TaxTMI 
TaxTMI 
Foreign Investments in India
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....sions (as amended from time to time) relating to foreign investment is given in the Annexure for guidance. 4. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned. 5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign exchange Management Act, 1999 (42 of 1999). Yours faithfully, Grace Koshie Chief General Manager Annexure Foreign Investments in India 1. Statutory Provisions Foreign Investments in India are governed by the provisions of Section 6 of the Foreign Exchange Management Act (FEMA) 1999 and are subject to the Regulations issued by the Reserve Bank of India under FEMA 1999. The Regulations have been notified vide Notification No.FEMA 20/2000-RB dated May 3, 2000. An Indian entity cannot issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person save as otherwise provided in the Act or the Rules or Regulations framed thereunder or with the specific permission of the Reserve Bank. 2. Foreign Direct Investment Policy 2.1 Foreign Investments in India are not permissibl....
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....cordance with Regulation 5 of Notification No. FEMA 4/2000-RB dated May 3, 2000 for the non-convertible portion. Companies can issue NCDs only to NRIs and that too by means of a public Issue. The coupon rate on partly convertible preference shares/partly convertible debentures should not exceed State Bank of India's prime lending rate plus 300 basis points. 2.5.2 Trading is permitted under Automatic Route with FDI upto 51 % provided it is primarily towards export activities, and the undertaking is an export house/trading house/super trading house/star trading house. The Government also permits certain trading activities under FIPB route. 2.5.3 A company which is a small scale industrial unit and not engaged in any activity or in manufacture of items included in Annexure A to Notification No.20 may issue shares or convertible debentures to a non-resident , to the extent of 24% of its paid-up capital if, • It has given up its small scale status; • It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector; and • It complies with the ceilings specified in Annexure B to Notification No.20. 3. I....
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....es or employees of its joint venture or wholly-owned subsidiary abroad who are resident outside India, directly or through a Trust subject to the conditions that the scheme has been drawn in terms of regulations issued under the Securities Exchange Board of India Act, 1992, and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company. The Trust and the issuing company should ensure that value of shares held by persons resident outside India under the scheme does not exceed the limit specified in clause (b) of sub-regulation (1) thereof. 3.4 Issue of shares by Indian companies under ADR/GDR 3.4.1 An Indian company may issue its rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts(GDRs) and/ or American Depository Receipts(ADRs). The company issuing these shares should ensure that it has: • approval from the Ministry of Finance, Government of India to issue such ADRs and /or GDRs or is eligible to issue ADRs/GDRs in terms of the relevant scheme in force or notification issued by the Ministry o....
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....ing shares shall furnish to the Reserve Bank full details of such issue in the form specified in Annexure C to Notification No.FEMA 20/2000-RB dated 3^rd May 2000 within 30 days from the date of closing of the issue .The company should also furnish a quarterly return in the form specified in Annexure D to the Reserve Bank within 15 days of the close of the calendar quarter. 3.6 General Permissions to the Indian companies Indian companies receiving subscription from non-residents for issue of shares have also got the general permission for the following:- • Refund of funds received towards allotment of shares under Regulation 5(1) of the Reserve Bank's Notification No.FEMA 20/2000-RB dated 3^rd May 2000; • Remittance of surplus funds received for purchase of shares offered on rights basis; • Remittance on account of surplus funds received for purchase of shares or on account of cancellation of trade, under two-way fungibility of ADRs/GDRs. 4.1 Transfer of Shares and convertible debentures General permission has been granted to non-residents/NRIs for transfer of shares and convertible debentures of an Indian company as under:- ....
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....ddress of the Authorised Dealer through whom the funds have been received, and • Details of the Government approval, if any, 5. Report in Form FC-GPR After the Issue of shares, the company should file a report in Form FC-GPR not later than 30 days from the date of issue of shares, The report should contain the following details, • A certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that • All the requirements of the Companies Act, 1956 have been complied with; • Terms and conditions of the Government approval, if any, have been complied with; • The company is eligible to issue shares under these Regulations, and • The company has all original certificates issued by Authorised Dealers in India evidencing receipt of amount of consideration. • A certificate from Statutory Auditors or a Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. 6. Permission for retaining share subscription money received from persons resident outside India in a for....
