Demystifying FEMA Investment in India. Dhinal Shah Chartered Accountant

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1 Demystifying FEMA Investment in India Dhinal Shah Chartered Accountant

2 Table of contents Introduction Capital Account Transactions Current Account Transactions Foreign Investments in India Foreign Direct Investment Forms of Business Presence Types of Investment Instruments Portfolio Investment Scheme External Commercial Borrowings Investment in Properties 11 Remittances of Assets/ Incomes 23 April 2012 Page 2

3 23 April 2012 Page 3 Introduction

4 Indian Exchange Control Regulations - Framework Foreign Exchange Management Act, 1999 Basic legal framework Practical 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 Updation Provisions not recorded at one place 23 April 2012 Page 4

5 Forex transactions overview Capital Account Current Account Remittance Approving authority Prohibited unless specifically permitted Reserve Bank of India Freely permitted Authorised Dealers* Subject to ceilings Central Government/RBI Where ceilings breached approvals required Illustrations Investment in immovable property in India Foreign currency accounts in India Pre incorporation expenses upto $100,000 Consultancy payments upto $1,000,000 * Banks approved by RBI to deal in foreign exchange 23 April 2012 Page 5

6 23 April 2012 Page 6 Capital Account Transactions

7 Capital Account Transactions Sec 2(e) & 6 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 nonresident (or) inherited from/ gifted by non-resident Restricted unless specifically permitted 23 April 2012 Page 7

8 Capital Account Transactions Sec 2(e) & 6 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 23 April 2012 Page 8

9 23 April 2012 Page 9 Current Account Transactions

10 Current Account Transactions - definition 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 Permitted unless specifically restricted 23 April 2012 Page 10

11 Current Account Transactions - definition 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 23 April 2012 Page 11

12 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 23 April 2012 Page 12

13 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 23 April 2012 Page 13

14 Foreign Investments in Indian Companies 23 April 2012 Page 14

15 Foreign Investment in India Foreign Investments Foreign Direct Investments Foreign Portfolio Investments Investment on Non-repatriable basis External Commercial Borrowing Automatic route Govt. Route FIIs NRIs, PIOs NRIs, PIOs By Non residents, NRIs & PIOs (other than citizens of Pakistan and Bangladesh 23 April 2012 Page 15

16 Foreign Direct Investments in Indian Companies 23 April 2012 Page 16

17 FDI The Roadmap Sectoral caps raised; Conditions relaxed; Up to 100% under Automatic Route in all sectors except a small negative list 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 23 April 2012 Page 17

18 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 23 April 2012 Page 18

19 How do you invest in India? FDI in India can be undertaken through two routes: Automatic Route No prior permission required. Only requirement to inform Central Bank ( Reserve Bank of India ) within 30 days of inflow / issue of shares Government Approval Route 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 23 April 2012 Page 19

20 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 23 April 2012 Page 20

21 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: 23 April 2012 Page 21

22 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 23 April 2012 Page 22

23 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 Individuals Inv. by NRIs Inv. by Foreign Company / Foreign Individuals Inv. by NRIs Inv. by Foreign Company / Foreign Individuals Inv. 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 nonrepatriation basis Not Permissible Not Permissible 23 April 2012 Page 23

24 23 April 2012 Page 24 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 policyis 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 23 April 2012 Page 25 25

26 Forms of Investment Under FDI, non-resident investor can invest in Indian Company in the following manner Equity Shares No restriction on dividend repatriation Fully Convertible Debenture No rate of interest prescribed Fully convertible preference shares Dividend 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 23 April 2012 Page 26

27 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 23 April 2012 Page 27

28 Valuation Issue/ transfer of shares to Non resident - 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: Listed Companies As per SEBI Guidelines i.e. Ruling market price Unlisted Companies The 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 23 April 2012 Page 28

29 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 23 April 2012 Page 29

30 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 23 April 2012 Page 30

31 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) 23 April 2012 Page 31

32 Rationalisationand simplification of policy for Downstream Investments Guidelines for downstream investment by Indian companiesare simplified Categorization of Indian companies into Operating companies, Operatingcum-Investing companies and Investing companies has been removed However, concept of Operating-cum-Investing companies still finds mention in para 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 23 April 2012 Page 32 32

