Rules for Investments by Non-Resident Indians (NRIs)
Indians and Persons of Indian origin residing abroad are being actively encouraged by the Indian Government to invest here in India.
Who is a NRI ?
NRI is a person who falls under any of the following categories:
• Indians who stay abroad for employment or for carrying on business or vocation or any other purpose in situations indicating an indefinite period of stay outside India;
• Government servants who are deputed abroad on official assignments with foreign governments or regional / international agencies like World Bank, International Bank for Reconstruction and Development (IBRD), International Monetary Fund (IMF) and World Health Organisation (WHO);
• Officials of State Government and public sector undertakings who are deputed abroad on temporary assignments or posted to their branches or offices abroad.
NRIs become residents of India only in situations when they return to India for employment or for carrying on any business or vocation or for any other purpose with an indefinite stay in India, but not when they come back on short visits for holidays or business.
Facilities available to NRIs are also invariably made available to non-resident foreign citizens of Indian origin.
A person is deemed to be a Person of Indian origin (PIO) if he / she at any time held an Indian passport, or if he / she, or either of his / her parents, or any of his / her grandparents was an Indian and a permanent resident in India at any time.
A spouse of a citizen of India or of a Person of Indian Origin is deemed to be of Indian origin though he / she is of non-Indian origin.
Portfolio Investment Scheme (PIS) legislated for NRI
Purchase / sale of shares and / or convertible debentures by a Non-Resident Indian in a stock exchange in India on repatriation and / or non-repatriation basis are openly permissible subject to the following terms and conditions:
– A Non-Resident Indian can purchase / sell shares and / or convertible debentures of an Indian company through a registered broker in a recognised stock exchange;
– They have to designate a branch of an authorised dealer for routing all transactions;
– The paid-up value of shares / each series of convertible debentures of an Indian company, purchased by the NRI on repatriation and on a non-repatriation basis, does not exceed 5% of the paid-up value of shares / each series of convertible debentures issued by the Indian company concerned;
– Aggregate value of shares of any Indian company purchased by all NRIs does not exceed 10% 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% of the paid-up value of each series of convertible debentures. However, the aggregate ceiling of 10% may be raised to 24% if the shareholders in a general meeting of the Indian company concerned pass a special resolution effecting the same;
– The transaction shall be only on delivery basis;
– Payment for purchase is made by inward remittance in foreign exchange through normal banking channels or out of funds held in NRE / FCNR accounts maintained in India if the shares/debentures are purchased on repatriation basis.
– If the shares / debentures are purchased on non-repatriation basis, the purchase need to be by inward remittance or out of funds held in Non-Resident (External) (NRE) / Foreign Currency (Non-resident) (FCNR) / Non-resident (Ordinary) (NRO) accounts maintained in India.
– Without the prior approval of the Reserve Bank of India, shares purchased by Non-Resident Indians under the Portfolio Investment Scheme cannot be transferred by way of sale under a private arrangement or by way of gift to a person resident in India or outside India.
– NRIs are allowed to invest in Exchange Traded Derivative contracts which are approved by SEBI out of rupee funds, on a non-repatriation basis, subject to the prescribed limits in this regard.
Purchase / Sale of shares / convertible debentures by NRI on non-repatriation basis:
Purchase of shares / debentures of Indian companies is not permissible if they are engaged in the following business:
• Chit fund or a nidhi company;
• Agricultural / plantation activities;
• Real estate business (does not include development of township, construction of residential / commercial premises, roads, bridges, etc);
• Construction of farm houses;
• Dealing in transfer of development rights.
Non-Resident Indians could make investment on non-repatriation basis in shares or debentures of a company whether by public issue, private placement or rights issue, without any limit subject to the restrictions mentioned above.
The Non-Resident Indian to whom the shares are being transferred should obtain prior permission of the Central Government to acquire the shares if he / she has a previous venture or tie-up in India through investment in shares, debentures, technical collaboration, trademark agreement or investment by whatever name called in the same or allied field in which the Indian Company whose shares are being transferred, is engaged. However, this restriction will not apply to transfer of shares of a company engaged in the IT sector or transfers to international financial institutions such as the Asian Development Bank, International Finance Corporation, Commonwealth Development Corporation and DEG.
The amount of consideration towards purchase of shares or convertible debentures shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in NRE/FCNR/NRO account maintained with an authorised dealer here in India.
Purchase by NRI of the other securities on repatriation / non-repatriation basis:
Without any limit, a Non-Resident Indian may purchase the following on repatriation basis:
• Dated government securities (other than bearer securities) or treasury bills or units of the domestic mutual funds;
• Bonds which are issued by a public sector undertaking in India;
• Shares in public sector enterprises being disinvested by the Indian Government, provided the purchase is in accordance with the terms and conditions prescribed in the notice inviting bids.
On non-repatriation basis, an NRI may, without limit, purchase on:
• Dated government securities, treasury bills;
• Units of domestic mutual funds, units of money market mutual funds in
Payment to purchase shares on non-repatriation basis should be made either by inward remittance through the normal banking channels or out of funds held in the NRE/FCNR/NRO account here in India.