre-operative/ pre-incorporation expenses

► PN 1 of 2005 withdrawn – Restriction of FDI in ‘same field’ or ‘allied field’ where the investor had past/ existing joint venture/ collaboration done away with


Valuation – Issue/ transfer of shares to Non resident

Unlisted CompaniesThe price of such shares shall not be less

than the fair valuation of shares done by SEBI registered Category I Merchant banker or a CA as per the Discounted

Cash Flow (‘DCF’) method

Listed CompaniesAs per SEBI Guidelinesi.e. Ruling market price

- For acquisition of shares of an existing Indian company by non-resident, from resident, or

- Fresh issue of shares to non-resident by an Indian company, the price of shares should not be less than:


Procedural formalities for issue and transfer of shares

► Receipt of Share Application Money - Intimation to be filed with RBI within 30 days of such receipt (Notification 14/12/2007)

► Allotment of Shares : Reporting by Indian Company

► Declaration in Form FC-GPR to be filed with AD with in 30 days of issue of shares along-with the following documents;► Certificate from the Company Secretary certifying:

► All requirements of the Companies Act has been complied

► Company is eligible to issue the shares

► Valuation certificate from a Chartered Accountant;

► Foreign inward remittance certificate


Procedural formalities for issue and transfer of shares (contd..)

Transfer of shares (From Resident to a Non-resident)

► Form FC-TRS required to be filed with the authorised dealer of the resident transferor (within 60 days from receipt of consideration). The following documents are generally required to be submitted along-with the Form:

► Valuation certificate from a Chartered Accountant► Foreign Inward remittance certicate► Consent letter from the resident shareholders

► Transfer of shares of an Indian company from Non resident to a Resident is not FDI

► Formalities as in Transfer of shares, as mentioned above► Tax declaration/ No objection certificate from Income tax authority required


Transfer of shares (contd..)

General permission has been granted to the following: ► Capital Reduction and Buyback► Transfer shares of an Indian company from Non-Resident to another Non-

Resident (including NRIs) by way of sale

► NRI to NRI by way of sale► No valuation requirement

► Only intimation required to be submitted with RBI (with FIPB in case approval has been obtained from FIPB)


32

Guidelines for downstream investment by Indian companies are simplified

► Categorization of Indian companies into ‘Operating companies’, ‘Operating-cum-Investing companies’ and ‘Investing companies’ has been removed► However, concept of ‘Operating-cum-Investing companies’ still finds mention in

para 4.1.3 of the consolidated FDI circular prescribing guidelines for calculation of total foreign investment

► FIPB approval still required for foreign investment into an Indian company engaged ► only in the activity of investing in the capital of other Indian companies; and ► an Indian company which does not have any operations and also does not have

any downstream investment

Rationalisation and simplification of policy for Downstream Investments


Business Presence



Preferred form of business entity

► Operating flexibilities► Tax efficiencies

► Regulatory compliances► Efficiency in capital

raisingRelevance of choice of

business entity

Foreign Investor

Unincorporated entities

Incorporated entities Partnerships

Liaison Office

Project Office

Branch Office

Joint Venture Subsidiary Partnership LLP


► Investment by NR / NRI / PIO allow only under Government (FIPB approval route).

► FDI in prohibited sector (referred to in slide no. 20) and also in real estate business not allowed.

► ECB is not allowed.► Foreign company prohibited from designating partner.

Investment Through Limited Liability Partnership


► Investment (Capital Contribution) by NR / PIO allow under automatic route only on non repatriation basis.

► Partnership firm / proprietory are not allowed to be engaged in Agricultural / Plantation / Print Media / Real Estate Business.

► Investment by NRI / PIO on repatriation basis and any investment by Non Resident only allowed on approval route from FIPB.

