26 September, 2017 23:52 IST
Myiris - NRI Corner
Investment avenues for NRIs


Investments with repatriation benefits
100% scheme

Industries

Equity in new industries/expansion/diversification of existing industries listed as high priority industries; Indian company to obtain RBI approval

Investment in trading companies primarily engaged in exports (registered with Directorate General of Foreign Trade as Export/ Trading House/ Star Trading House/ Super Star Trading House); Dividend balancing from export earnings in specified industries; Indian company to obtain RBI approval

Equity in 100% Export Oriented Units (EOUs), units in free trade zone/ export processing zones, software technology parks (STPs) and Electronic Hardware Technology Parks (EHTPs); permission required from development commissioner of the Free Trade Zone/ EPZ/ Chief Executive of the STP/ EHTP

New issues of equity in Indian companies engaged in development of serviced plots, construction of residential and commercial premises, townships, building materials and financing of housing development.

Lock in of three years; repatriation of net profits for OCBs. No lock-in for repatriation of dividend/ interest/ convertible debentures of OCBs.

Domestic air transport services

Lock in of 5 years; repatriation and remittance of dividends out of accumulated Net Foreign Exchange; approval required from Foreign Investment Promotion Board

Equity of sick industrial units ; no lock-in for the investment

Indian company to obtain RBI approval



40% scheme

Industries

Subscription to new issue of equity/ convertible debentures of new or existing companies (both private and public limited) in industrial/ manufacturing projects (including expansion and diversification), hospitals/ diagnostic centres, hotels, shipping, software development and oil exploration services; Indian company to file with the RBI

Private banks (inclusive of 20% allowed to other foreign investors)



24% scheme

Industries

Subscription to new issue of equity/ convertible debentures of new or existing companies (both private and public limited) in finance, hire purchase, leasing, trading or other services (except agriculture/ plantation activities) and establishment of schools/ colleges; Indian company to file with RBI. Investment upto 24% is also allowed for investment in case of items reserved for the small scale sector

Other than the lock-in periods specified above, dividend/ interest income earned can be freely remitted.


Other investments with repatriation benefits

Investments

Domestic, private or public sector mutual funds; the mutual fund is required to obtain RBI permission

Bonds issued by Public Sector Undertakings (PSUs); the PSU is required to obtain the permission of Government of India (GoI)/ RBI

Shares disinvested by GoI in PSUs; the shareholding by a single NRI not to exceed 1% of the paid-up capital of the PSU

Fixed deposits with public limited companies for a minimum period of three years; the company to obtain RBI approval

Government securities through (not in bearer securities like Indira Vikas Patra/ Kisan Vikas Patra), units of the Unit Trust of India though authorised dealers (units can be purchased directly from UTI) and in National Savings Certificates.



Portfolio investment scheme

NRIs can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchanges in India. There is an overall ceiling of 5% of paid-up equity share capital of the company/ paid-up value of each series of convertible debentures for purchase by NRIs/ OCBs.

An application for this has to be submitted to the Reserve Bank though a designated branch. These designated branches are the main branches of major commercial banks located close to the stock exchange(s). An NRI can operate through only one selected branch for this purpose. The Reserve Bank approval is valid for a period of five years after which it may be renewed by a letter.

This scheme also allows for

  1. sale of shares/ bonds/ debentures by NRIs to residents
  2. ii. transfer of rupee securities by non-residents as gifts
  3. iii. transfer of rupee securities to non-residents as gifts
  4. loans abroad against securities provided in India
  5. loans in India to NRIs against shares/ securities/ properties held by them in India
  6. loans in India to NRIs against security of NRI Bonds issued by State Bank of India
  7. loans in India against guarantees by non-residents
  8. loans to residents against shares/ securities/ properties in India from non-resident relatives.


Procedure for sale/ transfer

In case of shares/ debentures/ bonds acquired by NRIs through the portfolio investment scheme, a general exemption is provided by RBI if the sale is arranged through the same designated branch through which they were purchased. In other cases, necessary permission has to be obtained from RBI.

For sale/ transfer of shares/ debentures to residents by private arrangements, permission has to be obtained from RBI. General permission from the RBI is also available for transfer of shares, bonds and debentures by way of gifts to resident close relative(s). For sale/ transfer of shares/ debentures of Indian companies to other NRIs, no permission is required from RBI. The transferee NRI would need permission for purchase of the shares.