33 23 April 2012 Page 33 Business Presence

34 Forms of Business Presence Foreign Investor Unincorporated entities Incorporated entities Partnerships Liaison Office Project Office Branch Office Joint Venture Subsidiary Partnership LLP Preferred form of business entity Relevance of choice of business entity Operating flexibilities Tax efficiencies Regulatory compliances Efficiency in capital raising 23 April 2012 Page 34

35 Investment Through Limited Liability Partnership 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. 23 April 2012 Page 35

36 Investment Through Partnership firm / Sole Proprietory Investment (Capital Contribution) by NR / PIO allow under automatic route only on non repatriation basis. Partnership firm / proprietoryare 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. 23 April 2012 Page 36

37 Forms of Business Presence 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 Cannot undertake business / commercial activity; Maintains itself out of remittances received from abroad Project office Can only undertake activities for the project for which it has been set-up 23 April 2012 Page 37

38 Forms of Business Presence 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 23 April 2012 Page 38

39 Forms of Business Presence 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 23 April 2012 Page 39

40 Forms of Business Presence 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 23 April 2012 Page 40

41 23 April 2012 Page 41 Types of Investment Instruments

42 Types of Investment Instrument Foreign Investor Equity/ ADR/ GDR CCPS/ CCD Optionally Convertible Pref. Share/ Deb FCCB/ FCEB ECB Equity instruments Hybrid instruments Debt No end use restriction Specified end use restrictions Tax arbitrage may be available on interest payouts Relevance of choice of business entity Operating flexibilities Tax efficiencies Regulatory compliances Efficiency in capital raising 23 April 2012 Page 42

43 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 Capital Mode Sale of shares / Buy-back of shares / Capital reduction -Investment through SPV - Tax Shield available Revenue Mode Dividend -No Tax Shield F Co Equity Shares Outside India India 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 Shares to be issued within 180 days of inward remittance 23 April 2012 Page 43

44 Compulsory Convertible Preference Shares ( CCPS ) 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 Capital Mode Sale of shares / Buy-back of shares / Capital reduction -Investment through SPV - Tax Shield available Revenue Mode Dividend -No Tax Shield F Co Indian Co CCPS Outside India India 23 April 2012 Page 44

45 Compulsory Convertible Debentures ( CCD ) 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 23 April 2012 Page 45 Capital Mode Sale of shares / Buy-back of Equity Shares / Capital reduction Investment through SPV - Tax Shield available Revenue Mode Pre-Conversion - Interest -Tax Shield available Post-Conversion - Dividend -No Tax Shield available F Co Indian Co CCD Outside India Exit -Implication Pricing guidelines to be complied Capital Gains implication in the hands of Investor Hybrid instrument with features of equity & debt India

46 External Commercial Borrowings ( ECB ) 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 Capital Mode Principal Repayment - Tax Shield Revenue Mode Interest -Tax Shield available Return on Investment Interest -Tax shield available: Cap bps + 6 months LIBOR F Co Indian Co Principal prepayment allowed subject to compliance with minimum lock-in period ECB Outside India India 23 April 2012 Page 46 Repayment possible without Book Profits

47 Preference Shares Other than CCPS (ECB CCPS) Types of ECB-CCPS Optionally Convertible Partly Convertible F Co Nature Redeemable For Regulatory purposes - Debt Capital Mode Principal Repayment - Tax Shield NOT available Outside India Need to comply with ECB guidelines For Tax purposes - Equity Return on Investment Revenue Mode Interest -Tax Shield available ECB -CCPS Equity India Dividends Tax shield NOT available Indian Co No tax break - Requires compliance with stringent ECB norms - Not a desirable instrument 23 April 2012 Page 47

48 Debentures Other than CCPS (ECB CCD) Various types of ECB-CCD Nature Optionally Convertible Partly Convertible Redeemable For Regulatory purposes - Debt Need to comply with ECB guidelines For Tax purposes -Debt Capital Mode Principal Repayment - Tax Shield available Revenue Mode Interest -Tax Shield available ECB -CCD F Co Equity Outside India India Return on Investment Indian Co Interest -Tax shield available Tax break available However, requires compliance with ECB norms 23 April 2012 Page 48