Investment Through Partnership firm / Sole Proprietory



► Liaison office (Permitted activities)► Representing in India the parent company/ group companies

► Promoting export/ import from/ to India

► Promoting technical/ financial collaborations between parent/ group companies and Indian companies

► Acting as a communication channel between the parent company and Indian companies

► Project office► Can only undertake activities for the project for which it has been set-up

Cannot undertake business / commercial activity; Maintains itself out of remittances received from abroad



► Branch office (Permitted activities)► Export/ import of goods (allowed only on wholesale basis)

► Rendering professional/ consultancy services

► Carrying out research work, in which the parent company is engaged

► Promoting technical or financial collaboration between Indian companies and parent/ group company

► Acting as buying/ selling agent in India

► Rendering services in IT and development of software in India

► Rendering technical support to the products supplied by parent/ group companies

► Foreign airlines and shipping company

Cannot be established for manufacturing / processing activities, execution of project



Set up / Compliance for PO

► Foreign companies granted general permission to set-up project offices in India without any approval subject to certain conditions:► it has secured from an Indian company a contract to be executed in India; or► the project is funded by inward remittances from abroad/ bilateral or multilateral

International financing agency; or► the project has been cleared by an appropriate authority; or► the company or entity in India awarding the contract has been granted term loan

facility by a PFI or bank in India

► Permitted to make intermittent remittances pending winding up/ surplus on closure after filing prescribed documents with AD

► Permitted to open non interest bearing foreign currency account in India subject to conditions



► Activities in addition to what was initially permitted by RBI would require RBI approval► Filing to be done through AD

► Submission of Annual Activity Certificate from CA with the designated AD and a copy to Directorate General of Income Tax (International Tax), New Delhi

► RBI approval required for extension of LO – since initial approval is granted only for 3 years

► BO permitted to remit annual profits after filing prescribed documents with AD► RBI approval required at the time of closure of office and remittance of

winding up proceeds


Types of Investment Instruments


Types of Investment Instrument

► Operating flexibilities► Tax efficiencies

► Regulatory compliances► Efficiency in capital

raisingRelevance of choice of

business entity

Foreign Investor

ECBFCCB/ FCEBOptionally

Convertible Pref. Share/ Deb

CCPS/ CCDEquity/ ADR/ GDR

Hybrid instruments Debt

No end use restriction Specified end use restrictions

► Tax arbitrage may be available on interest payouts

Equity instruments


Equity Shares

►Investment in Indian Company by way of equity shares -► At par or premium

►Pricing guidelines to be complied► DCF method

►Return on Investment► Dividend – No regulatory cap;

however, profits required for declaration of dividend

► Tax shield NOT available

►Exit methods:► Sale of shares► Buy-back of shares► Capital reduction

►Exit - Implication ► Pricing guidelines to be complied► Capital Gains implication in the

hands of Investor

Indian Co

Equity Shares

F Co

Outside India

IndiaRevenue Mode

Dividend - No Tax Shield

Capital Mode

Sale of shares / Buy-back of shares / Capital reduction - Investment through SPV - Tax Shield available

Shares to be issued within 180 days of inward remittance


Compulsory Convertible Preference Shares (‘CCPS’)

Indian Co

CCPS

F Co

Outside India

IndiaRevenue Mode

Dividend - No Tax Shield

Capital Mode

Sale of shares / Buy-back of shares / Capital reduction - Investment through SPV - Tax Shield available

► Investment by way of CCPS► At par or premium ► Compulsorily convertible into Equity Shares

►Considered as FDI for Regulatory ► purpose

►Pricing guidelines to be complied► DCF method► Pricing to be determined upfront at the

time of issue

►Return on Investment ► Dividend – Ceiling of 300 bps + SBI PLR ► Tax shield NOT available

►Different classes of preference (with different voting rights) possible ► May not be permissible as per proposed

Companies Bill

►Exit methods► Sale of shares► Buy-back of shares► Capital reduction

►Exit - Implication ► Pricing guidelines to be complied► Capital Gains implication in the hands of Investor


Compulsory Convertible Debentures (‘CCD’)

Indian Co

CCD

F Co

Outside India

IndiaRevenue Mode

Pre-Conversion -Interest - Tax Shield available

Post-Conversion -Dividend - No Tax Shield available

Capital Mode

Sale of shares / Buy-back of Equity Shares / Capital reduction Investment through SPV - Tax Shield available

► Investment by way of CCD► At par or premium ► Compulsorily convertible into Equity

