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Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
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Investment opportunities in India
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Investment opportunities in India
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Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
Investment opportunities in India
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Investment opportunities in India

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  • 1. C ompendium on Policies, Incentives and Investment Opportunities for Overseas Ministry of Overseas Indian Affairs Indians
  • 2. + ompendium on Policies, Incentives and Investment Opportunities for Overseas Indians
  • 3. Price: Rs. 150/- Disclaimer This book has been compiled/summarised from information available in official documents/circulars/websites of the Govt. of India, RBI, information received from various States and other reliable sources. Every possible care has been taken to provide current and authentic information. The Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians is intended to serve as a guide to them and does not purport to be a legal document. In case of any variation between what has been stated in this Compendium and the relevant Act, Rules, Regulations, Policy Statements etc., the latter shall prevail.
  • 4. Vayalar Ravi Ministry of Overseas Indian Affairs Foreword 1ndia has transformed into a prosperous, dynamic and cosmopolitan country. Technological advances have made India an attractive investment destination. Manufacturing, backend operations and other low-cost industries are being relocated to India. The country is boldly opening itself up to foreign trade and investments, and liberalizing its hitherto previously protected domestic market. India continues to be a land of opportunity at the heart of a resurgent Asia. Our fundamentals are an effective government that exercises fiscal prudence and formulates sound fiscal policies and a strong society founded on the time-tested principles of meritocracy, religious freedom and racial harmony. This book is intended to provide a ready guide to the Overseas Indians. Special attention has been given to the information likely to be sought by Overseas Indians in their interface with their home country. An attempt has been made to consolidate relevant provisions, rules and regulations and present them subject wise in a simple way. I hope this Compendium will help in guiding the Overseas Indians in their efforts to establish business ties with India. Vayalar Ravi
  • 5. 2HAB=?A )n important service that the Ministry of Overseas Indian Affairs is striving to extend to the Overseas Indians is that of investment services to enable potential Overseas Indian Investors to benefit from India’s rapidly growing economy. As a first step we are bringing out this Compendium for Overseas Indians in which we have attempted to compile the relevant information which an Overseas Indian may require in his initial efforts to establish his business ties with India. The Compendium contains the latest information and has been updated till November 2006 by bringing important but otherwise scattered information from the latest press notes, RBI master circulars, Economic Survey, FDI Manual of DIPP etc. at one place. The language of the book has been simplified by summarising the technicalities and details of rules for the comprehension of the general Overseas Indian. We would welcome suggestions for improving this book in the next edition.
  • 6. Contents Tax Incentives for Non-Residents H Residential Status for Tax Purposes 2 H Chargeable Income 8 H Special Provisions Relating to Certain Income of NRIs 11 H Exemptions from Income Tax 12 H Exemptions from Wealth Tax 13 H Exemptions from Gift Tax 13 H Presumptive Tax Provisions 15 H Tax Incentives for Industries 17 H Authority for Advance Rulings 18 H Double Tax Avoidance Agreements (DTAA) 20 Foreign Exchange Management Act Relating to Non-Residents H Important Concepts under Foreign Exchange Management Act, 1999 22 H Facilities Available to Returning Indians and Baggage Rules 39 H Bank Accounts of Non-Residents 58 H Foreign Direct Investment 74 H Portfolio Investment Scheme 107 H Immovable Properties 113 H Loans & Overdrafts 123 H Remittance facilities for NRIs/PIOs and Foreign Nationals 129 Other Important Matters H Overseas Citizenship of India (OCI) 132 H PIO Card 143 H Non-Governmental Organisations (NGOs) 145 H Foreign Contributions 153 H Special Economic Zones 160 H List of Important Websites 167 H Contact Details 171 H Feedback Form
  • 7. T ax Incentives for Non-Residents
  • 8. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Tax Incentives for Non-Residents Residential Status for Tax cases: (i) where an Indian citizen leaves India in any year for employment outside India; Purposes and (ii) where an Indian citizen or a foreign In India, as in many other countries, the citizen of Indian origin (NRI), who is outside charge of income tax and the scope of taxable India, comes on a visit to India. income varies with the factor of residence. In the above context, an individual visiting There are two categories of taxable entities India several times during the relevant viz. (1) residents and (2) non-residents. “previous year” should note that judicial Residents are further classified into two sub- authorities in India have held that both the categories (i) resident and ordinarily resident and (ii) resident but not ordinarily resident. days of entry and exit are counted while The law prescribes two alternative technical calculating the number of days stay in India, tests of residence for individual taxpayers. irrespective of however short the time spent Each of the two tests relate to the physical in India on those two days may be. presence of the taxpayer in India in the A “non-resident” is merely defined as a course of the “previous year” which would be person who is not a “resident” i.e. one who the twelve months from April 1 to March 31. does not satisfy either of the two prescribed A person is said to be “resident” in India in tests of residence. any previous year if he An individual, who is defined as Resident in a. is in India in that year for an aggregate a given financial year is said to be “not period of 182 days or more; or ordinarily resident” in any previous year if he b. having within the four years preceding has been a non-resident in India in 9 out of that year been in India for a period of 365 the 10 preceding previous years or he has days or more, is in India in that year for during the 7 preceding previous years been an aggregate period of 60 days or more. in India for a period of, or periods amounting in all to, 729 days or less. The above provisions are applicable to all individuals irrespective of their nationality. Till 31st March 2003, “not ordinarily However, as a special concession for Indian resident” was defined as a person who has not citizens and foreign citizens of Indian origin, been resident in India in 9 out of 10 the period of 60 days referred to in Clause (b) preceding previous years or he has not during above, will be extended to 182 days in two the 7 preceding previous years been in India 2
  • 9. Tax Incentives for Non-Residents for a period of, or periods amounting in all to, b. being a citizen of India, or a person of 730 days or more. Indian origin within the meaning of Explanation to clause (e) of section Section 6 of the Income-tax Act, 1961, 115C, who, being outside India, comes prescribes the tests for determining the on a visit to India in any previous year, residential status of a person. Section 6, as the provisions of sub-clause (c) shall amended, reads as follows:­ apply in relation to that year as if for the For the purposes of this Act words “sixty days”, occurring therein, the words “one hundred and eighty-two 1. An individual is said to be resident in days” had been substituted. India in any previous year, if he­ 2. A Hindu Undivided Family (HUF), Firm a. is in India in that year for a period or or other Association of Persons (AOP) is periods amounting in all to one said to be resident in India in any hundred and eighty-two days or previous year in every case except where more; or during that year the control and b. [* * *] management of its affairs is situated c. having within the four years wholly outside India. preceding that year been in India for 3. A company is said to be resident in India a period or periods amounting in all in any previous year, if­ to three hundred and sixty five days a. it is an Indian company; or or more, is in India for a period or b. during that year, the control and periods amounting in all to sixty days management of its affairs is situated or more in that year. wholly in India. Explanation: In the case of an individual 4. Every other person is said to be resident a. being a citizen of India, who leaves India in India in any previous year in every in any previous year [as a member of the case, except where during that year the crew of an Indian ship as defined in control and management of his affairs is clause (18) of section 3 of the Merchant situated wholly outside India. Shipping Act, 1958 (44 of 1958), or] for 5. If a person is resident in India in a the purpose of employment outside previous year relevant to an assessment India, the provisions of sub-clause (c) year in respect of any source of income, shall apply in relation to that year as if for he shall be deemed to be resident in India the words “sixty days”, occurring therein, in the previous year relevant to the the words “one hundred and eighty-two assessment year in respect of each of his days” had been substituted. other sources of income. 3
  • 10. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians DETERMINATION OF RESIDENTIAL STATUS OF AN ASSESSEE UNDER THE INCOME TAX ACT The Tests for determining the Residential status of an assessee under the Income Tax Act can be explained with the help of Flow Charts as follows: 4
  • 11. Tax Incentives for Non-Residents DETERMINATION OF RESIDENTIAL STATUS OF HUF FIRM AOP COMPANY 5
  • 12. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 6. A person is said to be “not ordinarily days, will not lose his non-resident status resident” in India in any previous year if in the following year(s) if his total stay in such person is­ India in that year (from April 1 to March a. an individual who has not been a 31) does not exceed: non-resident in India in nine out of a. 181 days, if he is on a “visit” to India; the ten previous years preceding that or year, or has not during the seven b. 59 days, if he comes to India on previous years preceding that year “transfer of residence”. been in India for a period of, or periods amounting in all to, seven 3. An NRI who has returned to India for hundred and twenty-nine days or settlement, whose total stay in India for less; or 4 preceding years does not exceed 364 b. a Hindu Undivided Family whose days will not lose his non-resident status manager has not been non-resident in the following year(s) if his total stay in in India in nine out of the ten India in such year(s) (from April 1 to previous years preceding that year, or March 31) does not exceed 181 days. has not during the seven previous 4. A new-comer to India would be treated years preceding that year been in as “not ordinarily resident” for the first India for a period of, or periods two years of his stay in India or if treated amounting in all to, seven hundred as Non Resident in the year of arrival and twenty-nine days or less. then for the second and third year of his An analysis of the above provisions would stay in India. An individual (whether indicate that ­ Indian or foreign citizen) who has left 1. To become a non-resident for Income- India and remains non­resident for at Tax purposes, an Indian citizen leaving least nine years preceding his return to India for the first time to take up India or whose stay in 7 years preceding employment abroad should be out of the the year of return has not exceeded 729 country latest by 28th September and days would, upon his return, be treated should not return to India before 1st as “non-resident” or “not ordinarily April of the next year. However, in case resident” depending upon the number of of a person leaving India for taking up a days stay in India in the year of return. business or profession, the criteria of 60 The status of “not ordinarily resident” days will apply, as defined earlier. will remain effective for 2 years including 2. An NRI individual, whose total stay in or following the year of return as the case India in 4 preceding years exceeds 364 may be. 6
  • 13. Tax Incentives for Non-Residents Important Points to be Borne in grand parents was born in undivided Mind While Determining the India [Section 115C] Residential Status of an Individual i. Official tours abroad in connection with a. Residential status is always determined employment in India shall not be for the Previous Year because the assessee regarded as employment outside India. has to determine the total income of the j. A person may be resident of more than Previous Year only. In other words, as the one country for any Previous Year. tax is on the income of a particular k. Citizenship of a country and residential Previous Year, the enquiry and status of that country are two separate determination of the residence concepts. A person may be an Indian qualification must confine to the facts national/Citizen but may not be a obtaining in that Previous Year. resident in India and vice versa. b. If a person is resident in India in a Previous Year in respect of any source of Points to be considered by NRIs income, he shall be deemed to be H Previous Year is period of 12 months from resident in India in the Previous Year 1st April to 31st March. Number of days relevant to the Assessment Year in stay in India is to be counted during this respect of each of his other sources of period. Income. [Section 6(5)] H Both the Day of Arrival into India and c. Relevant Previous Year means, the the Day of Departure from India are Previous Year for which residential status counted as the days of stay in India (i.e. is to be determined 2 days stay in India). d. It is not necessary that the stay should be H Dates stamped on Passport are normally for a continuous period. considered as proof of dates of departure e. It is not necessary that the stay should be from and arrival in India. at one place in India. H It is advisable to keep several photocopies f. Both the day of entry and the day of of the relevant passport pages for present departure should be treated as the day of and future use. stay in India [Petition No.7 of 1995 225 H Ensure that date stamped on the passport ITR 462 (AAR)] is legible. g. Presence in territorial waters in India H Keep track of no. of days in India from would also be regarded as stay in India. year to year and check the same before h. A person is said to be of Indian Origin if making the next trip to India. It is he or either of his parents or any of his advisable to maintain a chart for the 7
  • 14. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians number of days stay in the current and 2. For exemption of income tax in respect in the preceding seven (7) previous years. of NRE and FCNR deposits investor H In the 1st year of leaving India for should be non-resident under FEMA. employment outside India, ensure that 3. The special tax rate concessions on you leave before 29th September. income and long-term capital gains on Otherwise total income of the financial specified assets, purchased in convertible year (including the foreign income) will foreign exchange are available to non- be taxable in India if it exceeds the basic residents under the Income-Tax Act. exemption limit. H During the last year of stay abroad, on Chargeable Income transfer of residence to India, ensure to Section 5 of the Income-tax Act lays down come back on or after Feb 1st (or Feb 2nd the scope of total income of any previous year in case of a leap year). Since arrival of any person. The Section reads as follows: before this date will result in stay in India exceeding 59 days. However, a person 1. Subject to the provisions of this Act, the whose stay in India in preceding four (4) total income of any previous year of a previous years does not exceed 365 days, person who is a resident includes all he may return after September 30th of income from whatever source derived the relevant year without loss of non- which­ resident status. a. is received or is deemed to be received in India in such year by or Implications of Residential Status on behalf of such person ;or for NRIs/PIOs b. accrues or arises or is deemed to The complexities of determining the accrue or arise to him in India during residential status for individual NRI/PIO such year; or under various statutes and regulations will be c. accrues or arises to him outside India obvious from the provisions outlined above during such year: and in this context it would be important to Provided that, in the case of a person note the following: not ordinarily resident in India 1. The concepts and rules for determining within the meaning of sub-section the residential status Income-Tax laws (6) of Section 6, the income which and FEMA are quite different and it accrues or arises to him outside India would be possible to be a resident under shall not be so included unless it is one law and non-resident under the derived from a business controlled in other. or a profession set up in India. 8
  • 15. Tax Incentives for Non-Residents TABLE Sources of Income R & OR R & NOR NR Indian Income Income received or Taxable in India Taxable in India Taxable in India deemed to be received in India during the current financial year. Income accruing or arising Taxable in India Taxable in India Taxable in India or deemed to accrue or arise in India during the current financial year. Income accruing or arising Taxable in India Taxable in India Taxable in India or deemed to accrue or arise outside India, but first receipt is in India during the current financial year Sources of Income R & OR R & NOR NR Foreign Income Income accruing or arising Taxable in India Not Taxable in Not Taxable in or deemed to accrue or India India arise outside India and received outside India, during the current financial year. Income accruing or arising Taxable in India Taxable in India Not Taxable in outside India from a India Business/Profession controlled in/from India during the current financial year. Income accruing or arising Taxable in India Not Taxable in Not Taxable in outside India from any India India source other than Business Profession controlled from India. 9
  • 16. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 2. Subject to the provisions of this Act, the regard to the three categories of taxpayers total income of any previous year of a can be summarised as follows: person who is a non-resident includes all 1. Taxpayers in all categories are chargeable income from whatever source derived on income, from whatever source which­ derived, which is received or is deemed a. is received or is deemed to be to be received in India by or on behalf of received in India in such year by or them or which accrues or arises or is on behalf of such person; or deemed to accrue or arise to them in b. accrues or arises or is deemed to India other than income specified as accrue or arise to him in India during exempt income. such year. In the above context, it may be noted Explanation 1: Income accruing or arising that the ‘receipt’ of income refers to the outside India shall not be deemed to be first occasion when the recipient gets the received in India within the meaning of this money under his own control and it is the section by reason only of the fact that it is first receipt that determines the year and taken into account in a Balance Sheet place of receipt for the purposes of prepared in India. taxation. If the income is already received outside India, no tax liability Explanation 2: For the removal of doubts, it will arise when the whole or any part of is hereby declared that income which has such income is remitted to India. been included in the total income of a person on the basis that it has accrued or arisen or 2. A “resident and ordinarily resident” pays is deemed to have accrued or arisen to him tax in India on his entire world income, shall not again be so included on the basis wherever accrued or received. that it is received or deemed to be received 3. A “non-resident” pays tax only on his by him in India. taxable Indian income and his foreign income (earned and received outside Thus, it is clear from the above that the India) is totally exempt from Indian incidence of tax depends upon a person’s taxes. Residential Status and also upon the place and time of accrual and receipt of income. 4. A “not ordinarily resident” pays tax on taxable Indian income and on foreign In tabular form, the above may be stated in income derived from a business table on previous page. controlled in or a profession set up in As stated earlier, the charge of income tax India. varies with the factor of residence in the 5. An individual upon acquiring the status previous year and the general position with of “not ordinarily resident” would not pay 10
  • 17. Tax Incentives for Non-Residents tax, for a period of two years, on the gains on transfer of any foreign exchange interest on: asset held by the NRI/PIO. In order to qualify a. the continued Foreign Currency for long-term capital gains, the minimum Non-Resident (FCNR) account; holding period for shares held in a company b. the Resident Foreign Currency or any other security listed in a recognised (RFC) account; and Stock Exchange in India or units of Unit Trust of India or of a specified Mutual Fund c. on income earned from foreign is 12 months and for other assets it is 36 sources unless such income is months. Long-term capital gains on foreign directly received in India or is earned exchange assets are, however, exempted from from a business controlled in or a tax if the net proceeds realized on transfer are profession set up in India. re-invested, within six months of such transfer, in any specified securities and the Special Provisions Relating new assets are retained for at least three to Certain Income of NRIs years. Some of the special tax concessions for NRIs/ The Finance Act, 2003 has withdrawn the PIOs investing in India were introduced in taxing provision in respect of dividend the Finance Act, 1983, which became received by the shareholders on shares held effective on June 1, 1983. The tax provisions in Indian companies. Accordingly, dividend were further liberalised by subsequent received by the shareholders of Indian Finance Acts and other amending laws. companies will be exempt from tax. The income received from units of Unit Trust of Special concessions India and of specified mutual funds will also Investment income from ‘foreign exchange be exempt. assets’ comprising shares and debenture of Finance Act 2004 has: and deposits with Indian companies and Central Government securities, subscribed to a granted tax exemption as regards long or purchased in convertible foreign term capital gains arising from transfer of exchange, is charged to income tax at a flat equity shares in a company and/or units rate of 20%. No deductions are, however, of equity oriented schemes of Mutual allowed and tax is levied on gross income. Funds, which are subject to securities The basic exemption, below which income transaction tax; and is not taxed in India, is also not allowed. b fixed at 10% the tax on short-term Under these special concessions a reduced capital gains arising from such shares and rate of 10% is applied to the long-term capital or units. 11
  • 18. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians The tax concessions in respect of investment acquisition, expenses incurred in connection income (and not long term capital gain) will with such transfer and the sale price of the continue to apply even after the NRI/PIO capital asset into the same foreign currency returns to India but such exemption would as was initially used in the purchase of these be available only in respect of foreign assets and the capital gain so computed in exchange assets other than shares in Indian such foreign currency will be reconverted companies and the exemption will continue into Indian currency. This computation until such time as the assets are transferred effectively gives the NRI/PIO the benefit of or converted into money. However, as claiming exchange loss, if any, on all capital dividend is exempt income from 1st April gains arising from sale of shares or debentures 2003, exclusion of shares from said provision of Indian companies, whether these are long is redundant. term or short term. It may be noted that the In the circumstances where the income of aforesaid benefit is available only if the NRI/PIO from such foreign exchange assets investment is made from convertible foreign is below the taxable limit or the average level exchange. In respect of investment made of tax is below 20%, he may elect not to be from funds other than convertible foreign governed by the special tax concessions exchange, and if the asset is a long-term referred to above. He would then have to capital asset benefit of indexation can be furnish a Return of Income in the normal availed. However, indexation is not available course together with a declaration of such in respect of debentures. election and he would be entitled to claim a refund of the whole or a part of the tax Exemptions from Income deducted at source, as may be appropriate. Tax As mentioned above, short-term capital Income from the following investments made gains arising from transfer of equity shares by NRIs/PIOs out of convertible foreign and/or units of equity-oriented schemes of exchange is totally exempt from tax. Mutual Funds, which are subject to securities transaction tax, are taxed at 10%. Other a Deposits in under mentioned bank Short-term capital gain is taxable at normal accounts:- slab rates as applicable to residents, and the i Non Resident External Rupee return of income has to be filed by the NRI/ Account (NRE) PIO making such gain. ii Foreign Currency Non-resident Capital gain from transfer of shares or Account (FCNR) debentures of Indian companies will be b Units of Unit Trust of India and specified computed by converting the cost of mutual funds, other specific securities, 12
  • 19. Tax Incentives for Non-Residents bonds and savings certificates (subject to productive assets like urban land, buildings conditions prescribed under the Income- (except one house property), jewellery, tax laws and regulations). bullion, vehicles, and cash over Rs.50,000/- c Dividend declared by Indian company. etc. The current rate of Wealth-tax is 1 % on the aggregate market value of chargeable d Long term capital gains arising from assets as on 31st March every year in excess transfer of equity shares in a company of Rs.1.5 million. and/or equity oriented schemes of Mutual Funds, which are subject to However, it may be noted that NRIs are also securities transaction tax. liable to pay wealth tax if the market value It should be noted that the tax exemptions of taxable assets as on 31st March exceeds relating to NRE bank deposits cease Rs.l.5 million. immediately upon the NRI/PIO becoming a resident in India whereas the interest on Exemptions from Gift FCNR bank deposits continue to be tax free Tax as long as the NRI maintains the status of Resident but Not Ordinarily Resident or Gift Tax Act, 1958 has been repealed with until maturity, whichever is earlier. effect from 1st October, 1998 and as such, Gift Tax is not chargeable on any gifts made on or after that date. Exemptions from Wealth With regard to gifts of foreign exchange or Tax specified assets made by NRIs to their Where an NRI/PIO returns to India for relatives in India, it should be noted that: permanent residence, moneys and the value 1. Gifts made by an NRI/PIO to his or her of assets brought by him into India and the spouse, minor children or son’s wife will value of assets acquired by him out of such involve clubbing of income and wealth in moneys within one year immediately the hands of the donor-NRI/ PIO. preceding the date of his return and at any 2. In the case of gifts to minor children the time thereafter are totally exempt from clubbing of income, as above, will cease Wealth-tax for a period of seven years after upon such children attaining the age of return to India. 18 years. The above exemption may not have much 3. The clubbing provisions will apply, in relevance now since the Finance Act 1992 case of gift to spouse or son’s wife in India, has considerably reduced the scope of only to the’ first-stage of income from the Wealth-tax. With effect from 1st April, 1993, original gift. Second-stage income arising Wealth-tax is being levied only on non- from investment of the income from the 13
  • 20. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians original gift is not clubbed and this will under that head “Income from other constitute the separate wealth/income of sources” for and from assessment year the donee spouse. 2005-06 and onwards. Generally, the income of minor children, However, the above provisions will not apply from any source (including income from gifts to any sum of money (gift) received:- from parents) is clubbed with the income of a. from any relative; or the parent whose total chargeable income is greater. b. on the occasion of the marriage of the individual; or Other matters to be noted regarding gifts are c. under a will or by way of inheritance; or 1. All gifts received by residents from NRIs/ d. in contemplation of death of the payer. PIOs may be subject to the tax authorities requiring the recipient to The term “relative” is defined as: provide evidence as regards the identity 1. spouse of the individual; and financial capacity of the donor and 2. brother or sister of the individual; genuineness of the gift. 3. brother or sister of the spouse of the 2. Under the Foreign Exchange individual; Management Act, 1999 no approval from Reserve Bank of India (RBI) is 4. brother or sister of either of the parents necessary for the resident donee to hold of the individual; gifted immovable property outside India 5. any lineal ascendant or descendant of the provided the said property is gifted by a individual; person resident outside India. General 6. any lineal ascendant or descendant of the permission, subject to certain conditions, spouse of the individual; and is granted by RBI for the resident donees to hold foreign moveable properties such 7. spouse of the person referred to in (2) to as shares and securities gifted by NRI/ (6). PIO donors. Scope of Receipts 3. The Income Tax Act has now provided H As per plain reading of the provision, any that any sum of money exceeding receipt without consideration, save Rs. 25,000 received without exclusions, whether capital or otherwise, consideration (i.e., gift) by an individual may be considered as income. from any person on or after 1st September, 2004, the whole of such sum H Similar receipts by any person (such as, will be chargeable to income-tax in the a Partnership Firm, a Company, and assessment of recipient (i.e., donee) AOP etc.), other than an Individual or 14