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....accounts report these details separately in the LEC (FII ) returns. The company which has issued the shares to the FIIs under Schedule 1 (FDI) ( for which the payment has been received directly into company's account ) and under Schedule 2 ( for which the payment has been received from FIIs' account maintained with Authorised Dealer in India ) should report these figures separately under item 4(b) of the FC-GPR return so that the details could be suitably reconciled for statistical / monitoring purposes. The FII shall restrict allocation of its total investment between equities and debt including dated Government Securities and Treasury Bills in the Indian Capital Market in the ratio of 70:30 The FII can form a 100% Debt Fund and get registered with SEBI for investment in debt investments (Schedule 5). Investments by NRIs 7.3 In the case of NRIs it is to be ensured that the paid-up value of shares/ convertible debentures purchased by an NRI both on repatriation and non-repatriation basis does not exceed 5% of the paid-up capital / paid-up value of each series of debentures. The aggregate paid-up value of shares/ convertible debentures purchased by all NRIs should not excee....
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....es or dealing in Transferable Development rights and Print Media. There is no limit on NRI purchasing shares/ convertible debentures issued by an Indian company whether by public issue or private placement. Amount of consideration for such purchase shall be paid by inward remittance through normal Banking channels from abroad or out of funds held in NRE/FCNR/NRO account maintained with the AD. In the case of NRIs resident in Nepal and Bhutan the amount of consideration for such purchase shall be paid only by way of inward remittance in foreign exchange through normal banking channels. The sale proceeds shall be credited to NRO account. The amount invested under the scheme and the capital appreciation thereon shall not be allowed to be repatriated abroad. 9. Investments in other securities on non-repatriation basis NRI can also, without any limit, purchase on non-repatriation basis dated Government securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds or National Plan / Savings certificates. 10. Investments by Venture Capital Funds (Schedule 6) A SEBI registered Foreign Venture Capital Investor (FVCI) with general permission from ....
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....t Banking • Under writing • Portfolio Management Services • Investment Advisory Services • Financial Consultancy • Stock-broking • Asset Management • Venture Capital • Custodial Services • Factoring • Credit Reference Agencies • Credit Rating Agencies • Leasing & Finance • Housing Finance • Forex-broking • Credit Card Business • Money-changing Business • Micro-credit • Rural credit b) Minimum Capitalisation norms for fund based NBFCs i) for FDI upto 51%, US $ 0.5 million to be brought in upfront ii) If the FDI is above 51 % and upto 75 %, US $ 5 million to be brought upfront iii) If the FDI is above75 % and upto 100 %, US $ 50 million out of which $ 7.5 million to be brought in upfront and the balance in 24 months c) Minimum Capitalisation norms for non-fund based activities. Minimum Capitalisation norm of US$0.5 million is applicable in respect of non-fund based NBFCs with foreign investment. d) Foreign investors....
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....% shall be considered by FIPB on case-to-case basis. 5. Petroleum Refining (Private Sector) 100% FDI permitted upto 100 % in case of private Indian companies. 6. Housing and Real Estate 100 % Only NRIs/OCBs are allowed to invest upto 100 % in the areas listed below : a) Development of serviced plots and construction of built-up residential premises b) Investment in real estate covering construction of residential and commercial premises including business centres and offices c) Development of townships d) City and regional level urban infrastructure facilities, including both roads and bridges e) Investment in manufacture of building materials f) Investment in participatory ventures in (a) to (e) above g) Investment in Housing finance institutions which is also opened to FDI as an NBFC 7. Coal & Lignite i) Private Indian companies setting up or operating power projects as well as coal and lignite mines for captive consumption are allowed FDI upto 100%. ii) 100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal ....
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....pany has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing. • FDI upto 100% permitted for E-commerce activities subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading. 10. Power 100% FDI allowed upto 100 % in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants. There is no limit on the project cost and quantum of foreign direct investment. 11. Drugs & Pharmaceuticals 100 % FDI permitted upto 100 % for manufacture of drugs and pharmaceuticals provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology and specific cell/tissue targeted formulations. FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA ....
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....atic route in mass rapid transport system in all metros including associated real estate development 19. Pollution Control & Management 100 % In both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route 20. Special Economic Zones 100 % All manufacturing activities except: (i) Arms and ammunition , Explosives and allied items Of defence equipments, Defence aircrafts and warships, (ii) Atomic substances, Narcotics and Psychotropic Substances and hazardous Chemicals, (iii) Distillation and brewing of Alcoholic drinks and (iv) Cigarette/cigars and manufactured tobacco substitutes. "FORM FC-GPR" (To be filed with the Regional Office of the RBI under whose jurisdiction the registered office of the company making the declaration is situated) We (Name of the Company)-------------------------- Declare that, being eligible to issue shares to non-residents under the permission granted under Notification No.FEMA 20/2000-RB dated 3^rd May 2000, furnish the following information in connection with shares issued. 1. Name and address (Registered office) Of the....