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In the countries where capital is not easily available Foreign Direct Investment (FDI) is a vital source of funds for such countries. Under the FDI Compliances in India, the money overseas is available for investment in an organization established in India. In India, the Foreign Direct Investment (FDI) policy is regulated under the FEMA (Foreign Exchange Management Act), 1999. The Reserve Bank of India (RBI) governs the Foreign Direct Investment Policy of India.
As per the international regulatory authority Organization for Economic Cooperation and Development (OECD), an investment of more than 10% or 10% from overseas is considered as FDI. In this article, we will discuss the FDI Compliances in India.
Table of Contents
Under FDI Compliances in India, the overseas money either by an entity or individual is invested in a Corporation in India. Under FDI Compliances in India, an investment can be made by a person or company in one country for business interest in another country. Such an investment can be made to either obtain business resources or set up business operations in another country. An example of such an investment is controlling or ownership interest in a foreign organization.
There are two types of FDI Compliances in India. The following FDI Compliances in India stands for the flow of money, which are as follows:
The Inward FDI Compliances in India happens when an investment of foreign capital is made in local resources. Such investment results in low-interest rates and tax breaks.
The Outward FDI is a reverse flow of the inward FDI Compliances in India. Outward FDI Compliances in India are also known as direct investment abroad. This outward net inflow is also known as a stock of foreign direct investment and stands for the collective number for a given time period.
The different bodies constituted for FDI Compliances in India are as follows:
Any foreign corporation can invest through the various FDI Compliances in India in the following entities:
Persons of Indian Origin (PIO) or NRIs (residents outside India) are permitted to contribute to the capital of the Partnership Firm. No prior approval is required for such a contribution.
There are certain conditions which are to be satisfied before any such contribution in a Partnership firm which is as follows:
FDI in Limited Liability Partnership (LLP’s) was liberalized expressively in the year 2015. The primary objective was to promote and enhance foreign investment inflows in the country. In LLP’s up to 100% FDI is allowed, provided the person concerned is obeying the explicit sectoral limits.
In the case where the person is already adhering to the sectoral limits, the investment will not require any prior approval by the RBI under the approval route.
The primary points to be considered are as follows:
Any business entity overseas can enter the territory of India through a number of alternatives. There are certain general conditions that are required to be followed.
The general conditions are mentioned in the FDI Policy, which is as follows:
Branch Offices are permitted to generate revenue by many alternatives, such as:
The application for setting up of offices in India is required to be made in Form FNC-1 to Reserve Bank of India along with:
The FNC-1 form is required to be submitted to the designated AD bank for any further submission. The submissions are made to the relevant department of the Reserve Bank of India (RBI) (Foreign Investment Division) at Mumbai.
The NRIs are also permitted to contribute to the capital of companies in India. Such a contribution can be made by investing in the shares on Recognized Stock Exchanges under the Portfolio Investment Route. The investment done by the people can be repatriable or non-repatriable. The maximum limit of investment is 10% of the paid-up capital of the relevant company.
The above-mentioned maximum limit can be raised by up to 24%. Such an extension can only be done by passing a special resolution for the same in the company.
The investment is made as an inward remittance, or through an NRE/FCNR (B)/NRO account maintained with the AD Category-1 Banks. A detailed report of all such investments is required to be filed with the Reserve Bank of India by AD Bank.
The foreign investors are permitted to invest in small-scale industrial units operating in several sectors. These small-scale industries do not include the prohibited sectors. The investment in small-scale industries is restricted to 24% of the paid-up capital of an SSI unit.
For issuance of more than 24% to the foreign investors, the SSI units are required to comply with the following conditions:
The additional guidelines for FDI Compliances in India are as follows:
A person or company overseas can invest in India through the Automatic Route. This Route does not require any prior approval from the Reserve Bank of India. On the other hand, prior approval is required if a person or company invests in India through the Government Route. The Government Route requires prior approval from the concerned Ministries or Departments.
The foreign investor is required to go through the FDI Compliances in India. There are certain general requirements that a foreign investor is required to adhere before making any investments in India. To make an investment in India, a person or company overseas is necessary to consult an experienced professional.
Also, read: Analysis on Types of Foreign Investment in India: FPI, FDI and FI
Sakshi Sharda has done BBA LLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Enterslice.
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