  • 21. Tax Incentives for Non-Residents a Hindu Undivided Family, would not However, a non-resident assessee has the constitute income in its hands. option to maintain books of account and get H The provision would apply to an his books of account audited u/s 44AB (“Tax individual irrespective of his residential Audit”) and offer lower profits and gains for status. Accordingly, any receipt in India taxation in India than the profits and gains by a non-resident of the nature discussed estimated under Sections 44BB and 44BBB on presumptive basis. above would be considered as income in his hands. Special provisions applicable to non- H Gifts on occasion other than marriage, residents for computing their income under for example, birthday, marriage the head “Business Income” anniversary and other social occasions, Shipping Business (Sections 44B & religious ceremonies etc., would be 172) taxable as income. Gifts received on the occasion of the marriage of the Section 44B contains special provisions for individual, irrespective of any limit, (but computing profits and gains of shipping business of a non-resident assessee. In the within reasonable limits) would not case of non­residents, such profits and gains constitute income. will be taken at an amount equal to 7.5% H The receipts should be in the form of (seven and a half per cent) of the amount money. Accordingly, any gift in kind paid or payable to the non-resident or to any would not be taxable. other person on his behalf on account of the H The receipts must be without carriage of passengers, livestock, mail or consideration, implying in the nature of goods shipped at any Indian port as also of gift. the amount received or deemed to be received in India on account of the carriage Presumptive Tax Provisions of passengers, livestock, mail or goods Certain provisions have been incorporated in shipped at any port outside India. the Income-Tax Act whereby the total Section 172, which is a complete code in income of certain non-resident assessee is itself, contains provisions for taxation of computed on the basis of certain percentage occasional shipping business of non-residents of their gross total receipts. This estimated in respect of profits made by them from income approach is expected to reduce areas carriage of passengers, livestock, mail or of uncertainty and resultant tax litigation. goods shipped at a port in India. 15
  • 22. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Business of Providing Services and Profits and Gains of Foreign Facilities in Connection with Companies Engaged in the Business Exploration etc. of Mineral Oils of Civil Construction or Erection of (Section 44BB) Plant and Machinery or Testing or Section 44BB contains special provisions for Commissioning thereof, in Connection computation of taxable income of a non- with certain Turnkey Power Projects resident assessee engaged in the business of (Section 44BBB) providing services or facilities in connection Section 44BBB provides that, notwithstanding with, or supplying plant and machinery on anything to the contrary contained in Sections hire, used or to be used, in the prospecting 28 to 44AA of the Income-tax Act, the for, or extraction or production of, mineral income of foreign companies who are engaged in the business of civil construction or erection oils. It provides that 10% of the amount paid or testing or commissioning of plant or or payable to, or the amount received or machinery in connection with a turnkey receivable by, the assessee for provision of power project shall be deemed at 10 per cent such services or facilities or supply of plant of the amount paid or payable to such assessee and machinery, shall be deemed to be the or to any person on his behalf, whether in or taxable income of such non-resident out of India. For this purpose, the turnkey assessee. power project should be approved by the Central Government. It has also been clarified Business of Operation of Aircraft that erection of plant or machinery or testing (Section 44BBA) or commissioning thereof will include lying of Section 44BBA contains special provisions transmission lines and systems. for computing profits and gains of the Taxation of Non-Resident’s Royalty business of operation of aircraft of non- Income or Fees for Technical residents. It provides for determination of the Services (Section 44DA) income of non-resident taxpayers on presumptive basis at a flat rate of 5% of the Royalties and fees for Technical Services received from the Government or an Indian amount received or receivable for carriage of concern by a Non-Resident or a foreign persons, livestock, mail or goods from any company in pursuance of an agreement place in India or the amount received or entered into after 31-3-2003 shall be deemed to be received within India on computed under the head “Business Income” account of such carriage from any place in accordance with the provisions of the outside India. Income Tax Act i.e. after allowing deduction 16
  • 23. Tax Incentives for Non-Residents for various permissible expenses and Infrastructure Sectors allowances. Deduction of 100% of the profits from business for a period of 10 years for: Section 44DA does not permit deduction of following expenses a. Development or operation and i. expenditure which is not wholly and maintenance of ports, airports, roads, exclusively incurred for the business of highways, bridges, rail systems, inland such permanent establishment or fixed water ways, inland ports, water supply place of profession in India, and projects, water treatment systems, ii. amounts reimbursed by permanent irrigation projects, sanitation and sewage establishment to its head office or to any projects, and solid waste management of its other offices (Other than, systems. reimbursement of actual expenses). b. Generation and distribution of power that commence before 31.3.2006. Restriction on Deduction of Head c. Development, operation and Office Expenses (SECTION 44C) maintenance of Industrial Park or Special Section 44C is intended to be made Economic Zone. applicable only in the cases of those non- residents who carry on business in India Capital Gains on Infrastructure through their branches. Funds The deduction in respect of head office Income by way of dividend, interest or long- expenses will be limited to: term capital gain of an infrastructure capital a An amount equal to 5 per cent of the company or an infrastructure capital fund is “adjusted total income” for the relevant 100% tax-exempt. Income of venture capital year: or company or venture capital fund set up to raise funds for investment in venture capital b The actual amount of head office undertaking is also tax exempt. expenditure attributable to the business in India, whichever is least. Tax Exemptions Following tax exemptions are available in Tax Incentives for Industries different sectors: Tax holidays in the form of deductions are Deduction of 100% of the profit from available for private sectors and incentives to business of industries located in special area/regions are listed below: a Development or operation and 17
  • 24. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians maintenance of ports, airports, roads, Authority for Advance highways, bridges etc. Rulings b Generation, distribution and With a view to avoid a dispute in respect of transmission of power assessment of Income Tax liability in the case c Development, operation and of a non-resident (and also specified maintenance of an Industrial Park or SEZ categories of residents), a scheme of Advance d By undertakings set up in certain notified ruling was incorporated in the Income Tax areas or in certain thrust sector industries Act. The Authority for Advance in the North Eastern states and Sikkim Ruling(AAR) pronounces rulings on the e By undertakings set up in certain notified applications of the non-resident/residents areas or in certain thrust sector industries submitted and such rulings are binding both in Uttaranchal and Himachal Pradesh on the applicant and the Income Tax f Derived from export of articles or Department. Thus the applicant can avoid software by undertakings in FTZ, EHTP/ expensive and time-consuming litigation, which would have arisen from normal STP income tax proceedings. The application in g Derived from export of articles or such cases should be addressed to software by undertakings in SEZ The Commissioner of Income Tax Authority h Derived from export of articles or of Advance Ruling software by 100% EOU i An offshore banking unit situated in SEZ 5th Floor, NDMC Building from business activities with units Yashwant Place, located in the SEZ Satya Marg, Chankaya Puri, j Derived by undertakings engaged in the New Delhi-110021 business of developing and building housing projects. The Finance Act 1993 has introduced, with effect from 1st June 1993, a new scheme of k Derived by an undertaking engaged in providing advance rulings on tax matters. the integrated business of handling, storage and transportation of food grains The relevant provisions of this scheme, in the l Derived by an undertaking engaged in Income-tax Act, are as under: the commercial production or refining of 1. “advance ruling” means mineral oil i a determination by the Authority in m Derived by an undertaking from export relation to a transaction which has of wood based handicraft been undertaken or is proposed to be 18
  • 25. Tax Incentives for Non-Residents undertaken by a non-resident either allow or reject the application. applicant; or Provided that the application will not be ii a determination by the Authority in allowed by the Authority where the relation to the tax liability of a non- question raised: resident arising out of a transaction, a is already pending in the applicant’s which has been undertaken or is case before any income­tax proposed to be undertaken by a authority, the Appellate Tribunal or resident applicant with such non- any Court; resident, and such determination b involves determination of fair shall include the determination of market value of any property; any question of law or of fact c relates to a transaction or issue, specified in the application. which is designed prima facie for 2. The Authority for Advance Rulings, avoidance of income tax. located in Delhi, shall consist of the 5. No application can be rejected without following Members, appointed by the giving an opportunity to the applicant of Central Government: being heard, either in person or through a A retired Judge of the Supreme a duly authorized representative. Also, Court as Chairman. where the application is rejected, reasons b An officer of the Indian Revenue for such rejection have to be stated in the Service who is qualified to be order made by the Authority. member of the Central Board of 6. The advance ruling shall be pronounced Direct Taxes. by the Authority in writing within six c An officer of the Indian Legal months of receipt of the application and Service who is, or is qualified to be a copy thereof, duly signed by the Additional Secretary to the Members and certified in the prescribed Government of India. manner, shall be sent to the applicant 3. The application, for obtaining an and to the Commissioner of Income-tax advance ruling, has to be made in the having jurisdiction over the case. prescribed form in quadruplicate 7. The advance ruling will be binding on accompanied by the prescribed fee and the applicant as well as on the concerned can be withdrawn within 30 days from income tax authorities, only in respect of the date of the application. the specific transaction in relation to 4. The Authority may, after examining the which the ruling is sought. The ruling will application and the records called for remain binding unless there is change in 19
  • 26. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians law or facts on the basis of which the taxpayers in the international field. The ruling has been given. NRIs/PIOs would, therefore, be well advised 8. Once the subject matter of the to take advantage of such treaties in tax application is rejected or decided against planning for their investments in India. the applicant, there is no provision for DTAA can be defined as an “international appeal. However, in the matter agreement between two sovereign States involving gross mistakes/mis- reaching an understanding as to how their application, the applicant may either file residents will be taxed in respect of cross a writ petition to the High Court or a order transactions in order to avoid double Special Leave Petition with the taxation on the same income”. Supreme Court of India In yet another way, DTAA can be defined as 9. The Authority is empowered to declare “an agreement of compromise between two the advance ruling void, on ground of contracting States whereby each country fraud or misrepresentation of facts by the agrees to give up something in consideration applicant. of the other country giving up something in While it must be remembered that the its favour”. advance ruling has no direct general It may sometime happen that owing to applicability and is binding only in the case reduction in tax rates under the domestic of the particular applicant, it may have law-taking place after coming into existence considerable value as a persuasive precedent of the treaty, the domestic rates become more for other concerned individuals. favorable to the NRIs/PIOs. Since the object of the tax treaties is to benefit the NRIs/PIOs, they have, under such circumstances, the Double Tax Avoidance option to be assessed either as per the Agreements (DTAA) provisions of the treaty or the domestic law The Government of India has entered into of the land. double taxation avoidance agreements (tax In order to avoid any demand or refund treaties) with several countries with the consequent to assessment and to facilitate principal objective of evolving a system for the process of assessment, the concerned the respective countries to allocate the right authorities in India have provided that tax to tax different types of income on an shall be deducted at source out of payments equitable basis. Tax treaties serve the purpose to NRIs/PIOs at the prevailing rates at which of providing full protection to taxpayers the particular income is made taxable under against double taxation and also aim at the tax treaties. preventing discrimination between the ■■ 20
  • 27. Tax Incentives for Non-Residents F oreign Exchange Management Act Re l a t i n g t o N o n - Re s i d e n t s 21
  • 28. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Important Concepts Under Foreign Exchange Management Act, 1999 Illustration: If an Indian Company opens a Introduction branch in New York, U.S.A., that branch will Foreign Exchange Management Act, 1999 become resident of India and, therefore, all (FEMA) replaced Foreign Exchange restrictions applicable to Indian residents for Regulation Act, 1973 (FERA) with effect overseas transactions are equally applicable from 1st June 2000. The replacement was a to such a branch. Then right from opening great sigh of relief for the people as FERA was of a bank account to entering into any unduly stringent in its criminal provisions. transaction of capital nature (e.g., acquisition FEMA is a civil law and proactive in its of premises), it will need prior approval from outlook compared to FERA. The thrust of RBI (subject to exemptions/general FEMA is to “manage” the scarce foreign permissions granted by RBI under various exchange resources of the country rather Notifications). than to “control” them as was prevalent under FERA. FEMA met the need of the day in the changed economic scenario of India, Residential Status especially since 1991. One of the important changes in FEMA relates to the “Residential Status of a Person”. Applicability of FEMA The terms “person” and “person resident in FEMA is applicable to the whole of India. India” are defined under sections 2(u) and The expression “whole of India” would 2(v) of FEMA, respectively. Ironically, like indicate that the provisions of the Act are FERA, FEMA, too, does not define the term applicable to all transactions taking place in Non-Resident. Section 2(w) defines “person India. Thus, any person who is present in resident outside India” as a person who is not India at the time of transaction has to comply resident in India(For all practical purposes, with the provisions of FEMA. the term “person resident outside India” is synonymous with the term “non-resident” FEMA is applicable to all branches, offices and these terms are used interchangeably in and agencies outside India owned or this book). controlled by a person resident in India. Thus, FEMA has retained its extra-territorial Let us look closely at these two important jurisdiction, as under FERA. definitions under FEMA:- 22
  • 29. Important Concepts Under Foreign Exchange Management Act, 1999 Definition of “Person” a for or on taking up employment Section 2(u) “Person” includes outside India, or b for carrying on outside India a i an Individual, business or vocation outside ii a Hindu Undivided Family (HUF), India, or iii a Company, c for any other purpose, in such iv a Firm, circumstances as would indicate v an Association of Persons (AOP) or a his intention to stay outside Body of Individuals (BOI), whether India for an uncertain period; incorporated or not, B a person who has come to or stays in vi every artificial juridical person, not India, in either case, otherwise than- falling within any of the preceding sub- clauses, and a for or on taking up employment in India, or vii any agency, office or branch owned or controlled by such person.” b for carrying on in India a Explanation: The above definition is similar business or vocation in India, or to the definition of “person” under Section c for any other purpose, in such 2(31) of the Income Tax Act, with some circumstances as would indicate minor differences like exclusion of local his intention to stay in India for authority and inclusion of category (vii) an uncertain period; above. This definition is unique to FEMA, ii any person or body corporate registered not found under FERA. The idea evidently or incorporated in India, is to provide clarity about its applicability and extend its coverage. iii an office, branch or agency in India owned or controlled by a person resident “Person Resident in India” outside India, Section 2 (v): The term “person resident in iv an office, branch or agency outside India India” means owned or controlled by a person resident in India; i a person residing in India for more than one hundred and eighty-two days during Explanation the course of the preceding financial year An attempt has been made to link the but does not include definition of the person resident In India A a person who has gone out of India (PRI) under FEMA with the definition of or who stays outside India, in either that term under the Income-Tax Act 1961, case by providing the criteria of physical stay of 23
  • 30. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 183 days or more in India, in so far as the financial year 2003-2004, i.e. from 1st individuals are concerned. April 2003 to 31st March 2004 his stay was less than 183 days. Assuming that he stays Practical Aspects in India through out the financial year 2004- I First of all, “Financial Year” is not defined 2005, he would be a non-resident under under FEMA. FEMA for the financial year 2004-2005 For the sake of understanding, we assume notwithstanding the fact that he was in India it to be from 1st April to 31st March, being for more than 182 days, as his presence in the official year of the Government of India during the preceding financial year, i.e. India. Secondly, the Income-Tax Act 2003-2004 was for a period of less than 183 requires physical presence of 182 days or days. more, whereas, FEMA requires 183 days In order to avoid this anomaly, the definition or more. Thirdly, the term “ residing in of a “Person resident in India” needs to be India” is not defined. We may assume interpreted in a manner that leads to a logical that it is equivalent to physical presence conclusion. in India. Under FERA, a person’s residential Determination of the Residential status was determined based on his Status Under FEMA intention alone, rather than his physical presence in India. FEMA has attempted Individuals to blend the two different definitions as In order to make a definition of a person prevailed under FEMA and the Income- resident in India workable one has to look Tax Act 1961, resulting in confusion. first at the exceptions given in clauses (A) II The Income-Tax Act considers the and (B) and if the person is not falling under physical presence of a person in the either of them, then look at his physical current financial year for determining his presence in India during the preceding tax liabilities of the current year, whereas financial year. Thus, in effect, the criteria, for FEMA considers physical presence of a determination of residential status of a person in the preceding financial year, person under FERA based on “facts and with the result that a person might have intentions”, are retained under FEMA, too, to wait for one and a half year to become as it is evident from the examples given resident in India. herein below: Consider the following illustration:- Examples Mr. Sangwan comes to India after a Mr. Mishra leaves India on 1st December continuous stay abroad for 2 years. During 2004 for taking up employment outside 24
  • 31. Important Concepts Under Foreign Exchange Management Act, 1999 India for the first time. What will be his 2004 notwithstanding his stay exceeding 182 residential status? days in the current year, as in the preceding financial year (i.e. F.Y. 2002-2003), he was Mr. Mishra will be considered as a non- not in India for 183 days or more. As far as resident, w.e.f. 1st December, 2004 the F.Y 2004-2005 is concerned he would be irrespective of the fact that he was residing resident from 1st April 2004 till 31st October in India for more than 182 days in the 2004, (as his stay in F.Y. 2003-2004 would preceding financial year (i.e. 2003-2004), for have exceeded 182 days). Mr. Shah would be the reason that he is covered by Exception NR, w.e.f. 31st October 2004 as he would be (A) (a) of the definition. leaving India for an uncertain period covered Mrs. Katrina a foreign citizen of non- by exception mentioned in clause A(c). Indian Origin sets up a proprietary concern in India on 1st June 2004 for carrying on Residential Status of a Student business. What will be his residential status Leaving for Overseas for the for the financial Year 2004-2005? Purpose of Education The situation is covered by exception B (b). A student leaving India for the purpose of Mrs. Katrina will be considered as resident further education was treated as a resident in India w.e.f 1st June 2004 as he came to by the Reserve Bank of India unless he takes India for carrying on business, irrespective of up employment overseas even though his the fact that he has not at all stayed in India stay in India was less than 183 days. On during the preceding financial year (i.e. F.Y review of the situation, Reserve Bank has 2003-2004). liberalised the provisions as follows: Mr. Singh, who is staying in Dubai for A student leaving abroad for the purpose of more than ten years, has to come to India further education would be treated as a Non- on 1st July 2003 for medical treatment. He Resident Indian on the grounds that his stay has not visited India during F.Y. 2002- abroad is for more than 182 days in the 2003. He is planning to return to Dubai preceding financial year and that his after medical treatment is over. Doctors intention is to stay abroad for an uncertain have advised him to stay in India up to 31st period. As a non-resident, the student would October 2004. What will be his residential be eligible for receiving following remittances status under FEMA? from India (Circular No. 45 dated December 8, 2003). Mr. Singh is not covered by any of the exceptions laid down under clause (B) as his 1. up to USD 100,000 from close relatives intention to stay in India is for a specific from India on self-declaration towards period. He will be non-resident in F.Y. 2003- maintenance and studies, 25
  • 32. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 2. up to USD 1 million out of sale proceeds/ considered as “resident in India”. Even balances in his account maintained with though such entities are treated as resident an authorised dealer in India, in India, under section 6(6) of the Act, RBI 3. all other facilities available to NRIs under is empowered to prohibit, restrict or regulate FEMA, their establishment as well as activities in India. Notification No.FEMA/22/RB-2000 4. educational and other loans availed of by deals with Regulations pertaining to students as resident in India can be establishment of such entities in India. One allowed to continue: difficulty here is that the terms “ agency”, Residential Status of Other Entities “ownership” and “control” are not defined. Clauses (ii) to (iv) of sub-section (v) of Clause (iv) section 2 of FEMA deal with determination As per this clause, an office, branch or an of residential status of entities other than agency outside India owned or controlled by individuals. a person resident in India would be considered as ‘resident in India’. This is a Clause (ii) significant departure from FERA where This clause provides that any person or body under such entities were considered as non- corporate (say, HUF, FIRM, AOP BOI, , resident. The consequences of this change COMPANIES etc.), registered or are far-reaching. Under the scheme of incorporated in India would be considered as FEMA, transactions are divided into two “person resident in India”. Here, the distinct categories, namely, Current Account emphasis is on the registration or and Capital Account transactions. Whilst incorporation. A question arises as to what Current account transactions are by and about an unregistered FIRM, AOP or BOI or large freely permitted, a lot of restrictions are say HUF that recquires no registration? placed on Capital Account transactions to be Whether they would be out of the purview entered into by Indian residents. Therefore, of FEMA, although they are included in the treating such entities as residents in India definition of person. Here, too, the outcome would pose several unforeseen difficulties. seems to be unintended. In order to make Consider the following illustrations FEMA workable, it is advisable to consider An Indian Company sets up a branch in that FEMA is applicable to such entities. USA. Such a branch cannot carry out following transactions without RBI’s prior Clause (iii) approval (the list is just illustrative) This clause provides that an office, branch or agency in India owned or controlled by a i Purchase of any premises (although US person resident outside India (PROI) is laws may be permitting it freely); 26
  • 33. Important Concepts Under Foreign Exchange Management Act, 1999 ii Purchase of any capital assets; (dealing with various kinds of Bank (Vide Notification No. 47/2001-RB dtd. Accounts) defines the term “Non-Resident 5-12-2001, RBI has clarified that Indian (NRI)” to mean a person resident purchase or acquisition of office outside India who is either a citizen of India equipments and other assets required for or is a person of Indian origin. The term PIO normal business operations and other has been defined differently in different assets required for normal business Notifications and therefore, the term NRI in operations of an overseas branch/office/ turn will have a different meaning. In short, representative will not be deemed to be one should bear in mind that the definitions Capital Account transactions). of NRI and PIO are contextual. iii Borrow or lend money; “Person of Indian Origin” (PIO) (Vide Notification No. 67/2002-RB dtd. The term “Person of Indian Origin” (PIO) is 20-08-2002, RBI has permitted Indian defined differently in different Notifications Companies to grant rupee loans to their and therefore, the term NRI will have a employees, who are NRIs or PIOs). different meaning depending upon the iv Placement or acceptance of deposits. Notification one applies. Therefore, when It will thus be observed that this applying provisions of FEMA, one must be particular change in FEMA would result careful about the reference and context of in undue hardship as such entities will such application. have to comply with legal requirements Different definitions of the term PIO are as of two countries, namely, the “host follows:- country” (i.e. where they are operating) as well as the “ home country” (i.e. A. The term PIO as defined under India). Many a time, requirements in Notification No. 5 (dealing with various either country may be conflicting with kinds of Bank Accounts); Notification each other. No. 13 (dealing with Remittance of Assets) and Notification No. 20 (dealing Non- Resident Indian (NRI) with Inbound Investments including Section 2 of the FEMA deals with various Foreign Direct Investments (FDI) is as definitions. It defines person resident in India mentioned below: and a person resident outside India. “Person of Indian Origin” means a citizen However, it does not define the term non- of any country other than Bangladesh or resident nor it defines the term Non-resident Pakistan, if- Indian (NRI). i he at any time held Indian passport; However, Notification No. 5/2000-RB or 27
  • 34. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians ii he or either of his parents or any of China, Iran, Nepal, Pakistan, or Sri Lanka his grandparents was a citizen of are excluded from the definition of PIO. India by virtue of the of the Constitution of India or the Overseas Corporate Body (OCB) Citizenship Act, 1955 ( 57 of 1955); Like the term NRI, the term “ Overseas or Corporate Body (OCB)” is also not defined B. The term is defined almost identically as in the Section 2, which deals with definitions above under the Notification No. 24 of various words/terms in general. (dealing with investment in Firm or Notification No. 5 (dealing with Bank Proprietary Concern in India) except Accounts) and Notification No. 20 (dealing that the citizens of Sri Lanka are also with Inbound Investments) define the term excluded from the definition in addition OCB in following manner. to citizens of Bangladesh or Pakistan as ‘Overseas Corporate Body (OCB)’ means a mentioned above. company, partnership firm, society and other C. The term PIO is defined in the following corporate body wholly owned, directly or manner in the Notification no. 21 indirectly, to the extent of at least sixty per (dealing with the Acquisition and cent by Non- Resident Indians and includes Transfer of Immovable Property In overseas trust in which not less than sixty per India): cent beneficial interest is held by Non- “Person of Indian Origin” means an Resident Indians, directly or indirectly but individual (not being a citizen of irrevocably. Afghanistan, Bangladesh, Bhutan, In order to establish that a particular entity China, Iran, Nepal, Pakistan, or Sri is an OCB, the investor has to furnish a Lanka) who - certificate in following forms from the i at any time held Indian passport; or Certified Public Accountant and/or ii who or either of whose father or Chartered Accountant of the country to whose grandfather was a citizen of which such entity belongs: India by virtue of the Constitution of However, RBI has issued Notification No. India or the Citizenship Act, 1955 101/2003-RB dated October 3, 2003 (57 of 1955).” whereby OCBs holding investments/ It will be thus seen that for the purposes of interests in India as on 16 th September acquisition or transfer of immovable property 2003 are derecognised as an eligible “class in India, persons of Indian origin who are of investors”. Now, OCBs which did not citizens of Afghanistan, Bangladesh, Bhutan, have any investments/interests in India 28