Shares►Considered as FDI for Regulatory purpose►Pricing guidelines to be complied► DCF method► To be determined upfront at the time of

issue►Return on Investment ► Pre-Conversion - Interest - Cap –

Practically, 300 bps + SBI PLR - Tax shield available

► Post-Conversion - Dividend - Tax shield NOT available

Exit methods► Sale of shares► Buy-back of shares► Capital reduction

Exit - Implication ► Pricing guidelines to be complied► Capital Gains implication in the hands

of Investor

Hybrid instrument with features of equity & debt


External Commercial Borrowings (‘ECB’)

Indian Co

ECB

F Co

Outside India

IndiaRevenue Mode

Interest - Tax Shield available

Capital Mode

Principal Repayment - Tax Shield

►ECB can be availed from► Foreign equity holder► For ECB beyond USD 5 million ► Min 25% equity should be directly held by

foreign investor► Debt Equity Ratio not to exceed 4:1► Foreign banks / Suppliers of equipment► Foreign collaborators

► Lock-in► 5 years for ECB above 20 million

►End Use► Allowed - Capex and set up of new projects► NOT Allowed - Acquiring a company /

Working Capital► Relaxation for use of ECB for working

capital in certain sectors announced

►Return on Investment► Interest - Tax shield available: Cap - 500 bps + 6 months LIBOR► Principal prepayment allowed subject to compliance with minimum lock-in period

Repayment possible without Book Profits


Preference Shares – Other than CCPS (ECB –CCPS)

Indian Co

Equity

F Co

Outside India

IndiaRevenue Mode


Capital Mode

Principal Repayment - Tax Shield NOT available

► Types of ECB-CCPS► Optionally Convertible

► Partly Convertible

► Redeemable

►Nature ► For Regulatory purposes - Debt

► Need to comply with ECB guidelines

► For Tax purposes - Equity

►Return on Investment► Dividends – Tax shield NOT available

No tax break - Requires compliance with stringent ECB norms - Not a desirable instrument

ECB

-CCPS


Debentures – Other than CCPS (ECB – CCD)

Indian Co

Equity

F Co

Outside India

IndiaRevenue Mode


Capital Mode

Principal Repayment - Tax Shield available

►Various types of ECB-CCD

► Optionally Convertible

► Partly Convertible

► Redeemable

►Nature

► For Regulatory purposes - Debt

► Need to comply with ECB guidelines

► For Tax purposes - Debt

►Return on Investment

► Interest - Tax shield available

Tax break available – However, requires compliance with ECB norms

ECB

-CCD


Portfolio Scheme for Investments


Eligible Investors

► SEBI registered FIIs & SEBI approved sub-accounts of FIIs► Individually 10% and for all FII’s up to 24% of paid-up capital of company; or► Up to the sectoral cap on an aggregate basis if company passes special resolution

for increasing the limit► NRIs permitted by the designated branch of any AD Category-I Bank

► Individually 5% and for the all NRI’s upto 10% of paid-up capital of company; or► Up to 10% on an aggregate basis*

PIS – Key features

* Can be increased up to 24% by passing BoD resolution and a special resolution in general meeting


Investment under PIS

► Eligible investors can invest in► Shares► Convertible debentures► Exchange Traded Derivatives

► NRIs can only invest in Exchange Traded Derivatives on a non-repatriation basis

Prohibition on investments

► Asset Reconstruction Company► Chit fund/ Nidhi company► Agricultural or plantation company► Real estate business and trading in Transferable Development Rights



Transfer of investment under PIS► Short-selling

► FIIs► Short-selling of shares by FIIs permitted provided

► Short-selling not allowed for companies which are in ban-list *or caution list**► Borrowing of equity shares only allowed for purpose of delivery into short sales► Margin/ collateral to be maintained only in form of cash

► NRIs► Short-selling not permitted (only delivery based transaction are allowed)

► Private Placement► FIIs permitted to purchase shares/ convertible debentures through offer/ private

placement

► Private arrangement► Shares purchases under PIS cannot be transferred through private arrangement

or by way of gift without prior approval of RBI► NRIs can transfer shares to relatives/ charitable trust


*Ban-list – shareholding by FIIs/ NRIs reaches overall ceiling/ sectoral cap/ statutory limit, company is placed in ban list** Caution list – shareholding by FIIs/ NRIs reaches limit of 2% below ceiling/ sectoral cap.


