NRIs can invest in Indian companies on non-repatriable basis

A non-resident Indian (NRI) or a person of Indian origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided the amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with authorised dealers / authorised banks.

However, such investors should ensure that such a firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.

The amount invested will not be eligible for repatriation outside India.

NRIs / PIOs should seek prior permission of the Reserve Bank for investment in sole proprietorship concerns / partnership firms with repatriation option. Such applications will be decided in consultation with the Government of India.

A person resident outside India other than NRIs / PIO may make an application and seek prior approval of the Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

A startup company engaged in a sector where foreign investment requires government approval may issue convertible notes to a non-resident only with approval of the government. The issue of shares against such convertible notes should be in accordance with FEMA regulations.

A startup company issuing convertible notes to a person resident outside India should receive the amount of consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.

Such escrow account for the above purpose should be closed immediately after the requirements are completed or within  six months, whichever is earlier. However, in no case continuance of such escrow account will be permitted beyond six months.

NRIs may acquire convertible notes on non-repatriation basis in accordance with Schedule 4 of the Notification No.FEMA.20/2000-RB dated 3 May 2000.

A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI. Prior approval from the government should be obtained for such transfers in case the startup company is engaged in a sector which requires government approval.

The startup company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank of India.

FDI in resident entities other than those mentioned above is not permitted.

Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the automatic route or the government route. Under the automatic route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the government route, prior approval of the Government of India is required.

Proposals for foreign investment under government route, are considered by respective ministries/departments.

Foreign investment in sectors/activities under government approval route will be subject to government approval where:

• An Indian company is being established with foreign investment and is not owned by a resident entity; or
• An Indian company is being established with foreign investment and is not controlled by a resident entity; or
• The control of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to nonresident entities through amalgamation, merger/demerger, acquisition etc; or
• The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to nonresident entities through amalgamation, merger/demerger, acquisition etc.

Foreign investment will include all types of foreign investments, direct and indirect, regardless of whether the said investments have been made

under FDI, FII, FPI, NRI, FVCI, LLPs, DRs and Investment Vehicles of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

FCCBs and DRs having underlying of instruments which can be issued under Schedule 5, being in the nature of debt, will not be treated as foreign investment. However, any equity holding by a person resident outside India resulting from conversion of any debt instrument under any arrangement shall be reckoned as foreign investment.

Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents.

A company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians will be eligible for investments under Schedule 4 of FEMA (Transfer or issue of Security by Persons Resident Outside India) Regulations and such investment will also be deemed domestic investment at par with the investment made by residents.

Caps on Investments

Investments can be made by non-residents in the capital of a resident entity only to the extent of the percentage of the total capital as specified in the FDI policy.

Investments by non-residents can be permitted in the capital of a resident entity in certain sectors/activity with entry conditions. Such conditions may include norms for minimum capitalisation, lock-in period, etc.

Besides the entry conditions on foreign investment, the investment/investors are

required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/local laws/regulations.

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is defence, telecom, private security or information and broadcasting, approval of the Reserve Bank of India is not required in cases where government approval or licence/permission by the concerned ministry/regulator has already been granted.

The guidelines for calculation of total foreign investment, both direct and indirect in an Indian company/LLP, at every stage of investment, including downstream investment, have been detailed in an annexure.

For the purpose of FDI policy, 'downstream investment' means indirect foreign investment, by an eligible Indian entity, into another Indian company/LLP, by way of subscription or acquisition. Annexure-5 provides the guidelines for calculation of indirect foreign investment, with conditions specified.