  • 35. Important Concepts Under Foreign Exchange Management Act, 1999 prior to 16th September 2003 would be defined u/s 2(j) to mean “a transaction other treated on par with Foreign Companies. than a Capital Account transaction and without prejudice to the generality of the Current Account and Capital foregoing, such transaction includes:- Account Transactions 1. payments due in connection with foreign trade, other current business, services, Under the FERA regime the thrust was on and other short term banking credit regulation and control of the scarce foreign facilities in the ordinary course of exchange, whereas under the FEMA, business, emphasis is on management of foreign exchange resources. Thus, there is a clear 2. payments due as interest on loans and as shift in focus from control to management. net income from investments. Therefore, under FERA it was safe to 3. remittances for living expenses of presume that any transaction in foreign parents, spouse and children residing exchange or with non-resident was abroad, prohibited unless it was generally or specially 4. expenses in connection with foreign permitted. travel, education and medical care of FEMA has formally recognised the parents, spouse and children” distinction between Current Account and Capital Account Transactions. Two golden Explanation rules or principles in FEMA are mentioned As discussed earlier, this concept is unique to below:- FEMA and was not found in FERA. When H All Current Account transactions are it is said that Current Account transactions permitted unless otherwise prohibited: are free from controls in India, it does not and imply that any amount of remittance is H All Capital Account transactions are permitted for a Current Account prohibited unless otherwise permitted. transaction. Section 5 authorizes the Central Government to impose restrictions on Current Account Transactions Current Account transactions. Exercising India is signatory to the WTO Agreement. this authority, the Central Government has As a part of its obligation under the WTO issued Notification No. GSR 381(E) entitled Agreement, India has relaxed (not as the F.E.M (Current Account removed) its exchange control regulations Transactions) Rules, 2000 dated 3rd May on Current Account transactions. 2000, according to which drawal of foreign The term “ Current Account Transaction” is exchange is prohibited for: 29
  • 36. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 1. transactions specified in Schedule I, or 2. Remittance for securing Insurance for 2. travel to Nepal and /or Bhutan, or Health from a company abroad. 3. transactions with a person resident in 3. Short-term credit to overseas offices of Nepal or Bhutan. Indian companies. As far as categories (b) and (c) above are 4. Remittance for Advertisement on concerned, it may be noted that Indian rupee Foreign Television Channels. is a widely accepted currency in these 5. Remittance of Royalty and Payment of countries and hence, drawal of foreign Lump sum fee provided the payments are exchange is not permitted for travel to and in conformity with the norms as per item transactions with these countries. no. 8 of Schedule II, i.e. royalty does not Schedule II of the said Notification lists exceed 5% on local sales and 8% on transactions, which require prior approval of exports and lump-sum payment does not the Government of India, except when the exceed USD 2 million. exchange is drawn from RFC/EEFC, 6. Remittance for use of Trademark/ Accounts. Franchise in India. Schedule III of the said Notification lists It may be noted from the above that interest transactions, which require prior approval of and other income on investments are only the RBI. In some cases prior permission is covered as Current Account transactions. required only if the transaction value exceeds Therefore, the principal amount of the limits specified therein except where the investment can be remitted abroad, only if it exchange is drawn from RFC/ RFC (D) has been invested on repatriation basis. Any Accounts. Current Account transaction that is not regulated or prohibited is permitted by (Refer Annexure I of this Chapter for items implication. covered by Schedule I, II and III) Reserves Bank of India has liberalised the Capital Account Transactions remittances permissible under the Current Section 2(e) defines “Capital Account Account transactions vide Circular No. 76 Transactions” to mean “a transaction which dated February 24, 2004. Following alters the assets or liabilities, including transactions are permissible under the contingent liabilities, outside India of a automatic route without any monetary person resident in India or assets or liabilities ceiling:- in India of persons resident outside India, and 1. Remittance by Artistes, e.g. wrestler, includes transactions referred to in sub- dancer, entertainer, etc. section (3) of section 6.” [Refer Annexure 2 30
  • 37. Important Concepts Under Foreign Exchange Management Act, 1999 for Capital Account Transactions specified in payment of cash or on normal credit terms Section 6 (3)]. of the vendor will be regarded as the Current Section 6 (3) contains ten sub clauses Account transaction. The importer may covering a wide range of transactions, capitalise it in his account books and claim namely, Foreign Direct Investments in India, depreciation thereon. As far as the country Overseas Direct Investments from India, is concerned, it is a trade transaction. Borrowing or Lending in foreign exchange However, if the same machinery is imported and in Indian rupees, various kinds of bank on deferred credit basis or is funded out of accounts, immovable property in India and ECB etc., the credit beyond twelve months abroad, guarantees, etc., for each category, (as less than twelve months again would fall the RBI has issued separate Notifications. within the definition of “Current Account transactions”) would result in the creation of Distinction Between Capital Account the long-term liability outside India and and Current Account Transactions therefore, be termed as a Capital Account The distinction between the two types of transaction. transactions needs to be understood from the A word of caution here is that, the meaning viewpoint of ‘balance of payments’ of the of “ alteration of assets or liabilities” is not country. There is a difference between our properly defined and therefore, leads to normal understanding of a “Capital Asset” or different interpretations. In order to be right a “Capital Expenditure” and a Capital side of the law. It is advised that in case of Account transaction per se. doubt, the matter may be referred to the For example, import of machinery on Reserve Bank of India. ■■ 31
  • 38. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Illustrative list of Current and Capital Account Transaction Nature of Transaction Current A/c Capital A/c 1 Import of Machinery If imported on If imported on Suppliers COD basis Credit or funded out of Foreign loans. 2 Import, Export of goods on Yes – Credit 3 Payment for Web hosting Yes – 4 Payment for consultancy Yes – 5 Remittance of - Interest on loans/ Investments Yes – - Dividend Yes – - rental from immovable property - Capital Gains on a) Movable Assets – Yes b) Immovable Property – Yes 6 Loans/Borrowings other than from banks(whether short term or Long term) – 7 Short Term Working Capital from Bank Yes – 8 Term Loan from Bank/F1 – Yes 9 Living Expenses of Parents, spouse & Children Yes – 10 Expenses in connection with foreign travel education and medical care of parents, spouse, children Yes – 11 Investments in Securities (whether in India by a non- resident or outside India by a resident) – Yes 12 Investments in Immovable Property(whether in India by a non-resident or outside India by a resident – Yes 32
  • 39. Important Concepts Under Foreign Exchange Management Act, 1999 Foreign Direct Investment Annexure - I Schedule - I List of Current Account Transactions and Other Restrictions List of Current Account Transactions for 6. Payment of commission on exports under which Drawal of Foreign Exchange is not Rupee State Credit Route, except Permitted commission up to 10% of invoice value of exports of tea and coffee. 1. Remittance out of lottery winnings. 2. Remittance of income from racing/riding, 7. Payment related to “Call Back Services” etc., or any other hobby. of telephones. 3. Remittance for purchase of lottery 8. Remittance of interest income on funds tickets, banned/prescribed magazines, held in Non-Resident Special Rupee football pools, sweepstakes, etc. Scheme A/c. 4. Payment of commission on exports made 9. Travel to Nepal and/or Bhutan towards equity investment in Joint 10. Transaction with a person resident in Ventures/Wholly Owned Subsidiaries Nepal and/or Bhutan (RBI has the power abroad of Indian companies. to relax this prohibition). 5. Remittance of dividend by any company 11. Remittance towards participation in to which the requirement of dividend lottery schemes involving money balancing is applicable (The condition of circulation or for securing prize money/ dividend balancing not applicable awards, etc. presently). 33
  • 40. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Schedule - II List of Current Account Transactions for which Prior Approval of the Government is Required (No permission required if payment is made out of RFC or RFC (Domestic Account for all types of payments listed in item nos. 1 to 10, whereas for payments out of EEFC Account, no permission is required for transactions listed in item nos. 1 to 9) Purpose of Remittance Ministry/Department of Govt. of India whose Approval is Required 1. Cultural Tours Ministry of Human Resources Development (Department of Education and Culture) 2. Advertisement in foreign print media Ministry of Finance (Department of Economic abroad by any PSU/State and Central Affairs) Government Department other than promotion of tourism, foreign investments and international bidding (exceeding US$ 10,000) 3. Remittance of freight of vessel Charted Ministry of Shipping (Chartering Wing) by a PSU 4. Payment of import by a Government Ministry of Shipping (Chartering Wing) Department or a PSU in c.i.f. basis (i.e. other than f.o.b. and f.a.s. basis) 5. Multi-modal transport operators making Registration Certificate from the Director remittance of their agents abroad General of Shipping 6. Remittance of hiring charges of Ministry of Information & Broadcasting transponders by Ministry of Communication & Information - TV Channels Technology - Internet Service Providers 7. Remittance of container detention Ministry of Shipping (Director General of charges exceeding the rate prescribed Shipping) by Director General of Shipping 8. Remittances under technical Ministry of Industry and Commerce collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump- sum payment exceeds US $ 2 million 34
  • 41. Important Concepts Under Foreign Exchange Management Act, 1999 Foreign Direct Investment 9. Remittance of prize money/sponsorship Ministry of Human Resource Development of sports activity abroad by a person (Department of Youth Affairs and Sports) other than International/National/State level sports bodies, if the amount involved exceeds US$ 100,000 10. Remittance for membership of P&I Club Ministry of Finance (Insurance Division) (remittances from other than RFC account) 35
  • 42. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Schedule – III List of Current Accounts Transactions for which Prior Approval of RBI is Required (No permission required if payment is made Explanation: For the purpose of this out of RFC or RFC (Domestic) Account) term, a person resident in India on account of his employment or deputation 1. Release of exchange exceeding US $ 10,000 or its equivalent in one calendar of a specified duration (irrespective of year, for one or more private visits to any length thereof) or for a specific job or country (except Nepal and Bhutan). assignment; the duration of which does not exceed three years, is a resident but 2. Gift remittance exceeding US $ 5,000 not permanently resident. per remitter/donor per annum. 7. Release of foreign exchange, exceeding 3. Donation exceeding US $ 5,000 per US $ 25,000 to a person, irrespective of remitter/donor per annum. period of stay, for business travel, or 4. Exchange facilities exceeding US $ attending a conference or specialised 1,00,000 per persons going abroad for training or for maintenance expenses of employment. a patient going abroad for medical 5. Exchange facilities for emigration treatment or check-up abroad, or for exceeding US $ 1,00,000 or amount accompanying as attendant to a patient prescribed by country of emigration. going abroad for medical treatment/ 6. (a) Remittance for maintenance of close check-up. relatives abroad exceeding net salary 8. Release of exchange for meeting (after deduction of taxes, contribution expenses for medical treatment abroad to provident fund and other deductions) exceeding the estimate from the doctor of a person who is resident but not in India. permanently resident in India and is a citizen of a foreign state other than 9. Release of exchange for studies abroad Pakistan or is a citizen of India, who is on exceeding the estimates from the deputation to the office or branch or institution abroad or US $ 1,00,000 per subsidiary or joint venture in India of academic year, whichever is higher. such foreign company. 10. Release of exchange for commission to (b) Exceeding USD 100,000 per year, per agents abroad for sale of residential flats/ recipient, in all other cases. commercial plots in India, exceeding 5% 36
  • 43. Important Concepts Under Foreign Exchange Management Act, 1999 Foreign Direct Investment of the inward remittance per transaction 13. Remittance exceeding US $ 5,000 or its or USD 25,000 whichever is higher. equivalent for small value remittances. 11. Remittances exceeding US $ 1,000,000 Note: The above restrictions shall not apply per project for consultancy services on the use of International Credit Card for procured from abroad subject to the making payment by a person towards applicant submitting documents to the meeting expenses while such person is on a satisfaction of the authorised dealer. visit outside India. 12. Remittance exceeding US $ 1,00,000 for reimbursement of incorporation expenses. 37
  • 44. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Annexure – II Capital Account Transactions Specified in Section 6(3) Reserve Bank may, by regulations, prohibit, f. deposits between persons resident in restrict or regulate the following types of India and persons resident outside India; transactions:- g. export, import or holding of currency or a. transfer or issue of any foreign security by currency notes; a person resident in India; h. transfer of immovable property outside b. transfer or issue of any security by a India, other than a lease not exceeding person resident outside India; five years, by a person resident in India; c. transfer or issue of any security or foreign i. acquisition or transfer of immovable security by any branch, office or agency property in India, other than a lease not in India of a person resident outside exceeding five years, by a person resident India; outside India. d. any borrowing or lending in foreign j. Giving of a guarantee or surety in respect exchange in whatever form or by of any debt, obligation or other liability whatever name called; incurred: e. any borrowing or lending in rupees in i by a person resident in India and whatever form or by whatever name owned to a person resident outside called between a person resident in India India; or and a person resident outside India; ii by a person resident outside India. 38
  • 45. Facilities Available to Returning Indians and Baggage Rules Facilities Available to Returning Indians and Baggage Rules Change of Residential in India. Their Non-Resident Accounts/ Investments etc., would continue without Status any change and they will also not be required A Non-Resident Indian will be treated as a to surrender any foreign exchange. person resident in India if he returns to or Once an NRI becomes resident of India, all stays in India, in either case:- the rules and regulations of FEMA, as are a for or on taking up employment in applicable to the person resident in India India, or would be applicable to him except that he b for carrying on in India, a business or continues to enjoy various facilities such as vocation, or maintaining his foreign securities, currency, c for any other purpose, in such properties situated abroad or maintaining circumstances as would indicate his and operating Resident Foreign Currency intention to stay in India for an Account in India. uncertain period. From the definition given above, it can be Formalities to be Completed concluded that the purpose/intention of stay on becoming Resident in India is the most relevant factor for determining the residential status of a This is the most significant practical aspect person. The period of stay is only of of FEMA. Quite a few formalities have to be secondary importance. complied with, upon change of residential status either way. A large number of violations of FERA were occurring in this Status of Non-Residents on area due to ignorance. RBI was considerate Temporary Visits/Stay in in pardoning genuine mistakes thus far. The India scenario has changed, now that the RBI’s Non-Resident Indian citizens and Persons of power to regularise mistakes or give post- Indian Origin on the temporary visits/stay in facto approval has been withdrawn. In view India without any intention to stay in India of this, it is imperative that we get to know for an uncertain period shall continue to be about obligations under FEMA upon change treated as Non-Residents, during their stay of residential status. 39
  • 46. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Assets Abroad exchange representing income on assets held Section 6(4) of the Act deals with provisions outside India, all such income or sale relating to “Returning NRls”. Accordingly, a proceeds have to be deposited, with the person resident in India (here the reference authorised person in India, within seven days is to returning NRls) is permitted to hold, of their receipt. own, transfer or invest in foreign currency, foreign security or any immovable property Continuation of proprietary/ situated outside India, provided such partnership business abroad currency, security or property was acquired, Section 6(4) is silent on this issue; moreover, held or owned by such person when he was there is no direct provision dealing with this resident outside India or inherited from a situation. However, Section 3 puts a general person who was resident outside India. restriction on a person resident in India to deal in foreign exchange or enter into any Under FERA, general permission was given transactions of receipts or payments with to the returning NRls to hold their non-residents, unless there is a general or investments and assets outside India under special permission in that behalf. Besides this, several Notifications. These Notifications there are specific regulations concerning a permitted the returning NRls to hold, person resident in India pertaining to foreign convert, sell, re-invest the assets abroad and/ currency bank accounts, lending and or earn income thereon. In short, the borrowing in foreign exchange, acquisition returning NRls were permitted to deal with and transfer of immovable property outside these assets in whatever manner they feel India and so on. Therefore, it is advisable appropriate even after becoming resident. that a specific permission be obtained from The only two conditions were that the assets the Reserve Bank in respect of these types of should have been acquired legitimately interests. (without FERA violation) while residing abroad and the returning NRI should have Other Movable Assets held Abroad stayed outside India for at least one year There are no provisions under FEMA continuously. governing movable assets held abroad, The condition of continuous period of one excepting foreign currency and foreign year has been removed under FEMA. securities covered by section 6(4) of the Act, However, Section 6(4) is silent on re- pertaining to returning NRls. There are two investment of income/sale proceeds of assets views, namely, (i) whatever is not expressly abroad after becoming resident of India, prohibited is permitted under the law, and (ii) which was freely allowed under FERA. Thus, wherever the Act is silent, it is considered as applying provisions of surrender of foreign implied prohibition. It is difficult to accept 40
  • 47. Facilities Available to Returning Indians and Baggage Rules the second view; however, in order to be on continued till maturity, will be eligible for right side of the law and to avoid possibility concessional tax under Chapter XII-A. of litigation, one may obtain permission to FCNR, too, can be converted into RFC hold such assets from the RBI. Account on its maturity. RFC account is fully Other movable assets may include: convertible. Therefore, it is advisable that H Jewellery whatever repatriable incomes are due on arrival are credited to RFC account. H Motor car H Personal household effects Investments H Personal computers, Cell phones and A person can continue to hold an investment other gadgetry. without requiring prior permission of the RBI, provided such investments were Bank Accounts Abroad acquired, held or owned by such person FEMA does not specifically contain when he was resident outside India or provision for maintaining foreign currency inherited from a person who was resident accounts abroad in respect of returning outside India. Indians. Therefore, it is advisable to obtain a specific permission from the RBI in this Time Limits for Intimation regard. As stated earlier, no specific time limits are prescribed. However, as far as bank accounts Bank Accounts in India are concerned, the regulations stipulate Upon change of residential status, the immediate redesignation as resident account. returning NRI must inform the bank, where This is one area where many people fail to upon all bank accounts would be re comply with the provisions of law. Many designated as “Resident A/C”. RBI has people continue to maintain NRE/FCNR allowed continuance of NRE and FCNR and other non-resident accounts for years accounts till maturity so that there is no loss after becoming resident. The Reserve Bank of interest. Funds in NRE account can be was considerate in condoning such lapses deposited in RFC Account on returning to under FERA. Now it will be difficult for the India. The time limit is not specified. Reserve Bank to condone delay, and such However, it is advisable to transfer the funds lapses may invite monetary penalty. immediately after maturity. In any case, it is obligatory on the part of the returning NRI VISA to inform the banker about his change of residential status immediately upon such Foreign National of Indian Origin can visit change. Interest on NRE deposits which are India under multi-entry visa when they hold 41
  • 48. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians letter of Intent/Acknowledgement of Warehouse and pay the duty before Industrial Entrepreneurs Memorandum/ clearance. The imported gold or silver License or Provisional Registration with the can be sold in open market without any Directorate of Industries etc. Such persons restrictions, but are subject to applicable can get endorsement on their passport for Sales Tax and Octroi Duty of the single/multi-entry visa from the Consulate respective state in which it is imported. General/High Commissioner/Embassy of When gold is sold in India, the profit is liable India. Their spouses can also be granted to tax as business income or capital gains, multi-entry visa upto 5 years. depending upon the facts of each case i. e., the intention of the NRI. If his intention was to Import of Gold and Silver take advantage of the business opportunity and sell gold/silver, it will be treated as business An NRI returning to India after staying profit. If his intention was to hold it as a abroad for a period of more than six months Capital Asset, it will be treated as capital gains. is permitted to import Gold upto 10 kgs and In a majority of the cases, the NRI would Silver upto 100 kgs on payment of custom have purchased the precious metal just prior duty which on Gold is @ Rs. 10 per gm. for to his return to India and sold it within a a 100 gm bar and for a Tola bar it is Rs. 250 short time after his arrival in India, such a per 10 gm and on silver is @ Rs. 500 per kg transaction constituting an “adventure in the subject to following conditions:- nature of trade” and the income therefrom H Ornaments studded with stones and would be taxable as business income. It is a pearls will not be allowed to be imported well-settled principle that income from a under the scheme mentioned above. single transaction could also constitute H The passenger can bring the gold/silver business income. Hence profit on sale of gold/ himself at the time of arrival or import silver would be treated as business income. the same within fifteen days of his arrival If however, the NRI has acquired the in India. precious metal as a capital asset, the income H The passenger can also obtain the will be treated as short-term or long-term permitted quantity of gold/silver from capital gain depending upon the period of Customs Bonded Warehouse of the State holding. Bank of India; if he had filed a declaration on the prescribed form before the Customs Officer at the time of arrival Import of Currency in India stating his intention to obtain Any person who arrived from outside India, the gold/silver from the Customs Bonded may bring into India at the time of his return 42
  • 49. Facilities Available to Returning Indians and Baggage Rules from any place outside India (other than Tax Act, 1961 whereby his specified assets in from Nepal and Bhutan):­ India (for example, deposits with public 1. No limit is prescribed for the import of limited companies in India placed out of coins. convertible foreign exchange) can continue to be taxed at the concessional rate of 20 per 2. There is no limit as such to bring in cent. foreign exchange by an incoming passenger; however, a declaration in form Moneys and the value of assets brought by CDF (Currency Declaration Form) is Returning Indian and the value of assets required if the value of such currency acquired by him out of such moneys within exceeds US $ 10,000 or its equivalent (in one year immediately preceding the date of the form of currency notes, bank notes or his return and at any time thereafter are traveler’s cheques) and US $ 5,000 totally exempt from Wealth-Tax for a period (foreign currency notes) or its of seven years after return to India. equivalent. The NRI has to consider whether it is advantageous to keep foreign currency assets Concessions Available to abroad, carrying much lower returns but NRIs on their Return to India which provides protection against the A returning Indian is permitted to hold, own, exchange rate fluctuation, as well as Indian transfer or invest in foreign currency, foreign tax on foreign incomes. In some cases, it may security or any immovable property situated be advantageous to invest a large portion of outside India, provided such currency, their foreign liquid funds in India and earn security or property was acquired, held or higher income thereon, sometimes even owned by such person when he was resident when there are no plans to return to India outside India or inherited from a person who permanently. Each individual NRI has to was resident outside India. examine in detail the various avenues available in India, which give the right to A returning Indian can convert his balances repatriability, offer much higher returns than in NRE/FCNR account into RFC account. those available abroad and at the same time RFC account is convertible on Capital protect the investor against the depreciation Account, whereby he can buy or invest in of the Indian rupee. properties and securities abroad without any permission from RBI. Bank Accounts Abroad Tax Benefits Under the FERA, RBI had granted general A returning Indian can opt to be governed permission to returning Indians to maintain by provisions of Chapter XII-A of the Income and operate their foreign currency accounts 43
  • 50. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians abroad provided the funds held in bank banks on return of the account holders accounts were acquired by such person not to India and consequently becoming in contravention of provisions of FERA while resident in India. he was resident outside India and he had b Non-resident (External) Rupee been non-resident for a continuous period of Accounts: Non-resident (External) one year. Rupee Accounts can be converted to There were no restrictions on utilization of resident rupee accounts or RFC the balances in these accounts for any bona (Resident Foreign Currency) accounts fide payments in foreign currency. Further, (which is explained below vide item d) at funds were allowed to be utilised for making the option of the account holder on his investments abroad in any shares/securities, return to India and becoming resident in immovable properties, etc. This facilitated India. In case of NR(E) fixed deposits, account holders to make any payments to the accounts will continue to earn agreed persons resident outside India. higher rates of interest till maturity, even after being converted to resident FEMA is silent on the issue of maintenance account. of foreign currency accounts abroad by returning NRls. Section 6(4) permits c FCNR (Banks) Account: FCNR returning NRls to hold, own, transfer or (Banks) deposits can be converted to invest in foreign currency, foreign security, or resident rupee account or RFC account immovable property outside India; however, at the option of the account holder on his it does not mention about bank account return to India and becoming resident in abroad. Thus, technically a returning NRI India. would require approval from RBI to maintain In case the deposit is converted to bank accounts abroad. However, there is a resident rupee account the foreign school of thoughts that believes that the currency amount will be converted to beneficial provisions of FERA would Indian rupees at IT buying rate ruling on continue and no permission would be the day of conversion. Interest on the required in such cases. Yet, it is advisable to new deposit would be payable at the approach RBI for approval to be on right side relevant rate applicable for such a of the law. deposit. In case the amount is transferred to RFC account, the rate of interest as Bank Accounts on Return to India applicable to RFC deposit will be a Ordinary Non-Resident Accounts: allowed. Ordinary Non-Resident Accounts have d Resident Foreign Currency Account: to be converted to resident accounts by The returning NRI being the citizen of 44