Remittance of funds► FIIs

► To open a non-interest bearing Foreign Currency Account (‘FCA’) and/ or single non-interest bearing Special Non-Resident Rupee Account (SNRR A/c) with AD

► Funds may be transferred from FCA to SNRR A/c for making investments► Sale proceeds may be transferred from SNRR A/c to FCA after payment of tax

► NRIs► To open a single designated NRE/ NRO account with AD► Payment for purchase of shares/ debentures on a repatriation basis can be made from NRE/

FCNR a/c► In case shares/ debentures purchased on non-repatriation basis, payment can also be made

from NRO A/c

Collateral Security for FIIs► FIIs can offer foreign sovereign security with AAA rating as collateral in addition to

cash for investment in derivate segment► SEBI approved clearing corporation of stock exchanges can maintain demat accounts with foreign

depositories to hold such collateral

► Additionally, domestic government securities can also be kept as collateral in addition to cash/ foreign securities for investing in equity segment

PIS – Modalities


► Non Repatriation basis► Allow to purchase shares / debentures without any limit (others

and prohibited sectors).► Allow to invest in Government dated securities, treasury bills,

mutual funds (PPF is prohibited)

► Repatriation basis► Allow to invest in Government dated security (other than bearer

securities), treasury security, mutual funds, Bonds of PSU.

Investment by NRI


External Commercial Borrowing (ECB)


► ECB refer to commercial loans in the form of bank loans, buyer’s credit and suppliers credit, availed from non-resident lenders with minimum average maturity of 3 years

► The government has also clarified that all forms of preference shares other than fully convertible preference shares namely non-convertible, optionally convertible, shall be required to conform to ECB guidelines

► ECB may be obtained through (a) Automatic Route or (b) Approval Route

► Eligible Borrowers► Corporates registered under the Companies Act, 1956 except financial

intermediaries;► NGOs engaged in micro finance activities

ECBs - Basics


► Recognised Lenders► International banks;► International capital markets;► Multilateral financial institutions;► Export credit agencies;► Suppliers of equipment;► Foreign collaborators;► Foreign equity holderî ECB up to USD 5 million – minimum equity of 25% to be held

directly by the foreign lenderî ECB above USD 5 million - minimum equity of 25% to be held

directly by the foreign lender and debt equity ratio should not exceed 4:1 (i.e. ECB cannot exceed 4 times the direct foreign equity holding).

ECBs - Basics


► End Use – permitted► Investment in real sector (import of capital goods, new projects, modernisation/

expansion of existing production units) and infrastructure sector (power, telecommunication, railways, bridges, etc)

► Overseas direct investment in JV/ WOS► First and second stage acquisition of shares of disinvestment process

► End Use – restricted► On-lending, investment in capital market, acquiring Indian company► Investment in real estate business► Working capital, general corporate expenses, repayment of existing rupee loan

ECB - Automatic Route


Eligible borrowers

► Financial institutions dealing exclusively with infrastructure or export finance

► Banks and financial institutions which had participated in the textile or steel sector restructuring package

► NBFCs are permitted to raise ECBs for import of infrastructure equipments for leasing to infrastructure projects

► Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions

► Cases falling outside the purview of the automatic route limits and maturity period

Others► Corporates can avail of ECB of an additional amount of USD 250 million with average maturity of

more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year.

► Other conditions are as applicable in the automatic route

ECB - Approval Route


Investment in Properties


Investment in Immovable Property

► Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India ► Acquisition and Transfer of Immovable Property in India► Purchase/ Sale of immovable Property by Foreign

Embassies/Diplomats/ Consulate Generals ► Acquisition of Immovable Property for carrying on a permitted activity ► Prohibition on acquisition or transfer of immovable property in India by

citizens of certain countries.



ACQUISITION OF IMMOVABLE PROPERTY

* PIO : Foreign Citizen of Indian Origin (Foreign Passport)

** NRI : Indian Citizen residing abroad (Indian Passport)

*** IP : Immovable Property

**** AG : Agricultural property/ farm house

$ By virtue of Section 6(4) of FEMA Act.