Government securities/ units can be transferred through an authorised dealer while the units can also be repurchased directly by UTI. Repatriation possible if the remittances were made from abroad of from NRE/ FCNR accounts; sale proceeds from securities purchased out of NRO accounts can only be credited to the NRO account. Interest earned after the financial year 1994-95 onwards can be remitted as permitted by Reserve Bank.


Investments without repatriation benefits
Upto 100%

Investments

Capital contribution upto 100% in any proprietary or partnership concern engaged in industrial/ trading/ commercial activity except agricultural/ plantation or real estate business (not open to OCBs). The principal amount is non-repatriable.

Subscription to shares/ convertible debentures of Indian companies not engaged in agricultural/ plantation or real estate business or is not a nidhi company or a chit fund; this subscription is by way of new/ rights/ bonus issue of shares. Payment shall be by inward remittances of from RE/ FCNR/ NRO accounts


Other investments

Investments

Investments in Non-convertible debentures of Indian companies; approved by the RBI on a case-by-case basis for the companies; NRIs can purchase shares/ debentures of existing companies (application to be made by NRIs) on an undertaking of non-repatriation

Money market mutual funds floated by commercial banks/ financial institutions (not open for OCBs)

Deposits with companies (depositor has to obtain RBI approval and is not open for OCBs)

Commercial paper issued by Indian companies (not open for OCBs)


Remittance of income on non-repatriable investments
Income/ interest accruing during the financial year 1994-95 and onwards on bank deposits and investments held on non-repatriation basis can be remitted in the following manner.

i. Upto US $ 1,000 or its equivalent in full and one-third of the balance income earned during the financial year 1994-95

ii. Upto US $ 1,000 or its equivalent in full and two-third of the balance income earned during the financial year 1995-96

iii. Entire income earned during the financial year 1996-97 and onwards

iv. Entire income earned during the financial year 1996-97 and onwards

The NRI will designate a branch of an authorised dealer; the designated branch will allow the remittance of the funds to the NRE/ FCNR account.

General permission is available on transfer of shares/ debentures/ bonds held on non-repatriation basis to residents; sale proceeds are credited to an NRO account.

Investment in immovable property
Non resident Indians can acquire/ hold/ transfer/ dispose of immovable property. No permission is required for this purpose. They cannot purchase agricultural land, farm houses and plantation property. However, on acquiring foreign citizenship, permission from RBI is required.

RBI has also granted general permission to Persons of Indian Origin to acquire immovable property in India. The general permission is also applicable for transfer/ disposal of the properties (other than agricultural land, farm houses, plantation property).

Under this, Persons of Indian origin can acquire immovable properties in India:

i. on non-repatriation basis for residential purposes - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. The sale proceeds cannot be repatriated.

ii. on repatriation basis for residential purposes as well as commercial properties - The purchase consideration has to be made by way of remittance from abroad or NRE/ FCNR account. Repatriation facility is limited to sale proceeds of two residential properties; there is no such restriction in respect of commercial properties.

iii. by way of gift/ inheritance - The gift should have been received from a relative who may be an Indian citizen or person of Indian origin; general permission is available only in respect of two houses.

iv. out of rupee funds - Prior permission of the Reserve Bank of India is required

Residential or commercial properties can be let out for rent if not for immediate use, The rental proceeds or proceeds of any investment of such income has to be credited to the NRO account.

Repatriation of sale proceeds
The general permission is also available in case of disposal of the immovable properties. Sale proceeds equivalent to the original amount of purchase consideration remitted can be repatriated after a lock-in period of three years. The balance amount has to be credited to the NRO account of the seller. The period of lock-in is applicable from the date of final purchase deed or from the date of payment of final instalment of consideration amount, whichever is later.

Procedure
Persons of Indian Origin are required to file a declaration in form IPI 7 with the Central Office of the Reserve Bank. This must be filed within 90 days from the date of purchase of immovable property or final payment of purchase consideration. A certified copy of the documents evidencing the transaction and bank certificate regarding the consideration paid is to be filed alongwith the form. Application for permission for remittance is to be filed in form IPI 8 within 90 days of the sale of the property.

Can NRIs obtain housing finance?
Certain financial institutions grant housing loans to NRIs for acquisition of houses/ flats for self-occupation. Authorised dealers can grant loans to NRIs for acquisition of house/ flat for self-occupation on their return to India. Repayment of the loan should be made within a period not exceeding 15 years out of inward remittance through banking channels or from funds in NRE/ FCNR accounts. Indian companies can grant housing loans to their employees deputed abroad and holding Indian passport. All these loans are subject to specific loan covenants; details can be obtained from banks/ institutions.