  • 51. Facilities Available to Returning Indians and Baggage Rules India or a PIO who has permanently Baggage Rules and Transfer settled in India and is in India for a period of Residence of more than one year can open an RFC account on account of the following Baggage receipts: Baggage is an aspects of customs network i Funds received as pension or any through which common man going abroad other superannuation or other or returning from abroad comes in contact monetary benefits from his employer with customs. outside India. Under the general Baggage Rules, ii Funds realized on conversion of 1 used personal effects, and assets referred to in sub-section (4) of section 6 of the FEMA, and 2 new article up to a value of Rs. 12,000/- repatriated to India (i.e. foreign per adult passenger ( Rs. 25,000/- if the currency, foreign security or any person return to India after more than immovable property situated outside three days) are exempt. India). A lower Free Allowance of Rs. 6,000/- is allowed to passengers coming ( after 3 days) iii Received or acquired as gift or from Nepal, Bhutan, Burma or China inheritance from a person Funds provided they do not come across land referred to in sub-section (4) of boarders with these countries. section 6 of FEMA (i.e. returning non- resident). Passengers returning from Pakistan by road iv Funds Acquired or received before are allowed duty free baggage up to July 8, 1947 or any income arising or Rs. 12,000/-. accruing thereon which is held For child passengers (below 10 years of age), outside India by any person, or free allowance is 50% of the allowance acquired as gift or inheritance admissible to an adult passenger of that therefrom [i.e. under section 9(c)]. category. Funds held in the RFC Account are free from The General Free Allowance of passenger is all restrictions regarding utilization of foreign not clubbable with similar allowance of balances including any restrictions on another passenger ( for example, husband or investment in any form outside India. Thus, wife or any other relative traveling with the RFC account is convertible on Capital passenger) to permit clearance of a costly Account. article of baggage. 45
  • 52. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Laptop computer (computer notebook) There are value/ quantity restrictions on brought by a passenger of the age of 18 years bringing jewellery, cigarettes and liquor. and above has been exempted w.e.f from 9- However , primary gold up to ten kgs. per 1-2004. passenger and silver up to one hundred kgs. Alcoholic liquor or wines up to two liters, 200 per passenger can be imported on payment cigarettes and jewellery upto Rs. 20,000/- for of normal duties in convertible foreign a lady and Rs. 10,000/- for a gentleman can exchange provided the concerned passenger be brought as part of the free baggage is coming to India after at least six months’ allowance. Import of cinematography films, stay abroad. For crew members of a vessel or exposed but not developed, brought as part aircraft, free allowance for petty gifts is of baggage has also been made duty free. Rs 600/- In case a single article exceeding the limit Allowance for gifts as well as for travel of Rs. 12,000 ( or Rs. 25,000 in value) is souvenirs in the case of foreign tourists is Rs. brought, 35% flat rate of duty with no SAD 8,000/-( Rs.6,000/- in the case of tourists or CVD is payable on excess value. 40% from Pakistan origin), apart from personal without SAD & CVD is also the effective effects in use of tourist. Peak rate of duty for rate of Duty for any article of bona fide baggage goods of Heading 98.03 is 150% baggage brought in excess of free allowance non-bona fide baggage is in addition to fine except for fire arms, cartridges of fire arms and penalty. exceeding 50 and excess cigarettes, cigars or Foreign Travel Tax and Inland Air Travel Tax tobacco. have been exempted for all passengers with But in term of exemption Notification No. effect from 9-1-2004. 49/96-Cus., dated 23-7-1996, specified goods covered under listed Headings and Passengers not carrying any dutiable goods Notifications therein attract merit rate (as can walk through the Green Channels. applicable to cargo) even if imported as Others are required to come to the Red baggage . However, conditions, if any, Channel and report at customs counter. prescribed in the listed Notification will apply There are now no restrictions on resale of to imports under baggage also. Free baggage goods. allowance is restricted in case of visit to Passengers importing/exporting commercial contiguous countries like Maldives, Sri samples as accompanied baggage should Lanka, Nepal and Bhutan. follow the procedure laid down in this behalf. ‘Baggage’ does not include motor vehicle, fire If an importer is desirous of paying duty on arms and goods of commercial nature or in an article at the cargo rate but by mistake he commercial quantities. has brought the said article as baggage, he 46
  • 53. Facilities Available to Returning Indians and Baggage Rules can rectify the error by filling an application omitted to be done before such supersession, before the authorities along with submission the Central Government hereby makes the of a bill of entry(Collector vs. A.K.Dhawan) following rules, namely:­ Transfer of Residence 1. Short Title and Commencement i These rules may be called the Baggage In the case of passengers transferring their Rules, 1998. resident to India after stay abroad of two years or more, personal and household effects ii They shall come into force on the date in use abroad and six new specified of their publication in the Official household gadgets are exempt from duty but Gazette. 15 % flat duty without SAD has to be paid 2. Definitions on 17 listed articles of consumer durables In these rules, unless the context otherwise within value ceiling of 5 lakhs. In the case of requires:- transfer of resident after stay abroad of at i “appendix” means an Appendix to these least one year, other personal and household rules; effects in use abroad and not exceeding Rs. 75,000/- in aggregate value can be brought ii “resident” means a person holding a valid in free. In addition, there are free allowances passport issued under the Passports Act, of varying value of professional artisans 1967 (15 of 1967) and normally residing coming to India after 3 months/6 months in India; (duty free household article worth iii “tourist” means a person not normally Rs. 12,000/- and professional equipment resident in India, who enters India for a worth Rs. 20,000/- / 40,000/-). stay of not more than six months in the course of any twelve months period for The Baggage Rules, 1998 legitimate non-immigrant purposes, such (Notification No. 30/98 - Cus(NT) as touring, recreation, sports, health, dt. 2-6-1998, as amended by family reasons, study, religious pilgrimage Corrigenda F. No. 334/6/97 – TRU or business; dt. 2-6-1998 and 16-6-1998) iv “family” includes all persons who are Notification No. 11/2002-Cus.(N.T.), residing in the same house and form part dated 1-3-2002 of the same domestic establishment; In exercise of the powers conferred by section v “professional equipment” means such 79 of the Customs Act, 1962 (52 of 1962), portable equipments, instruments, and in supersession of the Baggage Rules, apparatus and appliances as are required 1994, except as respects things done or in his profession, by a carpenter, a 47
  • 54. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians plumber, a welder, a mason, and the like in addition to what he is allowed under and shall not include items of common rule 3 or, as the case may be, under rule use such as cameras, cassette recorders, 4, articles in his bona fide baggage to the dictaphones, personal computers, extent mentioned in column (2) of typewriters, and other similar articles. Appendix C. 3. Passengers’ returning from 6. Jewellery countries other than Nepal, Bhutan, A passenger returning to India shall be Myanmar or China allowed clearance free of duty jewellery An Indian resident or a foreigner residing in his bona fide baggage to the extent in India, returning from any country mentioned in column (2) of Appendix D. other than Nepal, Bhutan, Myanmar or 7. Tourists China, shall be allowed clearance free of A tourist arriving in India shall be duty articles in his bona fide baggage to allowed clearance free of duty articles in the extent mentioned in column (2) of his bona fide baggage to the extent Appendix A. mentioned in column (2) of Appendix E. Provided that such Indian resident or 8. Transfer of residence such foreigners returning from Pakistan, 1 A person who is transferring his by land route, shall be allowed clearance residence to India shall be allowed free duty articles in his bona fide baggage clearance free of duty, in addition to to the extent mentioned in column (2) what he is allowed under rule 3 or, of Appendix “B. as the case may be, under rule 4, 4. Passengers returning from Nepal, articles in his bona fide baggage to the Bhutan, Myanmar or China. extent mentioned in column (1) of An Indian resident or a foreigner residing Appendix F, subject to the in India, returning from Nepal, Bhutan, conditions, if any, mentioned in the Myanmar or China, other than by land corresponding entry in column (2) of route, shall be allowed clearance free of the said Appendix. duty articles in his bona fide baggage to 2 The conditions may be relaxed to the extent mentioned in column (2) of the extent mentioned in column (3) Appendix B. of the said Appendix. 5. Professionals returning to India 9. Provisions regarding An Indian passenger who was engaged in unaccompanied baggage his profession abroad shall on his return 1 Provisions of these Rules are also to India be allowed clearance free of duty, extended to unaccompanied 48
  • 55. Facilities Available to Returning Indians and Baggage Rules baggage except where they have country or countries concerned or any other been specifically excluded. reasons, which necessitated a change in the 2 The unaccompanied baggage had travel schedule of the passenger. been in the possession abroad of the 10. Application of these Rules to passenger and is dispatched within members of the crew one month of his arrival in India or 1 Provided that except as specified in within such further period as the this sub-rule, a crew member of a Assistant Commissioner of Customs vessel shall be allowed to bring items or Deputy Commissioner of Customs like chocolates, cheese, cosmetics may allow. and other petty gift items for their The unaccompanied baggage may land in personal or family use which shall India upto 2 months before the arrival of the not exceed the value of rupees six passenger or within such period, not hundred. exceeding one year, as the Assistant Commissioner of Customs or Deputy 2 Notwithstanding anything Commissioner of Customs may allow, for contained in these rules a crew reasons to be recorded, if he is satisfied that member of an aircraft shall be the passenger was prevented from arriving in allowed to bring items gifts like India within the period of two months due chocolates, cheese, cosmetics and to circumstances beyond his control such as other petty gift items at the time of sudden illness of the passenger or a member the returning of the aircraft from of his family, or natural calamities or foreign journey for their personal or disturbed conditions or disruption of the family use which shall not exceed the transport or travel arrangements in the value of rupees six hundred. ■■ 49
  • 56. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Appendix – A (See rule 3) (1) Articles allowed free of duty (2) a All passengers of and above 10 years i Used personal effects, excluding of age and returning after stay abroad jewellery, required for satisfying daily of more than three days. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 25,000, if these are carried on the person or in the accompanied baggage of the passenger. b All passengers of and above 10 years i Used personal effects, excluding of age and returning after stay abroad jewellery, required for satisfying daily’ of three days or less. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 12,000 if these are carried on the person or in the accompanied baggage of the passenger. c All passengers up to 10 years of age i Used personal effects, excluding and returning after stay abroad of more jewellery, required for satisfying daily than three days. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 6,000, if these are carried on the person or in the accompanied baggage of the passenger. d All passengers upto 10 years of age i Used personal effects, excluding and returning after stay abroad of three jewellery, required for satisfying daily days or less. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 3,000, if these are carried on the person or in the accompanied baggage of the passenger. Explanation: The free allowance under this rule shall not be allowed to be pooled with the free allowance of any other passenger. 50
  • 57. Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment Appendix – B (See rule 4) (1) Articles allowed free of duty (2) i Passengers of and above 10 years of i Used personal effects, excluding age and returning after stay abroad of jewellery, required for satisfying daily more than three days. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 6,000, if these are carried on the person or in the accompanied baggage of the passenger. ii Passengers upto 10 years of age and i Used personal effects, excluding returning after stay abroad of more than jewellery, required for satisfying daily three days. necessities of life. ii Articles other than those mentioned in Annex. I upto a value of Rs. 1,500, if these are carried on the person or in the accompanied baggage of the passenger. Explanation: The free allowance under this rule shall not be allowed to be pooled with the free allowance of any other passenger. 51
  • 58. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Appendix – C (See rule 5) (1) Articles allowed free of duty (2) a Indian passenger returning after at least i Used household articles upto an 3 months. aggregate value of Rs. 12,000/- ii Professional equipment upto a value of Rs. 20,000. b Indian passenger returning after atleast i Used household articles up to an aggregate value of Rs.12,000. ii Professional equipment upto a value of Rs. 40,000. c Indian passenger returning after a stay i Used household articles and personal of minimum 365 days during the effects, (which have been in the preceding 2 years on termination of his possession and use abroad of the work, and who has not availed this passenger or his family for at least six concession in the preceding three years months), and which are not mentioned in Annex I or Annex. II or Annexure – III upto an aggregate value of Rs. 75,000. 52
  • 59. Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment Appendix – D (See rule 6) (1) Articles allowed free of duty (2) a Indian passenger who has been residing i Jewellery upto an aggregate value of abroad for over one year. Rs. 10,000 by a gentleman passenger, or ii Upto aggregate value of Rs. 20,000 by a lady passenger. 53
  • 60. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Appendix – E (See rule 7) (1) Articles allowed free of duty (2) a Tourists of Indian origin other than those i used personal effects and travel coming from Pakistan by land route. souvenirs, if- a these goods are for personal use of the tourist, and b these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. ii articles as allowed to be cleared under rule 3 or rule 4. b Tourists of foreign origin other than i used personal effects and travel those of Nepalese origin coming from souvenirs, if- Nepal or of Bhutanese origin coming a these goods are for personal use of the Bhutan or of Pakistani origin coming tourist, and from Pakistan. i these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. ii articles up to a value of Rs.8,000 for making gifts. c Tourists of Nepalese origin coming from No free allowance. Nepal or of Bhutanese origin coming from Bhutan. d Tourists of Pakistani origin or foreign i used personal effects and travel tourists coming from Pakistan or tourists souvenirs, if of Indian origin coming from Pakistan by a these goods are for personal use of the land route. tourist, and b these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. ii articles upto a value of Rs.6,000 for making gifts. 54
  • 61. Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment Appendix – F (See rule 8) Articles allowed Conditions Relaxation that maybe free of duty considered Used personal and 1 Minimum stay of two 1. For condition (1) Shortfall household articles, other years abroad, of upto 2 months in stay than those listed at immediately preceding abroad can be condoned Annex. I or Annex. II, but the date of his arrival by Assistant Commissioner including the article listed on TR,(2) total stay of Customs or Deputy at Annexure III and in India on short visit Commissioner of Customs jewellery upto ten during the 2 preceding if the early return is on thousand rupees by a years should not account of: gentleman passenger or exceed 6 months, i terminal leave or vacation rupees twenty thousand by and(3) passenger has being availed of by the a lady passenger. not availed this passenger; or(ii) any other concession in the special circumstances. b preceding three years. For condition (2) Commissioner of Customs may condone short visits in excess of 6 months in deserving cases. c For condition (3) No relaxation Jewellery taken out Satisfaction of the – earlier by the passenger or Asstt. Commissioner by a member of his family of Customs regarding from India. the jewellery having been taken out earlier from India. 55
  • 62. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Annexure I 1. Firearms. 4. Alcoholic liquor and wines in excess of 2. Cartridges of fire arms exceeding 50. two litres. 3. Cigarettes exceeding 200 or cigars 5. Gold or silver, in any form, other than exceeding 50 or tobacco exceeding 250 ornaments. gms. Annexure II 1. Colour Television or Monochrome a Television Receiver; Television. b Sound recording or reproducing 2. Digital Video Disc Player. apparatus; 3. Video Home Theatre System. c Video reproducing apparatus. 4. Dish Washer. 11. Word Processing Machine. 5. Music System. 12. Fax Machine. 6. Air -Conditioner. 13. Portable Photocopying Machine. 7. Domestic refrigerators of capacity above 14. Vessel. 300 litres or its equivalent. 15. Aircraft. 8. Deep Freezer. 16. Cinematographic films of 35 mm and 9. Microwave Oven. above. 10. Video camera or the combination of any 17. Gold or Silver, in any form, other than such video camera with one or more of ornaments the following goods, namely:­ 56
  • 63. Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment Annexure III 1. Video Cassette Recorder or Video Notification No. 30/98- Cus.(N.T.), dated Cassette Player or Video Television 2-6-1998 as amended by Notification No. Receiver or Video Cassette Disk Player. 29199­Cus (N.T.), dated ll-5-1999, Notification No. 50/2000-Customs (N.T.), 2. Washing Machine. dated 9-8-2000, Notification No.ll/2002- 3. Electrical or Liquefied Petroleum Gas Customs (N.T) dated 01/03/2002, Cooking Range Notification No. 5/2004­ Customs (N.T) dated 8th January, 2004, Notification No. 4. Personal Computer (Desktop Computer) 1112004- Customs (N.T) dated 8th January, 5. Laptop Computer (Notebook 2004, Notification No. 13/2004- Customs Computer) (N.T) dated 3rd February, 2004 and 6. Domestic Refrigerators of capacity up to Notification No. 33/2004-Customs (N.T) 300 litres or its equivalent. dated 3rd February, 2004. 57
  • 64. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Bank Accounts of Non-Residents Types of Non-Resident Bank Non-Repatriable Accounts Accounts Ordinary NRO Accounts in Rupees Bank Accounts of non-residents may be It is mandatory for a person to get all his bank classified on the basis of: - accounts redesignate as NRO accounts within a reasonable limit when he becomes H Repatriation facility, and an NRI. Many ignore this requirement. Fresh H Currency of account accounts may be opened with authorised On the basis of repatriation facility, there dealers or some designated post offices in shall be two types of accounts namely India when the person is in India on holidays ordinary accounts without any repatriation or short tour. The account can be freely facilities and external accounts with full operated by the account holder or the joint repatriation rights. On the basis of currency holder (who can be a resident) for bonafide transactions. The corpus in this account is of account, non-residents can maintain their understandably non repatriable but the accounts either in Indian rupees or in interest thereon is, only after correct tax designated foreign currencies. thereon is paid or arranged to be paid. The non-repatriable account is the Non When the individual once again becomes a Resident Ordinary Account (NRO), though Resident in India, NRO accounts should be the interest is repatriable after the correct tax redesignated as resident rupee accounts. is paid thereon. Opening of an account The NRI related accounts with repatriation 1. Any person resident outside India may rights that can be maintained in India are open NRO account with an authorised a Non Resident External Rupee Account dealer or an authorised bank for the purpose of putting through bona fide (NRE) maintained in Indian rupees transactions in rupees without violating b Foreign Currency Non-Resident any of the provisions of the Act, rules and Account (FCNR) maintained in foreign regulation made thereunder. currencies 2. The operations on the accounts should c Resident Foreign Currency Account not result in the account holder making 58
  • 65. Bank Accounts of Non-Residents available exchange to any person laid down in the directives issued by Reserve resident in India against reimbursement Bank in regard to resident accounts shall in rupees or in any other manner. apply to NRO accounts as well. 3. At the time of the opening of the Operation of Accounts account, the account holder should A resident power of attorney (POA) holder furnish an undertaking to the authorised can operate the NRO Account on behalf of dealer/authorised bank with whom the account is maintained that in the case of the non-resident account holder. Regulations debits to the account for the purpose of governing NRE account scheme specifically investment in India and credits prohibit the resident POA holder from representing sale proceeds of repatriation outside India of funds held in investments, he will ensure that such NRE account or make payment by way of gift investments/disinvestments will be in to a resident on behalf of the account holder. accordance with the regulation made by There is no such specific prohibition in case Reserve Bank in this regard. of NRO account scheme; however, it is advisable to approach RBI for the guidance Notes in the matter. H Opening of account by individuals/ entities of Bangladesh/Pakistan There are not many restrictions on nationality/ownership requires approval operations of these accounts and the of Reserve Bank. undernoted debit and credit transactions are H Post offices in India may maintain saving allowed in these accounts. bank accounts in the names of persons Credits resident outside India and allow operations i. Proceeds of remittances received in any on these accounts subject to the same permitted currency from outside India terms and conditions as are applicable to through normal banking channels or any NRO accounts maintained with an permitted currency tendered by the authorised dealer/authorised bank. account-holder during his temporary Join Accounts with Residents visit to India or transfers from rupee The account may be held jointly with accounts of non-resident banks. residents. ii. Legitimate dues in India of the account Types of Accounts holder. NRO account may be opened/maintained in iii. Maturity proceeds of their term deposit the form of current, savings, recurring or held under NRSR Accounts Scheme fixed deposit accounts. The requirements may be credited to NRO account. 59
  • 66. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Debits immovable property purchased by him as a i. All local payments in rupees including resident or out of rupee funds as NRI/PIO. payments for investments subject to Other financial assets compliance with the relevant regulations For remittance of sale proceeds of financial made by the Reserve Bank in this behalf. assets, there is no lock-in-period. ii. Remittance outside India of current income in India of the account holder Assets Acquired by way of Inheritance/ net of applicable taxes. Legacy or Settlement For remittance of sale proceeds of assets, both Remittance of Funds held in NRO financial and immovable property acquired Accounts by way of inheritance/legacy or settlement Balances in NRO accounts are not eligible from a person who was resident in India there for remittance outside India without is no lock-in­-period. NRI/PIO may submit approval of Reserve Bank. Funds received by to the satisfaction of Authorised Dealer way of remittances from outside India in documentary evidence in support of foreign exchange which have not lost their inheritance/legacy or settlement. identity as remittable funds will only be Remittance of Assets out of NRO considered by Reserve Bank for remittance Account by a Person Resident Outside outside India. India other than NRI/PIO A citizen of a foreign state not being a citizen Remittance of assets by NRI/PIO of Pakistan, Bangladesh, Nepal or Bhutan NRls/PIOs are permitted to remit through an who ­ Authorised Dealer, an amount not exceeding USD One million per calendar year, out of i has retired from an employment in India, balances held in the NRO account or representing the sale proceeds of assets (a) ii has inherited assets from a person who acquired in India out of rupee/foreign was resident in India, or currency funds or (b) by way of inheritance/ iii is a widow resident outside India and has legacy or settlement from a person who was inherited assets of her deceased husband resident in India subject to conditions who was an Indian citizen resident in outlined below: India. may remit an amount up to USD One Assets Acquired in India out of Rupee/ million, per calendar year, on production Foreign Currency Funds of documentary evidence in support of Immovable property acquisition, inheritance or legacy of NRI/PIO may remit sale proceeds of assets to the authorised dealer. 60
  • 67. Bank Accounts of Non-Residents Restrictions overdraft facilities while resident in India and The facility of remittance of sale proceeds of who subsequently becomes a person resident immovable property to a citizen of Pakistan, outside India, the authorised dealer may at Bangladesh, Sri Lanka, China, Afghanistan, his discretion and commercial judgement, Iran, Nepal and Bhutan is not available. allow continuance of the loan/overdraft The facility of remittance of sale proceeds of facilities. In such cases, payment of interest other financial assets is not available to a and repayment of loan may be made by citizen of Pakistan, Bangladesh, Nepal and inward remittance or out of legitimate Bhutan. resources in India of the person concerned. Change of Residential Status Payment of funds to Non-resident Bank Account Nominee (a) From Resident to Non-resident The amount due/payable to non-resident When a person resident in India leaves India nominee from the account of a deceased for a country (other than Nepal or Bhutan) account holder, shall be credited to NRO for taking up employment, or for carrying on account of the nominee with an authorised business or vocation outside India or for any dealer/ authorised bank in India. other purpose indicating his intention to stay outside India for an uncertain period, his Foreign Nationals of Non-Indian Origin existing account should be designated as a on a Visit to India Non-Resident (Ordinary) Account. NRO account (current/savings) can be (b) From Non-resident to Resident opened by a foreign national of non-Indian NRO accounts may be re-designated as origin visiting India, with funds remitted resident rupee accounts on return of the from outside India through banking channel account holder to India for taking up or by sale of foreign exchange brought by him employment, or for carrying on business or to India. The balance in the NRO account vocation or for any other purpose indicating may be converted by the authorized dealer his intention to stay in India for an uncertain into foreign currency for payment to the period. Where the account holder is only on account holder at the time of his departure a temporary visit to India, the account should from India provided the account has been continue to be treated as non-resident during maintained for a period not exceeding six such visit. months and the account has not been Loans/Overdrafts credited with any local funds, other than In case of person who had availed of loan or interest accrued thereon. 61
  • 68. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Repatriable Accounts the form of savings, current or term deposit accounts. Opening of NRE Accounts jointly Non Resident (External) Rupee in the names of two or more non-residents is permitted provided all the account holders Account (NRE Accounts) are persons of Indian nationality or origin. NRIs and PIOs, are eligible to open NRE For opening these accounts, the funds are Accounts. These are rupee denominated required to be remitted to India through any accounts. Accounts can be in the in the form bank from the country of residence of the of savings, current, recurring or fixed deposit prospective account holder. accounts. Accounts can be opened by remittance of funds in free foreign exchange. The account holder has to furnish an Foreign exchange brought in legally, undertaking on the account opening form repatriable incomes of the account holder, that he would promptly send intimation to etc. can be credited to the account. Joint his bank if and when he returns to India for operation with other NRIs/PIOs is permitted. permanent residence. Power of attorney can be granted to residents Advantages for operation of accounts for limited Non-Residents can enjoy the following purposes. advantages by maintaining NRE Accounts: The deposits can be used for all legitimate 1. Term deposits for one year and above purposes. The balance in the account is freely made by non-residents carry interest at repatriable. Interest is lying to the credit of rates higher than those available to NRE accounts is exempt from tax in the residents in India. hands of the NRI. 2. The interest on deposits and any other Funds held in NRE accounts may be freely income accruing on the balances in the transferred to Foreign Currency Non accounts are free of Indian Income-tax. Residents (FCNR) accounts of the same 3. The balances in the accounts are free of account holder. Likewise, funds held in Wealth­tax as well. FCNR accounts may be transferred to NRE 4. Gifts to persons other than relatives over accounts of the same account holders. and above Rs. 25,000 in a year would be Opening of An Account taxable in the hands of the recipient. Persons of Indian nationality or origin Exemptions are provided for gifts on resident abroad may open, with authorised occasion of marriage, or in banks in India, Non-resident (External) contemplation of death or order a will or Accounts (NRE Accounts), designated in by way of inheritance. rupees. These accounts can be maintained in 5. The entire credit balance (inclusive of 62
