INVESTMENT SCHEMES FOR NRI
Special schemes for NRI
1.1 Various schemes are available for NRI investment in India.
‘Non Resident Indian (NRI)’ means a person resident outside India who is a citizen of India or is a person of Indian origin – Para 2.1.27 of Consolidated FDI Policy Circular No. 1 of 2014 dated 17-4-2014 issued by DIPP of MC&I.
‘Person of Indian Origin’ (PIO) means a citizen of any country other than Bangladesh or Pakistan, if (i) he at any time held Indian passport; or (ii) he or either of his parents or any of his grand-parents was a citizen of India or (ii) the person is a spouse of an Indian citizen or of a person referred to in (i) or (ii) above – Para 2.1.28 of Consolidated FDI Policy Circular No. 1 of 2013 dated 5-4-2013 issued by DIPP of MC&I
Instructions are consolidated in RBI Master Circular No. RBI Master Circular No. 15/2014-15 dated 1-7-2014 on ‘Foreign Investment in India’ [earlier RBI Master Circular No. 15/2013-14 dated 1-7-2013].
1.1-1 FDI by NRI
As far as Foreign Direct Investment (FDI) is concerned, there is not much difference between policy in respect of NRI and other foreign investors. [However, for investment on non-repatriation basis, there is no limit on investment except in a few cases].
For all sectors excluding those falling under Government Approval, NRIs (which also includes PIOs) are eligible to bring investment (FDI) through the Automatic Route of RBI. All other proposals which do not fulfil any or all of the criteria for automatic approval are considered by the Government through the FIPB.
NRIs are allowed to hold up to 100 per cent equity in civil aviation sector in which otherwise foreign equity only up to 40 per cent is permitted [See para 3 of Industrial Policy of GOI].
1.1-2 Portfolio Investment scheme for NRI
Purchase/sale of shares and/or convertible debentures by an NRI on a Stock Exchange in India on repatriation and/or non-repatriation basis under Portfolio Investment Scheme (PIS) is permissible.
Statutory provisions are contained in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, particularly in Schedules 3 and 4.
Instructions are consolidated in Part I Section II of RBI Master Circular No. 15/2014-15 dated 1-7-2014 on ‘Foreign Investment in India’ [earlier RBI Master Circular No. 15/2013-14 dated 1-7-2013].
The procedures to be followed by Authorised Dealers has been summarized in RBI circular No. 29 dated 20-8-2013.
A Non-resident Indian (NRI) may purchase/sell shares and/or convertible debentures of an Indian company, through a registered broker on a recognised stock exchange, subject to the following conditions [para 1 of Schedule 3 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000]:
(i) the NRI can purchase and sell shares/convertible debentures through a designated branch of an authorised dealer approved by RBI. [Thus, he need not restrict his transactions to only one branch – amendment dated 18-6-2003].
(ii) the paid-up value of shares of an Indian company, purchased by each NRI both on repatriation and on non-repatriation basis, does not exceed 5 percent of the paid-up value of shares issued by the company concerned.
(iii) the paid-up value of each series of convertible debentures purchased by each NRI both on repatriation and non-repatriation basis does not exceed 5 percent of the paid-up value of each series of convertible debentures issued by the company concerned.
(iv) the aggregate paid-up value of shares of any company purchased by all NRIs does not exceed 10 percent of the paid up capital of the company and in the case of purchase of convertible debentures the aggregate paid-up value of each series of debentures purchased by all NRIs does not exceed 10 percent of the paid-up value of each series of convertible debentures. The aggregate ceiling of 10 per cent referred to in this clause may be raised upto 24%, if a special resolution to that effect is passed by the General Body of the Indian company concerned.
(v) the NRI investor takes delivery of the shares purchased and gives delivery of shares sold (i.e. speculative purchases are not permitted).
(vi) payment for purchase of shares and/or debentures is made by inward remittance in foreign exchange through normal banking channels or out of funds held in NRE/FCNR account maintained in India if the shares are purchased on repatriation basis and by inward remittance or out of funds held in NRE/FCNR/NRO account of the NRI concerned maintained in India where the shares/debentures are purchased on non-repatriation basis.
(vii) AD shall submit report to RBI on daily basis, on line or on a floppy.
(viii) Shares purchased can be sold on stock exchange. Sale by private placement or by way of gift will require RBI approval.
(ix) NRIs can invest in Exchange Traded Derivative Contracts approved by SEBI.
The link office of the designated branch of an authorised dealer shall furnish to the Chief General Manager, Reserve Bank of India (ECD), Central Office, Mumbai a report on daily basis on PIS transactions online or on a floppy.
1.1-3 Remittance/credit of sale/maturity proceeds of shares and/or debentures
The net sale/maturity proceeds (after payment of taxes) of shares and/or debentures of an Indian company purchased by NRI under the PIS Scheme, can be credited only in designated branch of an authorised dealer [para 3 Schedule 3 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000] –
(a) In NRO account, where the shares and/or debentures were purchased on non-repatriation basis, or
(b) It can be remitted abroad or credited to his/its NRE/FCNR/NRO account, where shares and/or debentures were purchased on repatriation basis.
Dividend can be credited in NRE account. – RBI circular No. 5 dated 15-7-2002.
1.1-4 Separate PIS sub-account by NRI
NRI may open a separate sub-account of NRE/NRO account with authorized dealers for routing receipt and payment of transactions relating to purchase and sale of shares and convertible debentures under NRE (PIS) account for investment made on repatriation basis and NRO(PIS) account for investment made on non-repatriation basis. Only permitted debits and credits shall be allowed by Banks – Paragraph 3 of Schedule 3 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 amended w.e.f. 27-2-2013.
1.1-5 Investment in preference shares and debentures
Investment by NRI, FII, QFI, RFPI, SWF in non-convertible/redeemable preference shares or debentures issued by Indian companies and listed on recognized stock exchanges in India is permitted within overall USD 51 billion earmarked for corporate debt. Investment by NRI can be both on repatriation and non-repatriation basis – RBI AP (DIR) circular No. 140 dated 6-6-2014.