49 23 April 2012 Page 49 Portfolio Scheme for Investments

50 PIS Key features 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* * Can be increased up to 24% by passing BoD resolution and a special resolution in general meeting 23 April 2012 Page 50

51 PIS Key features 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 23 April 2012 Page 51

52 PIS Key features Transfer of investment under PIS Short-selling FIIs Short-selling of shares by FIIs permitted provided NRIs 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 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/ sectoralcap/ statutory limit, company is placed in ban list ** Caution list shareholding by FIIs/ NRIs reaches limit of 2% below ceiling/ sectoralcap. 23 April 2012 Page 52

53 PIS Modalities Remittance of funds FIIs NRIs 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 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 23 April 2012 Page 53

54 Investment by NRI 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. 23 April 2012 Page 54

55 External Commercial Borrowing (ECB) 23 April 2012 Page 55

56 ECBs - Basics 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 Corporatesregistered under the Companies Act, 1956 except financial intermediaries; NGOs engaged in micro finance activities 23 April 2012 Page 56

57 ECBs - Basics Recognised Lenders International banks; International capital markets; Multilateral financial institutions; Export credit agencies; Suppliers of equipment; Foreign collaborators; Foreign equity holder ECB up to USD 5 million minimum equity of 25% to be held directly by the foreign lender 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). 23 April 2012 Page 57

58 ECB - Automatic Route 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 23 April 2012 Page 58

59 ECB - Approval 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 23 April 2012 Page 59

60 23 April 2012 Page 60 Investment in Properties

61 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. 23 April 2012 Page 61

62 Investment in Immovable Property ACQUISITION OF IMMOVABLE PROPERTY Particulars PIO* Foreign Citizen NRI** IP*** AG**** IP AG IP AG By purchase X X X X By Gift X X X X By inheritance $ X * 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. 23 April 2012 Page 62

63 Transfer of Immovable Property Transferor PIO Foreign Citizen NRI Transferee IP AG IP AG IP AG Person resident in India Person resident and citizen of India Person non-resident but citizen of India Person of Indian origin resident outside India X X X X X X X X X X X X X 23 April 2012 Page 63

64 Investment in Immovable Property 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. 23 April 2012 Page 64

65 Investment in Immovable Property 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. 23 April 2012 Page 65

66 23 April 2012 Page 66 Remittance of Assets/ Income

67 Remittance of Assets / Income Remittance of Assets by NRI/PIO ANon-Resident Indian (NRI) or aperson of Indian Origin (PIO) is allowed to remit an amountup to USD one million,per calendaryear 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 of inheritance/legacy/assets acquired out of settlement), for all bonafide purposes, to the satisfaction of the authorized dealer, on production of an undertaking by the remitter and certificate by achartered Accountant. Remittance of assets by Foreign national of non Indian origin Aforeign national of Non Indian Origin is allowed to remit an amount not exceeding USD one million, per calendar year, (the limit is over an above the remittance of funds out of sale proceeds of shares or immovable property owned on repatriation basisin accordancewith the relevant regulations) who has retired from an employment in India or who has inherited assets from aperson resident in India or who is awidow of an Indian citizen resident in India 23 April 2012 Page 67

68 Remittance of Assets / Income on production of documentary evidence in support of acquisition/ inheritance of assets, an undertaking by the remitter and certificate by achartered Accountant. These remittance facilities are not available to acitizen 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/PIO who do not maintain NRO Account is freely allowed, on the basis of appropriate certification by achartered Accountant certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for 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 credit represents current income of the non-resident account holder and income tax thereon has been deducted/providedfor. 23 April 2012 Page 68

69 Remittance of Assets / Income Facilities for students Students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligiblefor all the facilitiesavailableto 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 1million out of sale proceeds of assets/balances in their account maintained with an AD in India. All other facilities available to NRIs under FEMA are equally applicable to the students. 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 the cardholder sfcnr/nre/non-resident(ordinary) Rupee accounts. 23 April 2012 Page 69

70 Thank you