  • 69. Bank Accounts of Non-Residents interest earned thereon) can be person with a person resident in India is not repatriated outside India at any time permitted under NRE Scheme. without reference to Reserve Bank. Non-resident account holders can grant 6. Local disbursement from the accounts power of attorney or such other authority to can be made freely. residents in India for operating their NRE 7. Purchase of Units of Unit Trust of India Accounts in India. Such authority is (UTI), Mutual Funds, Central and State however, restricted to withdrawals for local Government Securities and National payments and remittance to the account Plan/Savings Certificates can be made holder himself. In cases where the account freely from the balances in these holder or a bank designated by him is eligible accounts. to make investment in India, the Power of Attorney holder is permitted by the AD/bank 8. Sale proceeds/maturity proceeds/ to operate the account to facilitate such repurchase price of Units of UTI, investment. RBI has permitted banks/ securities or certificates originally authorised dealers to allow remittance purchased out of the funds in the abroad to the non-resident account holder by accounts can be freely credited to these his constituted attorney under a specific accounts by banks, without reference to power in this regard. The resident power of Reserve Bank. attorney holder cannot repatriate funds held 9. Account holders are supplied special in accounts outside India under any series of cheque leaves for operation on circumstances (other than to the account these accounts. holder himself) or make payment of gifts on 10. Account holders can avail of loans/ behalf of the account holder, or transfer funds overdrafts from banks against security of from the said account to another NRE fixed deposits from out of their NRE account. accounts. Such account can also be opened by an Types of Accounts eligible non­resident Indian during his All types of accounts, viz. current, savings temporary visit to India, against tender of and term deposit, etc., can be opened under foreign currency traveller cheques/currency Non-Resident (External) Accounts Scheme. notes, provided the bank is satisfied that the prospective account holder has not ceased to A Non-Resident can open a joint account be a non-resident. The amount so tendered with other non­resident provided all the would be endorsed on the Currency account holders are persons of Indian Declaration Form (CDF) where applicable, nationality or origin. before crediting the rupee equivalent to the Opening of a joint account by a non-resident account. 63
  • 70. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians The initial deposit in NRE account can be Transactions where Form A4 is to be made in any of the following manners ­ completed. H By proceeds of foreign exchange H Proceeds of foreign exchange remittances from abroad through remittances, drafts, personal cheques, banking channels in an approved etc., in the name of the account holder. manner. H Proceeds of foreign currency travellers, H By proceeds of foreign currency notes cheques, drafts and personal cheques drawn by account holder on a foreign and traveller cheques brought into India currency account maintained abroad by by non-resident while on a temporary him (including instruments expressed in visit to India. Indian rupees for which reimbursement H By transfer from an existing Non- will be received in foreign currency or in Resident (External) FCNR account of rupees from the account of a non- the same person. resident bank) deposited by account Operation of Accounts holder during his temporary visit to India; provided authorised dealer is There are certain restrictions on operation of satisfied that the account holder is still NRE accounts and Form A2/ A4 are to be ordinarily resident abroad, the travellers’ completed for a few transactions. These cheques/drafts are standing in the name forms may be completed either by the of account holder and have not been resident party to the transaction or by the endorsed in his favour and in the case of bank after obtaining necessary information travellers’ cheques, they are discharged from the resident party account holder. by the account holder in the presence of the bank officials. Credits in the Account, i.e. amounts that can be deposited into the account H Proceeds of foreign currency/bank notes Transaction where Form A4 is not to be tendered by account holder during his completed: temporary visits to India, provided these are tendered to authorised dealer in H Proceeds of remittances to India in any person by account holder himself and the permitted currency. authorised dealer is satisfied that account H Transfer from FCNR accounts of the holder is still ordinarily resident outside same account holder. India’. H Interest accruing on balances in Non- Notes: resident (External) or FCNR accounts of H Purchases of travellers, cheques/currency the account holder. notes/ bank notes made in terms of (ii) 64
  • 71. Bank Accounts of Non-Residents and (iii) above should be endorsed on the pension, interest, etc., of NRI can be reverse of Currency Declaration Form credited to NRE Account by authorised (CDF), wherever applicable. A dealer, if the credit represents current photocopy of CDF should be kept on income of the NRI account holder and record by authorised dealer. income tax thereon has been deducted/ H Foreign currency notes/bank notes and paid/provided for, as the case may be. If travellers’ cheques tendered by Power of NRI/PIOs do not have a taxable income Attorney holder of any person other than in India, then a simple declaration, in account holder, should not be credited to duplicate, from the NRls/PIOs to the NRE Account. effect that he/ she is not a tax-payer in H Form A4 is to be completed only for India, is to be submitted to the authorised transactions of Rs. 1,00,000 or above. dealer. Other Credits Debits in the Account, i.e. amounts that H Refund of share/debenture subscriptions can be withdrawn from the account to new issues of Indian companies or Transactions where Form A4 is not to be portion thereof, if the amount of completed. subscription was paid from the same H All local payments except for purposes of account or from other NRE/FCNR account of the account holder or by investment. remittances from outside India through H Transfer to any other NR(E) or FCNR normal banking channels. account of the same person. H Refund of application/earnest money/ H Transfer to NR(E) accounts of persons purchase consideration made by the other than the account holder for bona house building agencies/ seller on fide personal purposes., account of non-allotment of flat/plot/ Transactions where Form A4 is required to cancellation of booking/deals for be completed., purchase of residential/commercial property together with interest, if any H Payments for permissible investments by (net of Income Tax payable thereon), the account holder. provided the original payment was made H Payments towards purchase price of out of NRE/FCNR account or immovable property by account holder. remittance from outside India through H Any other transaction if covered under normal banking channels. general or special permission granted by H Current Income like rent/dividend, Reserve Bank. 65
  • 72. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Note: In respect of funds held in fixed deposits in Form A4 is required to be filled in and NR(E) Accounts, interest will be payable at retained for scrutiny by auditors of banks. the rate originally fixed, provided the deposit is held for the full term, even after conversion Transaction required to be reported on Form A2 into resident account. H Remittances abroad. International Credit Cards H Sale of foreign currency, traveller NRIs/PIOs can be issued international cheques etc. to account holder himself or credit cards provided the charges for the use his requiring provided that they hold a of the card are by way of inward remittances ticket showing journey date which from balances in NRO/NRE/FCNR(B) should not be later than thirty days from Accounts. the date of sale. Disadvantages of NR(E) Accounts All other transactions of credit/debit to these H NR(E) accounts are opened in Indian accounts not covered under the above rupees and all foreign exchange provisions required prior approval of Reserve remittances received for credit of those Bank. Form A4 is to be completed in accounts are first converted into Indian duplicate in such cases and forwarded to rupees at buying rates by banks. Any Reserve Bank through the bank with whom withdrawal in foreign currency will be the account is maintained. The transaction permitted by bank by converting Indian will be put through the account only after a rupees in the account into foreign copy of Form A4 duly approved by Reserve currency at selling rate, at the cost/loss Bank is received back by bank. of account holder. Change of Status from Non-Resident to H Exchange rates are subject to fluctuation Resident on day-to-day basis and Indian rupee has Immediately upon return of account holder depreciated against all major foreign to India and on his becoming resident in currencies in recent past. Balances held in India, NR(E) account will be redesignated as Indian rupees in NRE accounts are thus resident rupee account or converted to RFC exposed to exchange. fluctuation risk. account at the option of the account holder. Foreign Currency (Non-Resident) However, if the account holder is only on a Account Bank Scheme (FCNRB) short visit to India, the account will continue to be treated as NR(E) account even during Introduction his stay in India. NRIs/PIOs are permitted to open such 66
  • 73. Bank Accounts of Non-Residents accounts in US dollars, Sterling Pounds, the directives issued by Reserve Bank from Japanese Yen ,Euro, Canadian Dollars and time to time. Australian Dollars. The accounts may be A non-resident can open a joint account opened in the form of term deposit for any with the other non-resident provided all the of the three maturity periods viz; (a) one year account holders are persons of Indian and above but less then two years.(b) two nationality or origin. years and above but less then three years. and (c) three years only. Now RBI has allowed Opening of a joint account by a non-resident banks to accept FCNR(B) deposits upto with a person resident in India is not maximum period of five years. permitted. Interest income is tax free in the hands of Opening of Accounts NRI until he maintains a non-resident status 1. Accounts can be opened with funds or a resident but not ordinarily resident status remitted from outside India through under the Indian tax laws. normal banking channels or funds FCNR (B) accounts can also be utilised for received in rupees by debit to account of local disbursement including payment for a non-resident bank maintained with exports from India, repatriation of funds authorised dealer in India or funds which abroad and for making investments in India, are of repatriable nature in terms of as per foreign investment guideline. regulations made by Reserve Bank. 2. Accounts can also be opened by transfer Eligibility of funds from existing NRE/FCNR NRIs are eligible to open and maintain accounts. these accounts with authorised dealer. However, opening of FCNR(B) accounts in 3. Remittances from outside India for names of NRIs Bangladesh/Pakistan opening of or crediting to these accounts nationality/ownership require approval of should be made in the designated Reserve Bank. currency in which the account is desired to be opened/maintained. Types of Accounts Without prejudice to the above, if the FCNR(B) account can only be opened in the remittance is made in a currency other form of term deposits. The deposits are than designated currency (including accepted for the terms not exceeding five funds received in rupees by debit to years. account of a non-resident bank), it The rate of interest on funds held in these should be converted into the latter deposit accounts will be in accordance with currency by authorised dealer at the risk 67
  • 74. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians and cost of the remitter and account b The maturity proceeds of NRNR should be opened/credited in designated deposits credited to NRE Account currency only. can also be subsequently transferred 4. In case depositor with any convertible to FCNR(B) Account. currency other than designated currency c Non-Resident Indians/Persons of desires to place a deposit in these Indian Origin can credit refund of accounts, authorised dealers may application/earnest money/purchase undertake with the depositor a fully consideration made by the housing covered swap in that currency against the building agencies/seller on account desired designated currency, such a swap of non-allotment of flat/plot/ being possible between any two cancellation of bookings/deals for designated currencies. purchase of residential, commercial 5. Where the funds are received in Indian property, together with interest, if rupees for opening these accounts shall any (net of income tax payable be converted by authorised dealer into thereon), to NRE/FCNR account, designated foreign currency at clean T.T. provided, original payment was selling rate for that currency ruling on made out of NRE/FCNR account of date of conversion. account holder or remittance from outside India through normal Designated Currencies banking channels and authorised Deposit of funds in accounts may be accepted dealer is satisfied about genuineness in Pound Sterling, Japanese Yen, US Dollar, of the transaction. Euro, Canadian Dollar, Australian Dollar and such other currencies as may be designated by Maturity proceeds of deposit Reserve Bank from time to time. Principal Amount and Interest will be payable in the same designated currency. The Operations of Accounts depositor, thus, will not be exposed to any i Debits in Accounts exchange risk fluctuation. The depositor will All debits as permissible under NRE have option to convert the foreign currency Account scheme are also permissible amount of designated currency into any from this account. other convertible currency at appropriate ii Credits in Accounts rate of exchange. For the purpose of payment a All the credits as permissible under in rupees, the amount shall be converted at NRE Account scheme are also the clean T.T buying rate ruling on the date permissible from this account of withdrawal. 68
  • 75. Bank Accounts of Non-Residents Interest Resident Foreign Currency Accounts Interest is payable either half-yearly or on (RFC) annual basis at option of the depositor. Any person who has been an NRI is eligible Interest can be either credited to a new to open an RFC account, irrespective of the FCNR(B) Account or his existing/new NRE/ period for which he enjoyed the status. The NRO Account. funds in RFC shall be free from all restrictions Change of Resident Status of Account regarding utilization of foreign currency Holder balances including any restriction on When an account holder becomes a person investment in any form, by whatever name resident in India, deposits may be allowed to called, outside India. The most important continue till maturity at contracted rate of aspect of RFC is that the account holder can interest, if so desired by him. However, freely repatriate the entire or part of balance except the provisions relating to rate of as desired by him. interest and reserve requirements as However, the utility of RFC has been much applicable to FCNR(B) deposits; for all other diluted ever since the Residents are allowed purposes such deposits shall be treated as to purchase legally sufficient foreign resident deposits from the date of return of exchange (FE) for bona fide reasons. the account holder to India. Authorised Moreover, NRIs are allowed to continue to dealers should convert the FCNR(B) deposits on maturity into resident rupee hold bank accounts and investments deposit accounts or RFC account (if the abroad. depositor is eligible to open RFC account), Main Features at the option of the account holder and H The scheme is available to NRIs interest on the new deposit (rupee account returning only from External Group of or RFC account) shall be payable at the countries relevant rates applicable for such deposits. H RFC can be opened and maintained in Miscellaneous any convertible foreign currency. The terms and conditions as applicable to H The account can be held singly or jointly, NRE accounts in respect of joint accounts, though nomination facility is available. repatriation of funds, opening account H RFCs can be maintained in the form of during temporary visit, operation by power of attorney holder, loans/overdrafts against current or savings or tern deposits. security of funds held in accounts, shall apply H No loans or overdrafts will be permitted mutatis mutandis to FCNR (B) accounts. in these accounts. 69
  • 76. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Permissible Credits The scheme of importing gold and silver is H FE balances repatriated from abroad. extended to RFC and EEFC account holders. H Incomes or sale proceeds from FE assets held abroad. International Credit Cards H Sale proceeds of FE Assets held in India (ICC) to NRIS/PIOS sold. NRI/PIOs can obtain International Credit H Pension, superannuation or other Cards without the prior approval of Reserve monetary benefits from ex-employer Bank of India. The only condition prescribed outside India. is that the charges for the use of ICC are paid H Transfer from NRE and FCNR balances. out of inward remittances of balances in their H Proceeds of foreign currency notes and NRE Accounts/Foreign Currency Non foreign travelers’ cheques brought in by ­Resident Accounts. the account holder. However, the Reserve Bank has made further H Transfers from other RFC accounts of the relaxation vide Circular No. 59, dated account holder. December 9, 2002 in which the NRIs/PIOs H Interest earned on RFC accounts. are allowed to settle/debt the charges/ H Recredit of unspent FE surrendered by expenses through credit card upto the limit the account holder on his return to India, of the card out of funds held in NRO account provided that unspent as well. The debits shall also be subject to the H exchange had in fact been released for conditions for use of the International Credit travel, etc., and it is surrendered within Cards by residents. the stipulated period. H Gifts or inheritance received from Nomination Facility for abroad. Bank Accounts in India Permissible Debits The Banking Companies (Nomination) H Remittance abroad for any bona fide Rules, 1985 framed under Banking purpose of the account holder or for his Regulation Act, 1949 enable banks to accept dependents. This may nominations. Nomination can be made by H include Purchase of a foreign security. account holder or, as the case may be, by all H Transfers to other RFC accounts of the joint account holders together, in respect of account holder. an account held by them with a bank in H All local disbursements and bank India. The nomination can be made only in charges. respect of a deposit held in the individual 70
  • 77. Bank Accounts of Non-Residents capacity of the depositor, and not in any under Nomination Rules are DA 1 for representative capacity as a holder of an nomination, DA 2 for cancellation and DA office or otherwise. The nomination has to 3 for variation. be made in favour of only one individual. The nominee may be a minor but in that case the Questions and Answers account holder should, while making the nomination, appoint another individual Q.1 Can an NRI account be opened in the (who is not a minor) to receive the amount name of crew members of shipping of deposit on behalf of the nominee during companies? his minority, in case of need. The nomination Ans. NRI accounts can be opened in the made can be varied or cancelled by the name of crew members of shipping account holder any time during the currency companies if their posting is not of the account by filing an application in the based in India and they derive their prescribed form. income from abroad in foreign currency. The nomination facility is also available to Q.2 Shipping crew members visit. India holders of non-resident accounts. However, and sometimes they are on vacation in case of deposits held in FCNR and NRE for family reasons for four to six accounts, the deceased account holders’ months or more. In which case what nominees (who could also be residents in will be their status? Are they resident India) would not be automatically entitled to or non­resident and are their bankers the right of repatriation of funds acquired by obliged to ascertain their status? them. Similarly, credit of the amount Ans. Bankers are under no obligation to becoming payable to a nominee to his NRE/ ascertain the number of days the NRI FCNR account requires prior permission of is in India, and it is for the NRI to Reserve Bank of India. In such cases, the inform his bankers about any change nominees are required to make separate in his status. Further, the purpose of applications to Reserve Bank of India, which stay in India is material to define an would be considered in the light of the NRI as per FEMA. Therefore, as long residential status of individual nominees and as the person is gainfully employed the relevant Exchange Control Regulations. outside India and is only on a long Utilisation of the funds in India by the leave in India for reasons of family nominees would not, however, need convenience (where admittedly his exchange control approval. stay in India would be for a specific The forms prescribed for deposit accounts or certain duration), he will continue 71
  • 78. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians be an NRI for purposes of his bank Q.7 Is there a limit on the number of accounts in India. accounts which an NRI can open? Q.3 Can Non-residents open these Ans. No. An NRI can open as many NRO, accounts from abroad? NRE or FCNR accounts as he Ans. Yes. Many banks in India provide on- desires. line account opening facility. Q.8 Can a foreign shipping or airline Q.4 Can NRO/NRE account holders company open a foreign currency obtain loans/overdrafts against their account in India? fixed deposits? Ans. A shipping or airline company Ans. Loans to Non-resident account incorporated outside India or its holders can be granted for personal agent in India may open, hold and as well as business purpose. The loan maintain a Foreign Currency for the purpose of re-lending, or Account with an authorised dealer in carrying on agricultural/plantation India for meeting the local expenses activities or investment in real estate in India of such airline or shipping business is not permitted. company. Q.5 Can funds in NRE/NRO accounts be Q.9 What kinds of credits are permitted utilised for payment of airfare to and in the foreign currency accounts of a to/in India of the account holder and/ foreign shipping or airline company or his dependents? or its agent in India? Ans. Banks maintaining the accounts Ans. Foreign shipping or airline company have been authorised to permit such or its agents in India are permitted, payments. Airlines/Shipping companies to credit freight or passage fare and their agents have also been permitted to accept payments in collections in India or an inward rupees from the funds held in NRO/ remittance through normal banking NRE accounts for the purpose. channels from its office outside India, and in case of agent, from his Q.6 Is transfer of funds between NRE principal outside India. accounts maintained by two different account holders permitted? Q.10 Can an Indian Branch or liaison Ans. Yes. Authorised dealers can permit office of a foreign company have a transfer of funds from the NRE fixed deposit account in India? account of one person to the NRE Ans. Recently, RBI has permitted such account of another person for bona entities to open a term deposit fide personal purposes. account for a period not exceeding 72
  • 79. Bank Accounts of Non-Residents six months provided Authorised deposit will be utilised for its business Dealer is satisfied that the term in India within three months of its deposit is out of temporary surplus maturity. funds. The branch/liaison office also However, branch/liaison offices of needs to furnish an undertaking that foreign shipping/airline companies the maturity proceeds of the term are not allowed such a facility. ■■ 73
  • 80. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Foreign Direct Investment Policy on Foreign Direct Department of Industrial Policy and Promotion. All Press Notes are available at Investment the Website (www.dipp.gov.in) Reserve Bank India has among the most liberal and of India (RBI) under the Foreign Exchange transparent policies on FDI among the Management Act (FEMA) also notifies FDI emerging economies. FDI up to 100% is policy. Please refer to RBI website allowed under the automatic route in all (www.rbi.org.in). activities/sectors except the following which require prior approval of the Government: Procedure Under Automatic Route 1. Activities/items that require an FDI in sector/ activities to the extent Industrial license permitted under automatic route does not require any prior approval either by 2. Proposals in which the foreign Government of India or RBI. The investor collaborator has an existing financial / are only required to notify the Regional office technical collaboration in India in the concerned of RBI within 30 days of receipt ‘same’ field (refer press Note no. 1 of of inward remittances and file the required 2005 series), documents with that office within 30 Days 3. Proposals for acquisition of shares in an of shares to foreign investors. existing Indian Company in: H Financial Service Sector and Procedure Under Government H Where Securities & Exchange Board Approval of India (Substantial Acquisition of FDI in activities not covered under the Shares and Takeovers) regulation, automatic route requires prior Government 1997 is attracted; Approval and are considered by the Foreign 4. All proposals falling outside notified Investment Promotion Board (FIPB). sectoral policies/caps or under sectors in Approvals of composite proposals involving which FDI is not permitted. foreign investment/ foreign technical collaboration are also granted on the FDI policy is reviewed on an on going basis recommendation of the FIPB. and changes in spectral policy/sectoral equity cap are notified through Press Notes by the Application of all FDI cases, except Non- secretariat for industrial assistance (SIA), Resident Indian (NRI) investments and 74
  • 81. Foreign Direct Investment 100% Export Oriented Units (EOUs), General Permission of RBI Under should be submitted to the FIPB Units, FEMA Department of Economic Affairs (DEA), Indian companies having foreign investment Ministry of Finance. approval through FIPB do not require any Applications for NRI and 100% EOU cases further clearance from RBI for receiving should be presented to SIA in Department inward remittance and issue of shares to of Industrial Policy and Promotion. foreign investors. Application can also be submitted with The companies are required to notify the Indian Missions abroad who forward them to concerned Regional Office of the RBI of the Department of Economic Affairs for receipt of inward remittances within 30 Days further processing. of such receipt and within 30 days of issue of shares to foreign investors or NRIs Application can be made in Form FC-IL, which can be downloaded from http:// Participation by International Financial www.dipp.gov.in. Plain paper applications Institutions carrying all relevant details are also accepted. Equity participation by international No fee is payable. financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is Prohibited Sectors permitted through automatic route, subject The extant policy does not permit FDI in the to SEBI/RBI regulations and sector specific following cases; cap on FDI. 1. Gambling and Betting 2. Lottery Business Issue and Valuation of Shares in Case of Existing Companies 3. Atomic Energy According to RBI / SEBI guidelines, in case 4. Retail Trading of listed companies, the issue price shall be 5. Agricultural or Plantation activities or either at: Agriculture (excluding Floriculture, Horticulture, Development of Seeds, a The average of the weekly high and low Animal Husbandry, Pisiculture and of the closing prices of related shares Cultivation of Vegetables, Mushrooms quoted on the stock exchange during the etc. under controlled conditions and six months preceding the relevant date, services related to agro and allied sectors) or and Plantations (other than Tea b The average of the weekly high and low plantations) of the closing prices of related shares 75
  • 82. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians quoted on the stock exchange during the Issue of Shares Under Merger/ two weeks preceding the relevant date. Amalgamation The stock exchange referred to is the one at Where a Scheme of merger or amalgamation which the highest trading volume in respect of two or more Indian companies has been of the share of company has been recorded approved by a court in India, the transferee during the preceding six months prior to the company may issue shares to the relevant date. shareholders of the transfer or company The relevant date is the date thirty days prior resident outside India, subject to ensuring to the date on which the meeting of the that the percentage of shareholding of General Body of the shareholder is persons resident outside India in the convened. In all other cases a company may transferor new company does not exceed the issue shares as per the RBI regulation in percentage specified in the approval granted accordance with the guidelines issued by the by the Central Government or the Reserve erstwhile Controller of Capital Issues. Bank of India. This entitlement of rights shares is not automatically available to Other relevant guidelines of Securities and investors who have been allotted such shares Exchange Board of India (SEBI)/ and RBI, as OCBs. For this specific permission from including the SEBI (Substantial Acquisition RBI is necessary. of Shares and Takeovers) Regulations, 1997, wherever applicable, would need to be Issue of Shares Under ESOP followed. Further information could be Scheme obtained at Security and Exchange Board of Under Employee Stock Option (ESOP) India’s (SEBI) website: www.sebi.gov.in. Scheme a company may issue shares to its employees or employees of its joint venture Issue of Rights/Bonus Shares or wholly owned subsidiary abroad who are General permission of the RBI is available to resident outside India, directly or through a Indian companies to issue right/bonus shares, Trust, subject to the condition that the subject to certain conditions.Entitlement of scheme has been drawn in terms of relevant rights shares is not automatically available to regulations issued by the SEBI and face value investors who have been allotted such shares of the shares to be allotted under the scheme as Overseas Corporate Bodies to the non-resident employees does not (OCBs). Such issuing companies would have exceed 5% of the paid-up capital of the to seek specific permission from RBI, Foreign issuing company. Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of Transfer of Shares/Debentures shares on right basis to erstwhile OCBs. Transfer of shares in the following categories 76