Particulars PIO* Foreign Citizen NRI**

IP*** AG**** IP AG IP AG

By purchase ü X X X ü X

By Gift ü X X X ü X

By inheritance ü ü ü $ X ü ü


Transfer of Immovable Property

Transferor PIO Foreign Citizen NRI

Transferee IP AG IP AG IP AG

Person resident in India

ü X X X ü ü

Person resident andcitizen of India

ü ü X X ü ü

Person non-residentbut citizen of India

ü X X X ü X

Person of Indian origin resident outside India

ü X X X ü X



Repatriation of sale proceeds

► Repatriation of sale proceeds from sale of immovable property other than agricultural land/ farm house/ plantation property in India, is allowed, subject to;► 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 or the provisions of FEMA Regulations;

► the amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of funds held in Foreign Currency Non-Resident Account or (b) the foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External Account for acquisition of the property

► In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties, with no locking period.



► In the case of sale of immoveable property purchased out of Rupee funds, repatriation of funds out of balances held by NRIs/PIO in their Non-resident Rupee (NRO) accounts upto US$1 million per financial year is allowed.

► Repatriation of amount representing refund of application / earnest money / refund on account of non allotment of flat / plot / cancellation of booking / deals for purchase of property including interest (subject to Income Tax) is allowed if the original payment was made from NRE / FCNR Account or from inward remittance.

► Repatriation of sale proceeds of residential accommodation purchased by NRI / PIO out of funds raised by them by way of loan from banks is allowed to the extent the loan is repaid by inward remittance or by debit to NRE / FCNR A/c.


Remittance of Assets/ Income


Remittance of Assets / Income

Remittance of Assets by NRI/PIO

► A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) is allowed to remit anamount up to USD one million, per calendar year► out of the balances held in his Non-Resident (Ordinary) Rupee (NRO) account/sale

proceeds of assets, movable and immovable, (inclusive of assets acquired by way ofinheritance/legacy/assets acquired out of settlement), for all bonafide purposes, to thesatisfaction of the authorized dealer,

► on production of an undertaking by the remitter and► certificate by a Chartered Accountant.

Remittance of assets by Foreign national of non Indian origin

► A foreign national of Non Indian Origin is allowed to remit an amount not exceedingUSD one million, per calendar year, (the limit is over an above the remittance offunds out of sale proceeds of shares or immovable property owned on repatriationbasis in accordance with the relevant regulations)► who has retired from an employment in India or► who has inherited assets from a person resident in India or► who is a widow of an Indian citizen resident in India



► on production of documentary evidence in support of acquisition/ inheritance of assets, anundertaking by the remitter and

► certificate by a Chartered Accountant.► These remittance facilities are not available to a citizen of Nepal and Bhutan.► The remittance facility in respect of sale proceeds of immovable property is not available to a

citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal & Bhutan.

Remittance of current income

► Remittance of current income like rent, dividend, pension, interest etc. of NRIs/PIOwho do not maintain NRO Account is freely allowed, on the basis of appropriatecertification by a Chartered Accountant certifying that the amount proposed to beremitted is eligible for remittance and that applicable taxes have been paid/providedfor

► NRIs/PIO have the option to credit the current income to their Non-Resident(External) Rupee account, provided the authorized dealer is satisfied that the creditrepresents current income of the non-resident account holder and income tax thereonhas been deducted/provided for.



Facilities for students► Students going abroad for studies are treated as Non-Resident Indians (NRIs) and

are eligible for all the facilities available to NRIs under FEMA.► As Non-Residents, they will be eligible to receive remittances from India (i) up to

USD 100,000 from close relatives in India on self declaration towards maintenance,which could include remittances towards their studies also and (ii) upto USD 1 millionout of sale proceeds of assets/balances in their account maintained with an AD inIndia.

► All other facilities available to NRIs under FEMA are equally applicable to thestudents.

International Credit Card

► International Credit Cards can be issued to NRIs/PIO, (without prior approval of RBI).Such transactions may be settled by inward remittance or out of balances held in thecardholder’s FCNR/NRE/Non-Resident (Ordinary) Rupee accounts.

Thank you

Documents

Demystifying FEMA – Investment in Indiaxa.yimg.com/kq/groups/2610803/654757483/name/FEMA.pdfForeign Exchange Management Rules, 2000 issued by Central Government Regulations notified