FEMA Foreign Investment

Purpose of NRI Investment -Non-Repatriation Basis

The meaning of Non-Repatriable basis means the sale or the result of the proceeds of the sale, cannot be transferred outside India. This means that if an investment or sale or proceeds is of Non-Repatriable Basis, then they cannot even be converted to foreign currency and transferred to a foreign country where the NRI has a residence. Non- Repatriation, therefore, means an investment which cannot be transferred back to the country where the initial investment was made from.

The Organization of Economic Cooperation and Development (OECD) considers that if an investment is more than 10% from overseas, then such an investment is considered as a foreign investment (and below 10% it will be considered as FPI). Foreign investments are governed by the Foreign Exchange Management Act (FEMA).  Non-Resident Indian who lives overseas invests certain income which they have acquired through an instrument in India. These investments are classified as Non-Repatriable Investments. Therefore when the investment is a Non-Repatriable Investment such an investment is considered as a domestic investment since the capital or the proceeds of the sale cannot be transferred back to the country where the investment is made from.

Who Regulates NRI Investment in Non-Repatriable Basis?

The primary regulatory authority for these forms of investments is the Reserve Bank of India (RBI). Apart from the RBI, the laws that govern investments which are made in a non-repatriable basis are as follows:

Foreign Exchange Management Act of 1999

• Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2016.
• Schedule 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2016 (“TISPRO”).
• Foreign Exchange Management (Repatriation of Assets) Regulations, 2016.

Eligibility criteria for NRI Investments- Non-repatriable Basis

The Reserve Bank of India has made specific requirements for Investments made by an NRI through Non-Repatriable Basis:

• NRI/PIO
• Investment should directly be made through a vehicle
• NRIs or Person of Indian Origin (PIO) resident outside India are allowed to contribute to the capital of a partnership firm or sole proprietary concern without prior approval, provided:
  1. The contribution is on non-repatriation basis.
  2. Investment is made as an inward remittance, or out of NRE/FCNR (B), /NRO account maintained with AD Category-1 Bank.
  3. The Indian firm or proprietary concern should not be engaged in agricultural, print media or real estate business.

Process / Procedure of NRI Investment – Non-Repatriable Basis

• Under Schedule 4 of the TISPRO regulations, the investments can be made by a Non-Resident or OCI in the following ways:

1. By capital instruments such as equity shares, compulsorily convertible debentures, compulsorily convertible preference shares and share warrants of Indian Company either on the stock exchange or outside it;
2. Units issued by an investment vehicle (i.e. AIF, REIT or InvIT), without any limit, either on the stock exchange or outside it
3. Contributing to the capital of LLP without limit; and
4. Convertible notes issued by start-ups;
5. Contribution to the capital of a firm or a proprietary concern;

• Apart from the above ways, an NRI can invest by contributing to the capital of the proprietary concern of the firm
• These investments can be made through trusts, LLP, or companies that are incorporated outside India. However, these have to be controlled by the NRI
• However, NRI cannot invest in a Nidhi Company or Agricultural Based Activities, real estate activities, construction of farmhouses, and dealing in the transfer of property rights.
• NRI cannot invest in a proprietary concern in agricultural activities
• Consideration can be made through the following ways:

1. NRE Account
2. FCNR Account
3. NRO Account

• While making this investment, there is a requirement of compliance and taking permissions from the requisite authority under FEMA.
• The minimum amount of investment which is repatriated outside India is up to a limited of USD 1000000 (USD 1 Million) Dollars.
• If the investment or the contribution that is received is more than the above amount, then such an amount would be non-repatriable.

Documents Required- NRI Investment Non-Repatriable Basis

• Transfer of Security or Capital Instrument Documentation
• KYC details regarding the transfer
• Information regarding the Remittance or Transfer- Foreign Bank
• Form FC TRS

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