  • 83. Foreign Direct Investment of cases is allowed under automatic route: outside India (including NRIs); provided transferee has obtained prior permission a Transfer of shares from resident to non- of SIA/FIPB, in terms of Press Note No.1 resident (including transfer of (2005 Series) to acquire the shares if he subscribers’ shares to non-residents) has an existing venture or tie-up in India other than in financial services sector in the same field in which the Indian provided the investment is covered company whose shares are being under automatic route, does not attract transferred is engaged. the provisions of SEBI’s (Substantial b NRI or OCB may transfer by way of sale Acquisition of Shares and Takeovers) or gift the shares or convertible Regulations, 1997, falls within the debentures held by him or it to another sectoral cap and also complies with nonresident Indian; provided transferee prescribed pricing guidelines. has obtained prior permission of Central b Conversion of ECB/Loan into equity Government in terms of Press Note No.1 provided the activity of the company is (2005 Series) to acquire the shares if he covered under automatic route, the has an existing venture or tie-up in India foreign equity after such conversion falls in the same field in which the Indian within the sectoral cap and also complies company whose shares are being with prescribed pricing guidelines. transferred, is engaged. c Cases of increase in foreign equity c The person resident outside India may participation by fresh issue of shares as transfer any security to a person resident well as conversion of preference shares in India by way of gift. into equity capital provided such increase d A person resident outside India may sell within the sectoral cap in the relevant the shares and convertible debentures of sectors, are within the automatic route an Indian company on a recognized and also complies with prescribed pricing Stock Exchange in India through a guidelines. registered broker General permission of the RBI has been American Depository Receipts granted to Non-Residents/NRIs for transfer (ADRs)/Global Depository Receipts of shares and convertible debentures of an (GDRs) Indian company as under : An Indian corporate can raise foreign a A person resident outside India (Other currency resources abroad through the issue than NRI and OCB) may transfer by way of ADRs or GDRs by issuing its Rupee of sale or gift shares or convertible denominated shares to a person resident debentures to any person resident outside India being a depository for the 77
  • 84. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians purpose of issuing GDRs and/ or ADRs, Notification No. 20 deal with the issue of subject to the conditions that: ADR/GDR by an Indian company. a the ADRs/GDRs are issued in A company engaged in the manufacture of accordance with the Scheme for issue of items covered under Automatic route, whose Foreign Currency Convertible Bonds and direct foreign investment after a proposed Ordinary Shares (Through Depository GDRs/ADRs/FCCBs issue is likely to exceed Receipt Mechanism) Scheme,1993 and the equity limits under the automatic route, guidelines issued by the Central or which is implementing a project falling Government there under from time to under Government approval route, would time need to obtain prior Government clearance b The Indian company issuing such shares through FIPB before seeking final approval has an approval from the Ministry of from the Ministry of Finance. Finance, Government of India to issue such ADRs and/or GDRs or is eligible to Foreign Currency Convertible Bonds issue ADRs/ GDRs in terms of the (FCCBs) relevant scheme in force or notification issued by the Ministry of Finance, and FCCBs are issued in accordance with the Scheme for issue of Foreign Currency c Is not otherwise ineligible to issue shares Convertible Bonds and Ordinary Shares to persons resident outside India in terms of these Regulations. (Through Depository Receipt Mechanism) Scheme, 1993, and subscribed by a non- There is no limit up to which an Indian resident in foreign currency and convertible company can raise ADRs/GDRs. However, into ordinary shares of the issuing company the Indian company has to be otherwise eligible to raise foreign equity under the in any manner, either in whole, or in part, on extant FDI policy. the basis of any equity related warrants attached to debt instruments. There are no end-use restrictions on GDR/ ADR issue proceeds, except for an express Eligibility ban on investment in real estate and stock The eligibility for issue of Convertible Bonds markets. or Ordinary Shares of issuing company is as The FCCB issue proceeds need to conform under: to external commercial borrowing end use a An issuing company desirous of raising requirements. In addition, 25 per cent of the foreign funds by issuing Foreign Currency FCCB proceeds can be used for general Convertible Bonds or ordinary shares for corporate restructuring. equity issues through Global Depositary Regulation 4 of Schedule-I of FEMA Receipt 78
  • 85. Foreign Direct Investment i Can issue FCCBs up to US$50 5. Dividend rate Million under the Automatic route, This should not exceed the limit ii From US$50 –100 Million, the prescribed by the Ministry of Finance companies have to take RBI approval, FDI in EOUs/SEZs/Industrial Park/ iii From US$100 Million and above, EHTP/STP/ Special Economic Zones prior permission of the Department (SEZs) of Economic Affairs is required. FDI up to 100% is permitted under the Preference Shares automatic route for setting up of Special Economic Zone (SEZ). Proposals not Foreign investment through preference covered under the automatic route require shares is treated as Foreign Direct approval by FIPB. Investment. Issue of preference share should conform to guidelines prescribed by the SEBI How to Set Up Unit in SEZ and RBI and other statutory requirements. Units in SEZ qualify for FDI approval The policy in regard to preference shares is through automatic route subject to sectoral tabulated below: norms. 1. Procedure 1. For setting up a unit in an SEZ, three Automatic or Government approval copies of the application in the form route depending upon the activity/sector given in Appendix-14-I-A of Foreign of the company. Trade Policy may be submitted to the 2. Whether considered as part of share Development Commissioner (DC) of the capital? SEZ concerned. Yes, and fall outside the ECB as part of 2. Proposals for setting up units in SEZ share guidelines/cap. other than those requiring industrial 3. Whether considered while calculating License may be granted approval by the equity cap, if any? Development Commissioner. Yes, provided they carry a conversion 3. Proposals for setting up units in SEZ while calculating option.equity cap, if requiring Industrial License may be any? granted approval by the Development 4. Duration of conversion Commissioner after clearance of the As per the maximum limit prescribed proposal by the SEZ Board of Approval. under the Company’s Act or as agreed to 4. Letter of Permission (LOP)/Letter of in shareholder’s agreement, whichever is Intent(LOI) issued to SEZ units by the less. Development Commissioner would be 79
  • 86. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians construed as a license for all purposes, automatic route, subject to parameters. For including for procurement of raw proposals not covered under automatic material and consumables either directly route, the applicant should seek separate or through canalizing agency. approval of the Government through the 5. The LOP/LOI shall specify the items of FIPB. manufacture/service activity, annual capacity, projected annual export for the Software Technology Park (STP) first years in dollar terms, Net Foreign Units Exchange Earnings (NFE), limitations, if Proposals for FDI/NRI investment in STP any, regarding sale of finished goods, by Units are eligible for approval under products and rejects in the DTA and automatic route subject to parameters. For such other matter as may be necessary proposals not covered under automatic and also impose such conditions as may route, the applicant should seek separate be required. approval of the Government through the Details about the type of activities permitted FIPB. are available in the Foreign Trade Policy issued by Department of Commerce. Capitalization of Import Payables FDI inflows are required to be under the 100% Export Oriented Units (EOUs) following mode : FDI up to 100% is permitted under the 1. By inward remittances through normal automatic route for setting up 100% EOU, banking channels or subject to sectoral policies. Proposals not 2. By debit to the NRE/FCNR account, of covered under the automatic route would be person concerned, maintained with an considered and approved by FIPB. authorized dealer/authorized bank. Industrial Park Issue of equity to non-residents against other modes of FDI inflows or in kind is not FDI up to 100% is permitted under permissible, except issue of equity shares automatic route for setting up of Industrial against lump-sum fee and royalty payable for Park. technology collaborations and external Procedure for approval Electronic commercial borrowings (ECBs) in Hardware Technology Park (EHTP) convertible foreign currency which are Units permitted under the automatic route subject Proposals for FDI/NRI investment in EHTP to meeting all applicable tax liabilities and Units are eligible for approval under the sector specific guidelines. 80
  • 87. Foreign Direct Investment Industrial Licensing b. Phosgene and its derivatives c. Isocyanates and di-isocyanates of Industrial Licensing Policy hydrocarbon, not elsewhere Industrial Licenses are regulated under the specified (example: Methyl Industries (Development & Regulation) Isocyanate). Act, 1951. With progressive liberalization Small Scale Sector and deregulation of the economy, the An industrial undertaking is defined as a requirement of industrial licensing have been small-scale unit if the capital investment in substantially reduced. At present industrial plant and machinery does not exceed Rs 10 license for manufacturing is required only for million. the following : Small-scale units can get registered with the 1. Industries retained under compulsory Directorate of Industries/District Industries licensing, Centre of the State Government. Such units 2. Manufacture of items reserved for small can manufacture any item, and are also free scale sector by non-SSI units; and from locational restrictions. 3. When the proposed location attracts The Government has reserved certain items locational restriction for exclusive manufacture in the small-scale sector. (List available at www.dipp.gov.in) Industries Requiring Compulsory Licensing Manufacture of Items Reserved for The following industries require compulsory Small-scale Sector industrial license : Non small-scale units can manufacture items i. Distillation and brewing of alcoholic reserved for the small-scale sector only after drinks. obtaining an industrial license. In such cases, ii. Cigars and cigarettes of tobacco and the non-small scale unit is required to manufactured tobacco substitutes; undertake an obligation to export 50 per cent of the production of SSI reserved items. iii. Electronic Aerospace and defence equipment: all types; FDI in SSI Units iv. Industrial explosives, including A small-scale unit cannot have more than 24 detonating fuses, safety fuses,gun powder, per cent equity in its paid up capital from any nitrocellulose and matches; industrial undertaking, either foreign or v. Hazardous chemicals; domestic. If the equity from another a. Hydrocyanic acid and its derivatives company (including foreign equity) exceeds 81
  • 88. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 24 per cent, even if the investment in plant to be submitted in the prescribed form. (Form and machinery in the unit does not exceed FC-IL). This form is available in the Public Rs 10 million, the unit looses its small-scale Relation and Complaint Section (PR&C) of status and shall require an industrial license the SIA, all outlets dealing in Government to manufacture items reserved for small-scale Publications, Indian Embassies, and can be sector. downloaded from the web site http:// www.dipp.gov.in. Locational Restrictions Application accompanied with a crossed Industrial undertakings are free to select the demand draft of Rs. 2500/- (appr. US$ 55) location of their projects. Industrial License may be submitted to the Public Relation and is required if the proposed location is within Complaint Section (PR&C) of Department 25 KM of the Standard Urban Area limits of of Industrial Policy & Promotion. 23 cities having population of 1 million as per Decisions are usually taken within 4-6 weeks 1991 census. List of such cities is at Annexure IX. of filing the application. Locational restriction does not apply: Policy for Industries Exempt from i If the unit were to be located in an area Licensing-Industrial Entrepreneurs designated as an “industrial area’’ before Memorandum (IEM) the 25th July, 1991. Industrial undertakings exempt from ii In the case of Electronics, Computer industrial license are only required to file an Software and Printing and any other Industrial Entrepreneur Memorandum industry, which may be notified in future (IEM) in Part ‘A’, in the prescribed format, as “non polluting industry”. Procedure for IEM The location of industrial units is subject to The form for filing an IEM is available at applicable local zoning and land use Public Relation and Complaint Section regulations and environmental regulations. (PR&C), all outlets dealing in Government publications, Indian Embassies, and can Procedure for Obtaining Industrial also be downloaded from the web site License www.dipp.gov.in Industrial License is granted by the The IEM can be filed with the PR&C section Secretariat for Industrial Assistance (SIA) in SIA either in person or by post. The IEM on the recommendation of the Licensing should be submitted along with a crossed Committee. demand draft of Rs.1000/- (appr. US$ 22) for Application for industrial license is required up to 10 items proposed to be manufactured. 82
  • 89. Foreign Direct Investment For more than 10 items, an additional fee of submitted in revised form “EE”, which can Rs. 250 (appr. US$ 6) for up to 10 additional be downloaded from the web site items needs to be paid. www.dipp.gov.in along with a crossed demand draft of Rs. 2500/-(appr. US$ 55) On filing the IEM, an acknowledgement containing the SIA Registration Number, for However, on further expansion of its capacity future reference, is issued. In case IEM is sent beyond the capacity included in COB by post, the acknowledgement is sent by post license, the unit would need to obtain an & no further approval is required. industrial license. An IEM would stand cancelled if the Payment of Prescribed Fee proposal requires compulsory license. The fee prescribed for various applications, Upon commencement of commercial licenses are to be paid through crossed production, Industrial undertakings need to demand draft drawn in favour of the Pay & file information in Part ‘B’ of the IEM to Accounts Officer, Department of Industrial PR&C Section in SIA. No fee is to be paid Policy & Promotion, Ministry of Commerce for filing Part B. & Industry, payable at New Delhi. All industrial undertakings whether or not exempt from compulsory industrial licensing, Environmental Clearances are statutorily required to submit monthly Entrepreneurs are required to obtain production return in the prescribed proforma Statutory clearances relating to Pollution every month. This should reach the Control and Environment as may be Industrial Statistics Unit (ISU) of the necessary, for setting up an industrial project Department positively by the 10th of the for 31 categories of industries in terms of following month. Notification S.O. 60(E) dated 27.1.94 as amended from time to time, issued by the Carry on Business (COB) License Ministry of Environment & Forests under Small- scale units by virtue of their natural The Environment (Protection) Act, 1986. growth may exceed the investment limit This list includes petrochemical complexes, prescribed for small-scale units. In such cases petroleum refineries, cement, thermal power these units need to obtain a Carry-on- plants, bulk drugs, fertilizers, dyes, paper, etc. Business (COB) License based on the best However, if investment in the project is less production in the preceding three years. No than Rs. 1 billion, such Environmental export obligation is fixed on the capacity for clearance is not necessary, except in cases of which the COB license is granted. pesticides, bulk drugs and pharmaceuticals, The application for COB licence should be asbestos and asbestos products, integrated 83
  • 90. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians paint complexes, mining projects, tourism Payments for hiring of foreign technicians, projects of certain parameters, tarred roads deputation of Indian technicians abroad, and in Himalayan areas, distilleries, dyes, testing of indigenous raw material, products, foundries and electroplating industries. indigenously developed technology in foreign countries are governed by separate RBI Setting up industries in certain locations procedures and rules pertaining to current considered ecologically fragile (e.g. Aravalli account transactions and are not covered by Range, Coastal areas, Doon valley, Dahanu, the foreign technology collaboration etc.) are guided by separate guidelines issued approval. For details please refer to the by the Ministry of Environment and Forests. website of the RBI. For further details please refer the website of Ministry of Environment and Forests Automatic Route (http://envfor.nic.in). Payment for foreign technology collaboration by Indian companies are allowed under the automatic route subject to the following Foreign Technology limits: Agreements i the lump sum payments not exceeding US$2 million; General Policy ii royalty payable being limited to 5 per For promoting technological capability and cent for domestic sales and 8 per cent for competitiveness of the Indian industry, exports, without any restriction on the acquisition of foreign technology is duration of the royalty payments. The encouraged through foreign technology royalty limits are net of taxes and are collaboration agreements. Induction of calculated according to standard know-how through such collaborations is conditions. permitted either through automatic route or The royalty will be calculated on the basis of with prior Government approval. the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of Scope of Technology Collaboration the standard bought-out components and The terms of payment under foreign the landed cost of imported components, technology collaboration, which are eligible irrespective of the source of procurement, for approval through the automatic route including ocean freight, insurance, custom and by the Government approval route, duties, etc. includes technical know how fees, payment for design and drawing, payment for Use of Trademarks and Brand Name engineering service and royalty. Payment of royalty up to 2% for exports and 84
  • 91. Foreign Direct Investment 1% for domestic sales is allowed under financial & technical collaboration are automatic route for use of trademarks and proposed): brand name of the foreign collaborator a Sectors/activities which are not on the without technology transfer. automatic route for FDI, or Royalty on brand name/trade mark shall be b Proposals not meeting any of the paid as a percentage of net sales, viz., gross parameters for automatic approval sales less agents’/dealers’ commission, Procedure for Government Approval transport cost, including ocean freight, Proposals for foreign technology collaboration insurance, duties, taxes and other charges, not covered under the automatic route are and cost of raw materials, parts and considered by the Project Approval Board components imported from the foreign (PAB) in the Department of Industrial Policy licensor or its subsidiary/affiliated company. and Promotion. In case of technology transfer, payment of Application in such cases should be royalty includes the payment of royalty for submitted in Form FC-IL to the Secretariat use of trademark and brand name of the for Industrial Assistance. Proposals where foreign collaborator. both financial & technical collaboration are proposed, application is to be submitted to Procedure for Automatic Route FIPB. No fee is payable. Authorised Dealers (ADs) appointed by the RBI allow remittances for royalty, payment of lump-sum fee and remittance Entry Options for Foreign for use of Trademark /Franchise in India Investor within the limits prescribed under the automatic route. Entry Options RBI’s prior approval is required for A foreign company planning to set up remittance towards purchase of trade mark/ business operations in India has the following franchise. options: As an Incorporated Entity Government Approval – Project By incorporating a company under the Approval Board (PAB) Companies Act, 1956 through Royalty payment in the following cases i Joint Ventures; or requires prior Govt. approval (through PAB when only technical collaboration is ii Wholly Owned Subsidiaries proposed and through FIPB where both Foreign Equity in such Indian Companies 85
  • 92. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians can be up to 100% depending on the between parent company and companies in requirement of the investor, subject to any India. Liaison office can not undertake any equity caps prescribed in respect of the area commercial activity directly or indirectly and of activities under the Foreign Direct can not, therefore, earn any income in India. Investment (FDI) policy. Approval for establishing a liaison office in India is granted by Reserve Bark of India As an Unincorporated Entity (RBI). i As a foreign Company through i Liaison Office/Representative Office Project Office Foreign companies planning to execute ii Project Office specific projects in India can set up a iii Branch Office temporary project/site office in India . RBI Such offices are undertaken activities has now granted a general permission to permitted under the Foreign Exchange foreign entities to establish project offices Management (Establishment in India of subject to specified condition. Such offices Branch Office of other place of business) can not undertake or carry on any activity Regulations, 2000. other than activity relating and incidental to execution of the project. Project offices may Incorporation of Companies remit outside India the surplus of the project For registration and incorporation, an on its completion, general permission for application has to be filled with the Registrar which has been granted by the RBI. of Companies (ROC). Once a company has been duly registered and incorporated as an Branch Office Indian Company, it is subject to Indian Laws Foreign companies engaged in and regulations as applicable to other manufacturing and trading activities abroad domestic Indian companies. are allowed to set up branch offices in India For details please visit the website of Ministry for the following purposes: of Company Affairs at www.mca.gov.in a. Export/Import of goods Liaison Office/Representative Office b. Rendering professional or consultancy The role of liaison office is limited to services collecting information about possible market c. Carrying out research work, in which the opportunities and providing information parent company is engaged. about the company and its products to d. Promoting technical or financial prospective Indian customers. It can promote collaborations between Indian export/import from/to India and also companies and parent or overseas group facilitate technical/financial collaboration company. 86
  • 93. Foreign Direct Investment e. Rendering services in Information d. In the event of winding up of business Technology and development of software and for remittance of winding-up in India. proceeds, the branch shall approach an f. Representing the parent company in authorized dealer in foreign exchange India and acting as buying/selling agents with the document required as per in India. FEMA. g. Rendering technical support to the Procedure for Liaison office/Project products supplied by the parent/ group office/Branch office companies. Application for setting up Liaison Office/ h. Foreign airlines/shipping company Project office / Branch Office may be Branch offices established with the approval submitted to Chief General Manager, of RBI, may remit outside India profit of the Exchange Control Department (Foreign branch, net of applicable Indian Taxes and Investment Division), RBI Central Office, subject to RBI guidelines. Permission for Mumbai-400 001, in the form FNC 1 setting up branch offices is granted by the (available at RBI website at www.rbi.org.in) Reserve Bank of India (RBI). Branch Office on “Stand Alone Basis” In SEZ Investment in a Firm or a Proprietary Concern by NRIs Such Branch Offices would be isolated and restricted to Special Economic Zone (SEZ) A Non-Resident Indian or a Person of Indian alone and no business activity/ transaction Origin Resident Outside India may invest by will be allowed outside the SEZs in India, way of contribution to the capital of a firm which include branches/subsidiaries of its or a proprietary concern in India on a non- parent office in India. repatriation basis provided, No approval shall be necessary from RBI for i Amount is invested by inward a company to establish a branch /unit in SEZs remittance or out of NRE/FCNR/NRO to undertake manufacturing and service account maintained with AD activities subject to the following conditions: ii The firm or proprietary concern is not a. Such units are functioning in those engaged in any agricultural/plantation or sectors where 100% FDI is permitted. real estate business i.e. dealing in land b. Such units comply with part XI of the and immovable property with a view to Companies Act (section 592 to 602). earning income there from. c. Such units functions on a stand alone iii Amount invested shall not be eligible for basis. repatriation outside India. 87
  • 94. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians NRIs/PIO may invest in sole proprietorship Companies Act with the Registrar of concerns/ partnership firms with repatriation Companies, Ministry of Company benefits with the approval of Department of Affairs and all Indian operations Economic Affairs, Government of India/ would be conducted through this RBI. company. Q.2 What proposals require an industrial Investment in a Firm or a license (IL) and how is it obtained? Proprietary Concern by other than Ans: Under the New Industrial Policy, all NRIs industrial undertakings are exempt No person resident outside India other than from licensing except for industries NRIs/PIO shall make any investment by way requiring compulsory industrial of contribution to the capital of a firm or a license. The project should not be proprietorship concern or any association of located within 25 kilometers of a city persons in India. The RBI may, on an with a population of more than one application made to it, permit a person million as per 1991 Population resident outside India to make such Census. investment subject to such terms and The Government has substantially conditions as may be considered necessary. liberalized the procedures for obtaining an Industrial License. The Frequently asked Questions application in form IL-FC should be filed with the SIA. Approvals are Q.1 What are the forms in which business normally granted within 4-6 weeks. can be conducted by a foreign Q.3 What is the procedure for a company in India? delicensed sector? Ans: Foreign companies can make Ans: An Industrial undertaking exempted investments or operate their business from licensing needs only to file in a number of ways such as Liaison/ information in the Industrial Representative Office, Branch Entrepreneurs Memorandum (IEM) Office, Project Office, 100% Wholly with the SIA, which will issue an Owned Subsidiary, and Joint Venture acknowledgement. No further company. The requisite approval can approvals are required. be granted by Reserve Bank of India (RBI) or Foreign Investment Q.4 What is the taxation policy in India? Promotion Board (FIPB). Any Ans: Foreign nationals working in India company set up with FDI has to be are generally taxed only on their incorporated under the Indian Indian income. Income received 88
  • 95. Foreign Direct Investment from sources outside India is not H The Patents Act taxable unless it is received in India. H The Trademarks Act The Indian tax laws provide for H The Geographical Indication of exemption of tax on certain kinds of Goods Act income earned for services rendered H The Designs Act in India. Further, foreign nationals have the option of being taxed under Q.6 Is investment by non-resident the tax treaties that India may have Indians (NRIs) permitted? signed with their country of Ans: The Government attaches residence. importance to investments by NRIs. Remuneration for work done in India Government has provided a liberalised policy framework for is taxable irrespective of the place of approval of NRI investments through receipt. Remuneration includes both the Automatic and the salaries and wages, pensions, fees, Government route. NRIs are commissions, profits in lieu of or in permitted to invest up to 100% addition to salary, advance salary and equity in the Real Estate and Civil perquisites. Taxable payments Aviation Sectors. Automatic include all allowances and tax Approval is given by the RBI to all equalisation payments unless NRI proposals with their investment specifically excluded. The stock up to 100% for all items/activities options granted by the employer are except a few exceptions mentioned in taxable as capital gains at the time of Press Note 2 (2000 series) read with sale of shares acquired due to exercise sector specific guidelines. of options. Government approval is required for Q.5 What is the situation regarding all proposals not qualifying under intellectual property rights protection automatic route. in India? Q.7 Can profits, dividends, royalty, know Ans: India is a signatory to the agreement how payments be repatriated from concluding the Uruguay Round of India? GATT negotiations and establishing Ans: All profits, dividends, royalty, know the World Trade Organisation how payments that have been (WTO) and its laws today are WTO approved by the Government/RBI compliant. The important can be repatriated. Some sectors like regulations dealing with Intellectual investment in development of Property Rights are: integrated township, NRI 89
  • 96. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Investment in real estates, etc. may additional foreign collaborator, attract a lock-in period. guidelines laid down in Press Q.8 What are the formalities a joint Note No. 1 (2005 series) would venture company has to complete to have to be satisfied. increase the foreign equity holding? Q.9 What is the policy of conversion of Ans: The following formalities are non-repatriable shares into required for the joint ventures that repatriable shares? want to increase in their foreign Ans: FIPB approval is required. Where equity holding by acquisition of original investment was made in shares or by any other means. foreign exchange, the change is a) If only the quantum of foreign allowed without any conditions; if equity increased without change not, the sale proceed will have to be in percentage then Press Note repatriated to India by opening an no. 7 (1999 series) may be NRO account. followed. Q.10 What is the mechanism for b) For increase in percentage of publicizing the changes in the FDI foreign equity by way of policies? expansion of capital base, Ans: Changes in FDI policies are brought automatic route or FIPB / out in the form of Press Notes by Government route would apply Department of Industrial Policy & depending upon the nature of Promotion (DIPP). Soon after proposal in terms of Press Note releasing the Press Notes to the No. 2 (2000 series) media, it is also loaded on the c) Cases involving increase in Departmental website http:// percentage in foreign equity by dipp.gov.in. way of acquiring existing shares Q.11 What mechanism is available in an Indian company would alternative dispute resolution necessarily require prior approval (ICADR)? of FIPB/Government if the Ans: International Center for Alternative activity is in the financial sector Dispute Resolution (ICADR) has or the provision of SEBI been established as an autonomous (Substantial Acquisition of organization under the aegis of Shares and Takeovers) Ministry of Law & Justice to promote Regulations, 1997 is attracted. settlement of domestic and d) In cases involving inclusion of an international disputes by different 90
  • 97. Foreign Direct Investment modes of alternate dispute 4. While considering cases and making resolution. ICADR has its recommendations, FIPB should keep in headquarters in New Delhi and has mind the sectoral policies vis-à-vis the regional office in Lucknow and proposal(s). Hyderabad. More information on 5. FIPB would consider each proposal in ICADR can be obtained from the totality (i.e. if it includes apart from website: http://www.icadr.org foreign investment, technical Guidelines for Consideration of collaboration/industrial license) for Foreign Direct Investment (FDI) composite approval or otherwise. Proposals by the Foreign However, the FIPB’s recommendations Investment Promotion Board (FIPB) would relate only to the approval for foreign financial and technical These guidelines stand modified to the collaboration and the foreign investor extent changes have been notified by will need to take other clearances secretariat for Industrial Assistance from separately. time to time .the following guidelines are laid–down to enable the Foreign Investment 6. The Board should examine the following Promotion Board (FIPB) to consider the while considering proposals submitted to proposals for Foreign Direct Investment it for consideration: (FDI) and formulate its recommendations; i Whether the items of activity 1. All applications should be put up before involve industrial license or not and the FIPB within 15 days and it should be if so the considerations for grant of ensured that comments of the industrial license must be into; Administrative Ministries are placed ii Whether the proposal involves before the Board either prior to/or in the technical collaboration and if so the meeting of the Board. source and nature of technology 2. Proposals should be considered by the sought to transferred; Board keeping in view the time frame of iii Whether proposal involves any 30 days for communicating Government mandatory requirement for exports decision (i.e. approval of FM/CCEA or and if so whether the applicant is rejection as the case may be). prepared to undertake such 3. In cases in which either the proposal is obligation (this is for items covered not cleared or further information is for small scale sector as also for required, in order to obviate delays dividend balancing, and for 100% presentation by applicant in the meeting EOUs/EPZ units); of the FIPB should be resorted to. iv Whether the proposal involves any 91
  • 98. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians export projection and if so the items 7. While considering proposals the of export and the projected following may be prioritized; destinations; a Items/activities covered under v Whether the proposals has Government route (i.e. those which concurrent commitment under do not qualify under automatic other schemes such as EPCG route). Scheme etc; b Items falling in infrastructure sector. vi In the case of Export Oriented Units c Items which have an export (EOUs) whether the prescribed potential minimum value addition norms and d Items which have a large scale the minimum turn over of exports employment potential and especially are met or not; for rural people. vii Whether the proposal involves e Items which have a direct backward relaxation of locational restrictions linkage with agro business/farm stipulated in the industrial licensing sector. policy; f Items which have greater social viii Whether the proposal has any relevance such as hospitals, human strategic or defence related resource development, life saving considerations, and drugs and equipment. ix Whether the proposal has any g Proposals, which resulting existing joint venture or technology introduction of technology or transfer/trademark agreement in the infusion of capital. same field in India, and if so whether 8. The following should be especially this agreement is sick or defunct; the considered during the scrutiny and investment by either party is less consideration of proposals; than 3% & Investment is by FVCI, the detailed circumstance in which a The extent of foreign equity it is considered necessary to set-up a proposed to be held (keeping in view new technology transfer (including sectoral caps if any: – e.g.24% for SSI trade mark),and proof that the new units, 49% for air taxi/airlines proposal would not in any way operators, 74% in basic/cellular/ jeopardize the interest of the existing paging in Telecom sector etc). joint venture or technology/trade b Extent of equity with composition of mark partner or other stock holders. foreign/NRI/resident Indians. 92
  • 99. Foreign Direct Investment c Extent of equity from the point of (hostile or otherwise) whether by view whether the proposed project right issue, or by what modality]. would amount to a holding Cases pertaining to FIPB approvals, company/Wholly Owned Subsidiary/ which involve increase in the non- a company with dominant foreign resident equity within the approved investment (i.e. 75% or more) Joint percentage of non-resident equity in venture. a joint venture company and d Whether the proposed foreign enhancement of paid up capital in a equity is for setting up a new project wholly owned subsidiary do not (Joint Venture or otherwise) or require FIPB approval provided the whether it is for enlargement of intent for increase in the amount of foreign /NRI equity or whether it is foreign equity is duly notified to SIA for fresh induction of foreign equity/ and formal documentation by way of NRI equity in an existing Indian intimation is made to SIA within 30, company. days of receipt of funds and e In the case of fresh induction of allotment of shares (to non-resident foreign/NRI equity and/or cases of shareholders). enlargement of foreign/NRI equity g Issues/transfer/pricing of shares will in existing Indian companies be as per SEBI/RBI guidelines. whether there is a resolution of h Whether the activity is an industrial Board of Directors supporting the or a service activity or a combination said induction/enlargement of of both. foreign/NRI equity and whether there is a shareholders agreement or i Whether the item of activity not. involves any restrictions by way of the small scale sector. f In the case of induction of fresh equity in the existing Indian j Whether there are any sectoral companies and/or enlargement of restrictions on the activity (e.g. there foreign equity in existing Indian is ban on foreign investment in real companies, the reason why the estate while it is not for NRI proposal has been made and the investment). modality for induction/ k Whether the item involves only enhancement [i.e. whether by trading activity and if so whether it increase of paid up capital/ involves export or both export and authorized capital, transfer of shares import, or also includes domestic 93
  • 100. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians trading and if domestic trading would require prior approval of the whether it also includes retail Government; trading. b Where proprietary technology is l Whether the proposal involves sought to be protected or import of items, which are sophisticated technology is proposed hazardous, banned or detrimental to to be brought in; environment (e.g. import of plastic c Where at least 50% of production is scrap or recycled plastics). to be exported; 9. In respect of activities to which equity d Proposals for consultancy; and caps apply, FIPB may consider e Proposals for industrial model towns/ recommending higher levels of foreign industrial parks or estates. equity as compared to the prescribed 12. In special cases, where the foreign caps, keeping in view the special investor is unable initially to identify an requirements and merits of each Indian joint venture partner the Board case. may consider and recommend proposals 10. In respect of other Industries/activities permitting 100% foreign equity on a the Board may consider recommending temporary basis on the condition that the 51% Foreign Equity on examination of foreign investor would divest to Indian each individual proposal. For higher parties (either individual joint venture levels of equity up to 74% the Board may partners or general public or both) at consider such proposals keeping in view least 26% of its equity with in a period of considerations such as the extent of 3-5 years. capital needed for projects, the nature 13. Similarly in the case of a joint venture, and quality of technology, the where the Indian partner is unable to requirements of marketing and raise resources for expansion/ management skills and the commitment technological up-gradation of the for exports. existing industrial activity the Board may 11. FIPB may consider recommending consider and recommend increase in the proposals for 100% Foreign owned proportion/percentage (up to one holding/subsidiary companies based on hundred percent) of foreign equity in the the following criteria: enterprise. a Where only “holding” operations is 14. In respect of trading companies 100% involved all subsequent/down foreign equity may be permitted in the stream investments to be carried out case of activities involving the following: 94
  • 101. Foreign Direct Investment a exports; This would not prohibit changes in b bulk imports with ex-ports/ex- general policies and regulations bonded warehouse sales; applicable to industrial sector. c sales of goods and services among 17. Where in case of a proposal (not being a the companies of the same 100% subsidiary) foreign direct group.cash and carry wholesale investment has been approved up to a trading; designated percentage of foreign equity d other import of goods and services in the joint venture company the provided at least 75% is for percentage would not be reduced while procurement and permitting induction of additional capital subsequently. Also in case of approved 15. In respect of companies in the activities if the foreign investor (s) infrastructure/services sector where there concerned wished to bring in additional is a prescribed cap for foreign investment, capital on later dates keeping the only the direct investment should be investment to such approved activities, considered for the prescribed cap and FIPB would recommend such cases for foreign investment in an investing company should not be set off against this approval on an automatic basis. cap provided the foreign direct 18. As regards proposals for private sector investment in such investing company banks, the application would be does not exceed 49% and the considered only after “in principle” management of the investing company is permission is obtained from the Reserve with the Indian owners. Bank of India (RBI). 16. No condition specific to letter if approval 19. The restrictions prescribed for proposals issued to a foreign investor would be in various sectors as obtained should be changed or additional condition imposed kept in view while considering the subsequent to issue of a letter of approval. proposals. ■■ 95
  • 102. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Sector Specific Guidelines for Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP 1. Airports a. Greenfield 100% Automatic Subject to sectoral PN 4/2006 projects Regulations notified by Ministry of Civil Aviation www.civilaviation.nic.in b. Existing 100% FIPB Subject to sectoral PN 4/2006 projects Beyond regulations notified by 74%. Ministry of Civil Aviation www.civilaviation.nic.in 2. Air 49%- FDI; Automatic Subject to no direct or PN 4/2006 Transport 100%- for indirect participation by Services NRI foreign airlines. Investment Government of India Gazette Notification dated 2.11.2004 issued by Ministry of Civil Aviation www.civilaviation.nic.in 3. Alcohol 100% Automatic Subject to license by PN 4 / 2006 Distillation appropriate authority & Brewing 4. Asset 49% (only FIPB Where any individual Reconstru- FDI) investment exceeds 10% ction of the equity, provisions of Companies Section 3(3)(f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 should be complied with. www.finmin.nic.in 96
  • 103. Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP 5. Atomic 74% FIPB Subject to guidelines Minerals issued by Department of Atomic Energy vide Resolution No. 8/1 (1)/97- PSU/1422 dated 6.10.98. 6. Banking – 74% Automatic Subject to guidelines for PN 2/2004 Private (FDI+FII) setting up branches/ sector subsidiaries of foreign banks issued by RBI. www.rbi.org.in 7. Broadcasting a. FM Radio FDI+FII FIPB Subject to guidelines PN 6/2005 investments notified by Ministry of up to 20% Information & Broadcasting. www.mib.nic.in b. Cable 49% FIPB Subject to Cable Television network (FDI+FII) Network Rules (1994) Notified by Ministry of Information & Broadcasting. www.mib.nic.in c. Direct To 49% FIPB Subject to guidelines issued Home (FDI+FII). by Ministry of Information & (within this limit, Broadcasting. FDI component not www.mib.nic.in to exceed 20%) d. Setting up 49% FIPB Subject to Up-linking Policy PN 1/2006 hardware (FDI+FII) notified by Ministry of facilities Information & Broadcasting such as up-linking, HUB, etc e. Up-linking 26% FIPB Subject to guidelines PN 1/2006 a News & FDI+FII issued by Ministry of Current Affairs Information & Broadcasting TV Channel www.mib.nic.in 97
  • 104. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP f. Up-linking a 100% FIPB Subject to guidelines issued PN 1/2006 Non-News by Ministry of Information & & Current Broadcasting Affairs TV www.mib.nic.in Channel 8. Cigars & 100% FIPB Subject to industrial license PN 4/2006 Cigarettes- under the Industries Manufacture (Development & Regulation) Act, 1951 9. Coal & 100% Automatic Subject to provisions of Coal PN 4/2006 Lignite Mines (Nationalization) mining for Act,1973 captive www.coal.nic.in consumption by power projects, and iron & steel, cement production and other eligible activities permitted under the Coal Mines (Nationaliza- tion) Act, 1973. 10. Coffee & 100% Automatic PN 4/2006 Rubber processing & warehousing 11. Construction 100% Automatic Subject to conditions PN 2 / 2005 Development conditions notified vide & PN 2/2006 projects, Press Note 2 (2005 Series) including including: 98
  • 105. Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP housing, a. minimum capitalization of commercial US$ 10 million for wholly premises, owned subsidiaries and resorts, US$ 5 million for Joint educational venture. The Funds would institutions, have to be brought within recreational six months of facilities, city commencement of and regional business of the Company. level b. Minimum area to be infrastructure, developed under each townships. project- 10 hectares in case of development of serviced housing plots; and built-up area of 50,000 sq. mts. in case of construction development project; and any of the above in case of a combination project. [Note:For investment by NRIs, the conditions mentioned in Press Note 2 I 2005 are not applicable.] 12. Courier 100% FIPB Subject to existing laws and PN 4/2001 services for exclusion of activity relating carrying to distribution of letters, packages, which is exclusively parcels and reserved for the State. other items www.indiapost.gov.in which do not come within the ambit of the Indian Post Office Act, 1898. 99
  • 106. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP 13. Defence 26% FIPB Subject to licensing under PN 4/2001 production Industries (Development & & PN 2/2002 Regulation) Act, 1951 and guidelines on FDI in production of arms & ammunition. 14. Floriculture, 100% Automatic PN 4/2006 Horticulture, Development of Seeds, Animal Husbandry; Pisciculture, aqua-culture, cultivation of vegetables, mushrooms, under controlled conditions and services related to agro and allied sectors. 15. Hazardous 100% Automatic Subject to industrial license PN 4/2006 Chemicals, under the Industries viz., hydrocyanic (Development & Regulation) acid and its Act, 1951 and other sectoral derivatives; regulations. phosgene and its derivatives; and isocyanates and diisocyantes of hydrocarbon. 16. Industrial 100% Automatic Subject to industrial license PN 4/2006 explosives under Industries Manufacture (Development & Regulation) Act, 1951 and regulations under Explosives Act, 1898 100
  • 107. Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP 17. Insurance 26% Automatic Subject to licensing by the PN 10/2000 Insurance Regulatory & Development Authority www.irda.nic.in. 18. Investing 49% FIPB Foreign investment in an PN 2/2000 companies in investing company will not be & PN 5/2005 infrastructure/ counted towards sectoral cap services sector in infrastructure /services (except telecom sector provided the sector) investment is up to 49% and the management of the company is in Indian hands. 19. Mining covering 100% Automatic Subject to Mines & Minerals PN 2/2000 exploration and (Development & Regulation) PN 3/2005, mining of Act, 1957 www.mines.nlc.in & PN 4/2006 diamonds & Press Note 18 (1998) and precious stones; Press Note 1 (2005) are not gold, silver and applicable for setting up minerals. 100% owned subsidiaries in so far as the mining sector is concerned, subject to a declaration from the applicant that he has no existing joint venture for the same area and/or the particular mineral. 20. Non Banking Finance Companies-approved activities i Merchant 100% Automatic Subject to: PN 2/2000, banking PN 6/2000, & a. minimum capitalization ii Underwriting norms for fund based PN 2/2001 NBFCs - US$ 0.5 iii Portfolio 101
  • 108. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP Management Million to be brought Services upfront for FDI up to 51%; US$ 5 million to be brought iv Investment Advisory upfront for FDI above 51% Services and up to 75%; and US$ 50 million out of which US$ v Financial 7.5 Million to be brought Consultancy upfront and the balance in vi Stock 24 Months for FDI Beyond Broking 75% and up To 100%. vii Asset Management b. minimum capitalization norms for non-fund based viii Venture NBFC activities- US$ 0.5 Capital million. ix Custodial Services c. foreign investors can set up 100% operating x Factoring subsidiaries without the xi Credit condition to disinvest a Reference minimum of 25% of its Agencies equity to Indian entities subject to bringing in US$ xii Credit 50 million without any Rating Agencies restriction on number of operating subsidiaries xiii Leasing without bringing additional & Finance capital. xiv Housing d. joint venture operating Finance NBFC’s that have 75% or xv Forex less than 75% foreign Broking investment will also be xvi Credit allowed to set up Card subsidiaries for Business undertaking other NBFC activities subject to 102
  • 109. Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP xvii Money the subsidiaries also changing complying with the Business applicable minimum capital inflow. xviii Micro credit xix Rural credit. e. compliance with the guidelines of the RBI. 21. Petroleum & Natural Gas sector a. Other than 100% Automatic Subject to sectoral PN 1/2004 Refining and regulations issued by Ministry & PN 4/2006 including market of Petroleum & Natural Gas; study and andin the case of actual formulation; trading and marketing of investment petroleum products, financing; setting divestment of 26% equity in up infrastructure favour of Indian partner/public for marketing in within 5 years. Petroleum & www.petroleum.nic.in Natural Gas sector. b. Refining 26% in case FIPB Subject to Sectoral policy PN 2/2000 of PSUs (in case of www.petroleum.nic.in PSUs) 100% case Automatic of Private (in case of companies private companies) 22. Print Media a. Publishing of 26% FIPB Subject to Guidelines notified newspaper and by Ministry of Information & periodicals Broadcasting. dealing with news www.mib.nic.in and current affairs 103
  • 110. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP b. Publishing of 100% FIPB Subject to guidelines issued PN 1/2004 scientific by Ministry of Information & magazines/ Broadcasting. specialty/ www.mib.nic.in journals/ periodicls 23. Power including 100% Automatic Subject to provisions of the PN 2/1998, generation (except Electricity Act. 2003 PN 7/2000, Atomic energy); www.powermin.nic.in & PN 4/2006 transmission, distribution and Power Trading. 24. Tea Sector. 100% FIPB Subject to divestment of 26% PN 6/2002 including tea equity in favour of Indian plantation partner/Indian public within 5 years and prior approval of State Government for change in land use. 25. Telecommunication a. Basic and cellular, 74% Automatic Subject to guidelines notified PN 5 / 2005 Unified Access (Including Up to 49% in the PN 5 (2005 Series). Services, National FDI, FlI International NRI,FCCBs, FIPB Long Distance, ADRs, GDRs, Beyond V-Sat, Public convertible 49% Mobile Radio preference Trunked Services shares, (PMRTS), Global and proportio- Mobile Personal nate foreign Communications equity in Services (GMPCS) Indian and other value promoters/ added telecom Investing Services Company) 104
  • 111. Foreign Direct Investment S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP b. ISP with gateways, 74% Automatic Subject to licensing and PN 4/2001 radio-paging, up to 49% security requirements end-to-end FIPB notified by the Department of bandwidth. Beyond Te l e c o m m u n i c a t i o n s 49% www.dotindia.com c. ISP Without 100% Automatic Subject to the condition that PN 9/2000 Gateway, up to 49% such Companies shall divest Infrastructure 26% of their equity in favour provider providing FIPB of Indian Public in 5 years, if dark fibre, Beyond these companies are listed in electronic mail 49% other parts of the world. Also and voice mail subject to licensing and security requirements, where required. www.dotindia.com d. Manufacture 100% Automatic Subject to sectoral PN 2/2000 of telecom requirements. equipments www.dotindia.com 26. Trading a. Wholesale/cash 100% Automatic Subject to guidelines for FDI PN 4/2006 & carry trading in trading issued by Department of Industrial Policy & Promotion vide Press Note 3 (2006 Series). b. Trading for 100% Automatic exports c. Trading of items 100% FIPB sourced from small scale sector d. Test marketing 100% FIPB of such Items 105
  • 112. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians S. Sector/ FDI Cap/ Entry Other conditions Relevant No. Activity Equity Route Press Note issued by DIPP for which a company Has approval for manufacture e. Single Brand 51% FIPB Product retailing 27. Satellites 74% FIPB Subject To Sectoral Establishment guidelines issued by and operation Department of Space/ISRO www.isro.org 28. Special Economic 100% Automatic Subject To Special Economic PN 9/2000, Zones and Free Zones Act, 2005 and the PN 2/2006, Trade Foreign Trade Policy. & PN 4I2006 Warehousing www.sezindia.nic.in Zones Covering setting up of these Zones and setting up units in the Zones 106
  • 113. Portfolio Investment Scheme Foreign Direct Investment Portfolio Investment Scheme Portfolio Investment Scheme routed through that designated bank branch only. for NRIs v. All transactions of sales and purchase Schedule 2 and 3 of the Notification No. must be delivery based. Speculative FEMA 20/2000 RB contains provisions transactions are not allowed. relating to Portfolio investment by NRIs. vi. Mode of investment may be in any of the OCBs are not allowed to make fresh following ways: investments in India under the Portfolio a. For investment on Repatriation basis Investment Scheme vide Notification No. H inward remittances through FEMA 46 dated 29th November 2001. normal banking channels Further, in September 2003, RBI has banned H out of FCNR/NRE account. OCBs from investing in any manner in India. b. For investment on non-repatriation In fact, the category of OCB has been basis Besides the above two, abolished. However, they can continue to investment can be made out of NRO hold and sell shares purchased before 29th account. November 2001. vii. Ceiling on Investment Portfolio investment is covered by general a. Per investor (Each NRI) permission subject to following condition/ H 5% of the paid-up value of provisions. shares of an Indian Company on i. Investment is permitted on repatriation both repatriation and non- repatriation basis. as well as non-repatriation basis. H 5% of the value of each issue of ii. Purchases, sale of shares (Preference and convertible debenture of an Equity) and/or convertible debentures Indian Company on both are covered. repatriation and non- iii. Purchase/sale is done through registered repatriation basis. broker of a registered broker of a b. Per investee Company recognised stock exchange. (Total holding by all NRIs put iv. One bank branch must be designated by together on both repatriable as well NRIs and all purchase/sale must be as non-repatriable basis.) 107
  • 114. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 10% of paid-up value of shares of an exchange traded derivatives contracts Indian Company. approved by SEBI from time to time out 10% of paid-up value each series of of his Rupee funds held in India on Non- convertible debenture. Repatriable basis subject to the limits described by SEBI. This ceiling of 10% could be increased to 24%, if the General xii. NRIs can also invest without limit on Body of concerned repatriable basis in Government dated securities, treasury bills, units of domestic Indian Company passes a special mutual funds, bonds issued by PSUs, resolution to that effect. shares in public sector enterprises which It is interesting to note that FIIs are are being disinvested by Government. allowed to increase their They can also invest without limit on investments under portfolio non-repatriable basis. In Government investments scheme up to the dated securities, treasury bills, units of sectoral cap. Whereas NRIs are Domestic mutual funds, units of Money allowed to increase the limit only up market mutual funds. However, NRIs are to 24%. not permitted to make Investments in viii.Repatriation of Sale/Maturity Proceeds Small Savings Schemes including PPF. a. Sales proceeds of Investment held on repatriation basis can be credited Practical Issues to NRE/FCNR/NRO account after i. Can NRIs take their securities outside payment of applicable taxes. India? b. If investment is on non-repatriation There is no express prohibition in FEMA. basis, credit of sale/maturity As such “demat” being in vogue, physical proceeds is permitted in NRO transfer of security assumes little or no account. significance. Under FERA, general ix. Existing OCBs (i.e. prior to Sep 16, 2003) permission was granted for taking must intimate the designated bank securities outside India. branch immediately on the holding/ ii Can NRIs invest under portfolio interest of NRIs in the OCB becoming investment scheme out of funds less than 60%. borrowed in India? x. NRIs are allowed to enter into forward No NRIs cannot invest out of borrowed contracts to hedge their investment funds in India. made in India. iii. Can power of attorney holder manage xi. NRI is also permitted to invest in portfolio on behalf of NRIs? 108
  • 115. Portfolio Investment Scheme Yes. A power of attorney holder can H Purchase and sale is carried out manage portfolio on behalf of NRIs. through a registered broker on a However, he cannot effect remittance recognized stock exchange. outside India. With internet trading, life H All transactions of purchase and sale of NRIs has become easy for portfolio must be delivery based. Speculative investments. transactions are not allowed. iv. Can NRIs avail of loan against such vii. Can income earned on Portfolio securities? Investment be remitted abroad? Yes. NRIs can borrow against shares or Income such as interest and dividend other securities. However, the loan earned by NRI from portfolio should be utilized for meeting the investments acquired whether on borrower’s personal requirements or for repatriation basis or on Non- repatriation his own business purposes. basis, can be remitted abroad provided v. Is any approval required from anyone to applicable taxes have been deducted/ begin Portfolio Investment? paid. NRIs do not need any approval to However capital gains can be repatriated undertake Portfolio Investment. They only if investment is on repatriable basis. have to comply with the guidelines. FIIs viii.Are NRIs required to file any reports to need approval of SEBI and RBI. An RBI? application has to be filed with SEBI as The NRI investor is not required to file the relevant rules. The application is any Return or Report with the RBI with forwarded to RBI. Both approvals are regard to acquisition or sale of shares available simultaneously. One does not and/ or debentures in an Indian have to approach SEBI and RBI Company. Only the link office of the independently. In fact for FIIs, SEBI is designated bank branch is required to the monitoring authority. Detailed rules furnish a report on daily basis on Portfolio are laid down under the SEBI law. Investment Scheme Transactions to vi. How can NRI begin portfolio RBI. Investment? NRIs should comply with the following Portfolio Investment conditions: Scheme for Foreign The NRI designates a bank branch H Institutional Investors (FIIs) for routing all his purchase and sale transactions through that Bank Schedule 2 of the Regulation 5(2) of branch only. Notification No. 20/RB-2000 dated 3rd May, 109
  • 116. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 2003 deals with the provisions relating to Holding by each FII (including SEBI Portfolio Investment by FIIs. FIIs such as approval sub-account of FII) shall Pension Funds, Investment Trusts, Assets not exceed ten percent (10%) of the Management Companies, etc., who have total paid-up equity capital or (10%) obtained registration from SEBI, are of the paid-up value of each series of permitted to invest on full repatriation basis convertible debentures issued by an in the Indian Primary and Secondary Stock Indian Company. Markets (including OTCEI) as well as in b. Total holding unlisted, dated Government securities, The total holding of all FIIs/sub- Treasuries Bills and Units of Domestic accounts of FIIs put together shall Mutual Funds without any lock-in-period. not exceeds 24% of paid-up equity Brief provisions of the schemes are as follows: capital or paid up value of each series of convertible debentures. i. FII must be registered with SEBI. c. Holding in Government Securities ii. FII shall not obtain prior permission of RBI for purchase the share/convertible In case of Investment in debentures of an Indian Company. Government Securities (para (ix) given below); the ratio of investment iii. Purchase is allowed through registered between equity and debt should be brokers on recognised stock exchange in atleast 70:30 (i.e. minimum 70% for India. equity). There is no limit on the iv. Manner of Investments amount of investment. If the FII FIIs are permitted to open a foreign wants to invest 100% in the debt currency account and/or a non-resident fund, then it can form a debt fund rupee account in India with a designated and get the same registered with branch of an authorized dealer. The SEBI purchase and sale of permitted securities vii. Remittance of sale proceeds must be routed through this account FII will be allowed to remit sale proceeds only. of shares/convertible debentures after v. Forex cover to hedge investment in India payment of applicable taxes. FIIs are permitted to hedge the market viii.FIIs are also permitted to invest in value of their entire investment in equity exchange traded derivatives contracts as on a particular date without any approved by SEBI subject to the limit reference to a cut off date. prescribed by SEBI. vi. Limit on Investment ix. FIIs can also invest in dated Government a. Individual holding securities, treasure bills, non-convertible 110
  • 117. Portfolio Investment Scheme debenture/ bonds, and units of Domestic xi. FIIs are required to submit a daily report mutual funds. of the transactions in a soft copy format x. Procedure for FIIs to make portfolio to Chief General Manager, Exchange Investment in India General Manager, Exchange Control Department, Reserve Bank of India, FIIs should comply with the following Foreign Investment Division, Central conditions: Office, Central Office Building, Mumbai H The FII should designate a bank 400 001. Details of exchange-traded branch for routing all purchase and derivatives are, however, not required to sale transactions through that bank be submitted. This will facilitate RBI to branch only. keep tabs on limits of investment. H Purchase and sale should be carried out through a registered broker on a Investments by NRIs on recognised stock exchange. Of course, in case of private placement Non-Repatriation Basis investment, there will be no broker. Schedule –IV of notification No. 20/2000- H All transaction of purchase and sale RB deals with provisions relating to such type must be delivery based. Speculative of investments. Briefly the provisions are as transactions are not allowed. follows:- H FIIs can open a bank account in foreign currency and rupee (known General Prohibition as Special Non-resident Rupee Investments in shares or convertible Account). Free transfer of funds debentures of an Indian Company engaged between the two accounts is in following type of activities are not permitted. All transactions should permitted. be routed through these accounts. H Chit Fund or Nidhi Company The transaction can be done through Special Rupee Account. H Agricultural or Plantation activities H For derivative trading, a separate H Real Estate Business sub-account in Rupee should be H Construction of farm houses or opened. The funds can be freely H Dealing in Transfer of Development transferred between the special Rights (TDRs). rupee account and the sub-account. However, repatriation of funds General Permission abroad can be done only through the Subject to above, NRIs are free to invest main Special Rupee Account. without any limit on non-repatriation basis 111
  • 118. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians in shares or convertible debentures of an non-repatriation basis dated Government Indian Company. However, only direct Securities, treasury bills, units of domestic investment in the form of public issue, mutual funds, units of Money Market Mutual private placement or right issue is covered Funds. here. It follows that secondary investment, However, NRIs are not permitted to make on private arrangement basis, would require Investments in Small Savings Schemes prior RBI approval. including PPF. NRI can also, without any limit, purchase on ■■ 112
  • 119. Portfolio Investment Scheme Immovable Properties Immovable Properties Prohibition on citizens of concerned. Under FERA acquisition of IP in India was governed by citizenship criteria, certain countries whereas under FEMA the same is governed Citizens of eight countries, (namely, by “residential status” criteria. It means a Pakistan, Bangladesh, Sri Lanka, foreign citizen who is resident in India (not Afghanistan, China, Iran, Nepal or Bhutan being a citizen of any of the eight countries (whether resident in India or not) are listed above) can purchase IP in India prohibited from acquiring or transferring without any approval from RBI. He is also any Immovable Property (IP) in India not required to file any declaration at the without prior approval of the RBI. However, time of purchase of such IP . such a prohibition is not applicable to IP acquired on lease for a period not exceeding General Prohibition five years. Investment in agricultural property, plantation and farmhouse is prohibited for all Policy Shift classes of persons resident outside India, be There is a major policy shift as far as it NRIs/OCBs/ foreign citizens or other regulation concerning IP situated in India is foreign entities. Table: Transaction of Immovable Property Indian Citizen Resident Outside India May NRI PIO Resident Note Purchase Property From Yes Yes Yes Sell Property To Yes Yes Yes Receive Gift From Yes Yes Yes Give Gift To Yes Yes Yes Agricultural Property Purchase Property From No No No Sell Property To No No Yes Receive Gift From No No No Give Gift To No No Yes 113
  • 120. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Person of Indian Origin Resident Outside India May NRI PIO Resident Note Purchase Property From Yes Yes Yes Forex or NRI Sell Property To No No Yes Bank Receive Gift From Yes Yes Yes Accounts Give Gift To Yes Yes Yes Agricultural Property Purchase Property From No No No Sell Property To No No Yes Citizen of India Receive Gift From No No No Give Gift To No No Yes Citizen of India If these provisions are examined carefully it Generals have been permitted to purchase/ will be noticed that the right to repatriate is sale of IP in India other than agricultural acquired by a person who was an NRI/PIO land/plantation property/farm house subject at the time of acquisition and who is an NRI/ to the following conditions:- PIO at the time of the sale. The residential i. Clearance is required from Government status between these two transactions is of India, Ministry of Affairs for purchase/ inconsequential and immaterial. sale of IP; All situations not falling in the category of ii. IP is acquired out of inward remittance the general permissions, including requests from funds outside India through for acquisition of agricultural land by any banking channels. ROI may be made to The Chief General Manager, Reserve Bank of India, Central Repatriation of Sale Office, Exchange Control Department, Proceeds Foreign Investment Division (III), Mumbai 400 001(India). No application form has The provisions for repatriation discussed been prescribed. herein below are applicable only in respect of immovable property IP other than agricultural land/plantation/farm house. Acquisition and Transfer of IP in India by Foreign Repatriation of IP in India belonging Embassies/Diplomats/ to NRI/PIO before the change of the residential status or acquired Consulate Generals through inheritance Foreign Embassies/Diplomats/Consulate Ordinarily, NRI/PIO were required to obtain 114
  • 121. Immovable Properties prior approval of RBI for remittance of sale the property was purchased from funds proceeds of any immovable property owned held in NRE Account. by him when he was a resident in India or iv. The amount sought to be repatriated inherited from a person who was resident in abroad should not exceed the amount India. paid for acquisition of the immovable NRIs/PIOs are now allowed to repatriate property in the foreign exchange received funds held in their Non-Resident Ordinary through normal banking channels or out Rupee (NRO) account up to US $ One of funds held in FCNR or NRE Account. In case of investment out of NRE Million per year representing sale proceeds Account the amount to be calculated as of immovable property held by them for a foreign currency is equivalent value as on period of not less than 10 years subject to the date of payment for acquisition of the payment of applicable taxes and on said property. production of an undertaking by the remitter and a certificate by a Chartered Accountant Repatriation of Sale Proceeds of in the formats prescribed by the CBDT and Residential Accommodation in India also documentary evidence in support of the purchased by NRIs/PIOs acquired acquisition of the asset. by way of loans General Rules for Repatriation RBI has permitted Authorised dealers or Housing Finance Institutions in India i. Acquisition of IP by the seller must be in approved by National Housing Bank to accordance with the provisions of the provide housing loan to NRIs/PIOs for foreign exchange laws in force at the time acquisition of residential accommodation in of acquisition of such property. India subject to conditions stipulated in ii. NRIs/PIOs can effect remittance of sale Regulation 8 of Notification No. 4/2000-RB proceeds of immovable property in India dated 3rd May 2000. irrespective of the period for which the Vide Circular No.1 01 dated May 5, 2003, property was held. The sale proceeds RBI has decided that the loan amount raised allowed to be repatriated should, for purchase of residential accommodation however, not exceed the foreign which is subsequently repaid by NRIs/ PIOs exchange brought in to acquire the said by remitting funds from abroad or by debit to property. their NRE/FCNR accounts such repayments iii. In case of residential property, the in foreign exchange of rupee loans obtained repatriation of sale proceeds is restricted for acquiring residential accommodation may to not more than two such properties, if be treated as equivalent to foreign exchange 115
  • 122. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians as stated in clause (iv). Authorised dealers property, whether purchase through have been permitted to allow repatriation of application of forex or otherwise, without sale proceeds of residential accommodation seeking any permission from the RBI. The purchased by NRIs/PIOs out of funds raised rental income being a Current Account by them by way of loans from the authorised transaction is repatriable outside India, only dealers/housing finance institutions to the if proper tax is paid or provided for. extent of such loan/s repaid by them out of Where the house is purchased through foreign inward remittances received through housing finance and if the house is rented normal banking channel or by debit to their NRE/FCNR accounts. out, the entire rental income, even if it more than the prescribed installment, should be Refund of Purchase consideration adjusted towards repayment of the loan. If on account of non­allotment of flats/ the rental income is less then the prescribed plots/cancellation of booking/deals installment, the borrower should remit the amount of the extent of the shortfall from in respect of immovable property abroad or pay it out of his NRE, FCNR or purchased by NRIs/PIOs in India NRO account in India. Authorised Dealers are permitted to credit refund of application/earnest money/ purchase consideration made by the housing Questions and Answers building agencies/seller on account of non- Q. 1 Can NRIs/PIOs rent out his allotment of flat/plot cancellation of immovable property in India? bookings/deals for purchases of residential, Ans. Yes, the NRIs/PIOs can freely rent commercial property, together with interest, out their immovable property in if any (net of income tax payable thereon), India without seeking any permission to NRE/FCNR account, of Non-­Resident from RBI. The rental income being Indian/Persons of Indian Origin provided, a Current Account transaction is the original payment was made out of NRE/ freely repatriable outside India, FCNR account of the account holder or subject to payment of applicable remittance from outside India through taxes. normal banking channels and the authorised In this connection, it may be noted dealer is satisfied about the genuineness of that even a person being a citizen of the transactions. Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Remittance of Rent Bhutan can acquire or transfer NRI/PIOs can freely rent out their immovable property in India on lease not 116
  • 123. Immovable Properties exceeding 5 years, without prior “immovable property”. Indeed, in the permission from RBI. said definitions, shares in the co- Q.2 Can an NRI rent his property in operative society are not so included India? Can he repatriate the rentals that is to say expressly. if the concerned property is held on However, the situation appears to be non-repatriation basis? clear in view of the Supreme Court’s Ans. NRI may give his property on rent. decision in Hanuman Vitamin Foods Rental income, being current Pvt. Ltd. v/s State of Maharashtra account transaction, can be (2000) 6 see 345, confirming the repatriated abroad or be credited to Bombay High Court decision in repatriable non-resident accounts Hanuman Vitamin Foods Pvt. Ltd. & after payments of applicable taxes. Ors v/s. State of Maharashtra & Q.3 Whether any interest or share in a Superintendent of Stamps, Bombay Co-operative Housing Society or (Writ Petition Number 1820 of 1986, Apartment Owners Association dated 17th February, 1989), wherein (also known as Condominium the question posed before the Court abroad) is an immovable property for was whether the instrument of the purposes of these Regulations? transfer of shares in a co-operative society was an instrument for transfer Ans. FEMA does not define the of an immovable property, for expression “immovable property” purposes of levy of stamp duty though the same has been used in thereon. The Supreme Court held, various Sections of the Act and the by referring to another decision in Regulations framed thereunder. Further, even the definition of Veena Hasmukh Jain v/s. State of “immovable property” given in the Maharashtra (1999) 5 SCC 725, that Transfer of Property Act, 1982, the the agreement to sell shares in a Co- General Clauses Act, the Sale of operative Society is, in effect, the Goods Act and the Indian agreement to sell immovable Registration Act, taken together, do property. not clarify what “immovable Accordingly, any interest or share in property” IP They only suggest what . a Co-operative Housing Society or is either included or not included in Apartment Owners Association 117
  • 124. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians (also known as Condominium restrictions u/s. 6(3)(i) and the abroad) is an immovable property for Regulations are also applicable to the purposes of these Regulations. non-individual persons who are Q. 4 Whether Section 6(3)(i) of FEMA resident outside India. read with the aforesaid Regulations Q. 5 Who is required to obtain prior is applicable to Companies, firms permission of RBI to acquire or etc.? transfer immovable property in India Ans. In view of the definition of “person” and under what circumstances such given in Section 2(u) which covers permission is required? various classes of non-individuals Ans. The following categories of persons and the definition of “person resident are required to obtain prior in India” given in Section 2(v) and permission of RBI to acquire or particular reference to clauses (ii), transfer immovable property in (iii), (iv) thereof, it is clear that the India: Sr. Person who is required to Nature of Transactions/ Reference/ No. obtain RBI’s Permission Property which requires Remarks RBIs Permission 1. Citizen of India residing outside India To acquire Agricultural or Plantation Reg. 3(a) (i.e. NRI) property or a Farm House in India 2. Citizen of India residing outside India To transfer Agricultural or Plantation Reg. 3(c) (i.e. NRI) property or a Farm House in India to another NRI or PIO 3. Citizen of India residing outside India To transfer any immovable property Reg.3(b) & (c) (i.e. NRI) in India to a person resident outside India of non-Indian Origin (i.e. other than to another NRI or PIO) 4. A person of Indian Origin Resident To acquire any immovable property Reg. 4(a) outside India (PIO) in India (other than agricultural or plantation property or a farm house) by the way of purchase from other than foreign exchange funds/ Non-Resident Accounts 118
  • 125. Immovable Properties Sr. Person who is required to Nature of Transactions/ Reference/ No. obtain RBI’s Permission Property which requires Remarks RBIs Permission 5. A person of Indian Origin Resident To acquire Agricultural or Plantation Reg. 4(a) & (b) outside India (PIO) Property or a Farm House in India by way of purchase or gift (other than by way of inheritance) 6. A person of Indian Origin Resident To acquire any immovable property Reg. 4(b) outside India (PIO) in India (other than agricultural or plantation property or a farm house) by way of gift from a foreign national resident outside India (other than another NRI or PIO) 7. A person of Indian Origin Resident To transfer Agricultural or Plantation Reg. 4(e) outside India (PIO) property or a Farm House in India by way of a gift or sale to another NRI or PIO (other than a person who is a Citizen of India and Resident of India) 8. A person of Indian Origin Resident To transfer any immovable property Reg. 4(d) outside India (PIO) in India by way of a sale to a person resident outside India 9. A person of Indian Origin Resident To transfer any Residential or Reg. 4(f) outside India (PIO) Commercial Property in India by way of Gift to a person Resident outside India (other than another NRI or PIO) 10. A Person Resident outside India who To transfer any property in India Reg. 5 (b) has been permitted to establish a (other than by way of mortgage branch, office or any other place of to an Authorised Dealer as a business in India (excluding a liaison security for any borrowing). office) 11. Foreign Embassy, Diplomat, To obtain prior approval of Govt. of Reg. 5A Consulate General India, Ministry of External Affairs for purchase & sale of IP 12. A foreign national being a citizen of To acquire or transfer any Reg. 7 Pakistan, Bangladesh, Sri Lanka, immovable property in India (other Afghanistan, China, Iran, Nepal or than lease not exceeding 5 years) 119
  • 126. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Sr. Person who is required to Nature of Transactions/ Reference/ No. obtain RBI’s Permission Property which requires Remarks RBIs Permission Bhutan (whether resident in India or not) 13. Any person resident outside India (Note: The regulations do not grant Reg. 8 (other than an NRI or a PIO) i.e. any general permission to such a any foreign national resident outside person to acquire animmovable India. property in India. Therefore, such a person would also require RBI’s permission to acquire an immovable property in India). 14. Any Non-Individual Person (i.e. a To acquire or transfer an Sec. 6(3)(i) company or a firm etc.) resident immovable property in India (other outside India. than a lease not exceeding 5 years). It will be thus apparent from the above that national, to whom should the all transactions involving acquisition or application be made? Is there any transfer of immovable property in India by a prescribed form for the application? person residing outside India (as well as by Ans. All requests for acquisition or certain persons who are citizens of certain transfer of agricultural land/ neighbouring countries) require prior plantation property/farm house by permission from RBI unless general any person resident outside India or permission had already been secured granted foreign national may be made to the for such a transaction in terms of regulations Chief General Manager, Reserve 3, 4 or 5 of the said Regulations. Bank of India, Central Office, Exchange Control Department, Whom to apply for permission Foreign Investment Division (III), Q. 6 If any permission from RBI is Mumbai - 400 001 (India). No required to acquire or transfer application form has been prescribed. agricultural land/plantation Q. 7 Whether NRIs needs any permission property/farm house by a person for purchase or sale of an immovable resident outside India or a foreign property in India? 120
  • 127. Immovable Properties Ans. General permission has been granted account and partial on capital to NRIs (Non-Resident Indian account. Remittance of sale proceed Citizens or Persons of Indian Origin) is limited to the cost of the property for purchase and sale of immovable only, and the amount of gain on sale property in India other than of property, cannot be repatriated. agricultural land/farm house/ Q.11 Can an NRI take loan against the plantation property. security of immovable property in Q. 8 Can NRIs purchase immovable India? Are there any restrictions on properties out of NRO accounts? the use of loan amount? Ans. Yes. NRIs can purchase immovable Ans. An NRI can borrow against the properties out of NRO accounts. security of immovable property from NRIs can repatriate sale proceeds of Authorised Dealer subject to inmovale property upto USD 1 following conditions: million out of NRO account per i. the loan should be used for calender year. meeting the personal Q. 9 Is there any restriction on number of requirements or for borrower’s residential properties that may be own business purposes; and purchased by an NRI? Is there any ii. loan should not be used for restriction on period of holding for prohibited activities, namely; such properties? a. business of chit fund, or Ans. There are no restrictions on the b. Nidhi Company, or number of residential properties that may be bought by an NRI. However, c. agriculture or plantation repatriation is allowed only in respect activities or in real estate of two such properties and that, too, business, or construction of after three years from the date of farm houses, or acquisition of such property or from d. trading in Transferable the date of payment of final Development Rights (TDRs), instalment, whichever is later. iii. the loan amount cannot be Q. 10 Can NRI repatriate the full remitted outside India, consideration upon the sale of his iv. repayment of loan shall be made property? from out of remittances from Ans. India is fully convertible on current abroad or by debit to NRE/ 121
  • 128. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians FCNR/NRO account or out of against which such loan was the sale proceeds of shares or granted. securities or immovable property ■■ 122
  • 129. Immovable Overdrafts Loans & Properties Loans & Overdrafts Borrowing in Foreign investment in shares, securities or immovable property. Exchange by Residents The rate of interest shall not exceed 2% over General permission to borrow up to US$ the bank rate prevailing on the date of 250,000 or its equivalent in foreign exchange availing of loan. on a repatriable basis by an individual Resident from his close relatives (as defined in sec. 6 of the Companies Act) resident Loan in Rupees against outside India subject to– Shares/Immovable Property H The loan is free of interest Authorised Dealers(AD) may grant loan in H The minimum maturity period of the rupees to NRIs against the security of shares loan is 1 year. or immovable property in India for personal H The amount of loan is received by inward or business purposes and housing loans remittance in free foreign exchange against the security of houses/flats to be through normal banking channels or by acquired for Residential accommodation in debit to the NRE/FCNR account of the India. Restriction has been removed on the non-resident lender. use of loan and allows it to be applied for any purpose other than the basic embargoes on Non-Repatriable Borrowing chit funds, Nidhi companies, agricultural and or plantation activities, etc. in Rupees by Residents It cannot also be applied for A resident, not being a company incorporated in India, may borrow in rupees a. Trading in Transferable Development on non-repatriation basis from an NRI or Rights (TDRs) or PIO subject to: b. Investment in capital market including The term of the loan shall not exceed 3 years. margin trading and derivatives. The loan of course is non-repatriable. Hence The loan has to be utilised for meeting the the loan amount cannot be credited to the borrower’s personal requirement or for his business purposes and under no NRIs NRE/FCNR accounts. circumstances be used for relending or for The repayment of the loans should be from 123
  • 130. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians direct remittance from abroad or by way of Dealers may grant loan against the security debit to the NRE / FCNR account or by way of NRE/FCNR deposit. Authorised Dealers of sale of shares and immovable property. may grant forex loans in India against security FCNR to the account holder only and not to 3rd parties, with approval of board Loan against NRE, FCNR & of bank, subject to– NRO a. the document should be executed by the Since the account holder can withdraw from deposit holder himself and not by his NRE saving deposits at any time, banks Power of Attorney ( POA) holder. should not mark any type of lien, direct or b. the maturity period of the loan shall not indirect, against these deposits. ADs may exceed the maturity of the deposit. grant loans to the account holder against the c. the loan shall not be used for investment security of term deposits. The repayments of in India. the loan may be made either by adjusting the The repayment of the loan may be made deposit against the loan or by fresh either by adjusting the deposit against the remittances from abroad. Repayment may be loan or by fresh remittances from abroad. made by using the NRO account also; in Repayment may be made by using the NRO which case, interest has to be charged at full account also. However in that case, interest commercial rate in force. has to be charged at full commercial rate in Loan can be given to account holder for the force. acquisition of flat / house in India against NRE or FCNR fixed deposits on repatriable Loan to Third Parties in basis, provided the amount to be repatriated is governed by Foreign Exchange India Management Regulation (Acquisition and Authorised Dealers may grant loans to Transfer of Immovable Property in India). Residents against the collateral of NRE The loan should be granted by the bank deposits subject to the following conditions:- against the NRE fixed deposit issued by the H There should be no direct or indirect same bank (irrespective of its branch) and foreign exchange consideration to the not by any other bank. The branch giving the NRI depositor for agreeing to pledge his loan should hold the original deposit receipt deposits. against which the loan is granted and the H The period of loan should not exceed the branch, which has issued the receipt, should unexpired period of maturity of the NRE be advised of the lien. deposit accepted as security. A branch outside India of an Authoried H The loan has to be used for personal 124
  • 131. Loans & Overdrafts purposes of Resident or for carrying on overdraft granted to a Resident who business activities other than agricultural subsequently becomes Resident Outside or plantation activities. India, subject to: In the cases, where a rupee loan is granted a. The non-resident has informed the bank, against the guarantee provided by a non- details of his date of departure, foreign resident, there is no transaction involving address, probable duration of his stay foreign exchange until the guarantee is invoked and the non-resident guarantor is outside India and the reason for required to meet the liability under the continuation of the loan. guarantee. The non-resident guarantor may b. The Authorised Dealer is satisfied, discharge the liability by according to its commercial judgment , i. payment out of rupee accounts held in about the reasons to continue the loan or India or overdraft; ii. by remitting the funds to India or c. The period of loan or overdraft shall not iii. by debit to his FCNR /NRE account exceed the period originally fixed at the maintained with an AD in India. time of granting the loan or overdraft; Subsequently, he may enforce his claim d. As long as the borrower continues to against the resident borrower. If the liability remain an Resident Outside India, the is discharged by payment out of rupee repayment shall be made either by balances, the amount recovered may inward remittance from outside India becomes non-repatriable and can be credited through normal banking channels or only to the NRO account of the guarantor. from the funds held in the Non- Resident related accounts of the borrower. General permission is given to the resident, being a principle debtor to make payment to a person resident outside India, who has met Temporary Overdrawings the liability under a guarantee. The amount Authorised Dealers may allow overdrawings remitted / credited shall not exceed the rupee in NRE savings bank accounts, up to a limit equivalent of the amount paid by non- of Rs 50,000. Such overdrawings together resident guarantor against the invoked with the interest should be cleared within 2 guarantee. weeks, out of inward remittances through normal banking channels or by transfer of Change in the Residential funds from other NRE/FCNR accounts. Status of Borrower Overdrafts in NRO accounts of the account An AD may allow continuance of loan/ holders may be allowed without any ceiling. 125
  • 132. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Change in the Residential is given to the Indian companies in India to grant loans in foreign currency to the Status of the Lender employees of their branches outside India for In case a rupee loan was granted by a personal purposes in accordance with the Resident to another Resident and the lender lender’s Staff Welfare Scheme/Loan Rules subsequently become a non-resident, the and other terms and conditions as applicable repayment of the loan by resident borrower to its staff resident in India and abroad. should be made by credit to the NRO account of the lender. Housing Finance An Authiorised Dealer(AD) or a housing Loans to Employees finance institution in India approved by the It has been decided to grant general National Housing Bank may provide housing permission to Indian companies, viz., a body loan to a NRI or PIO, for acquisition of a corporate registered or incorporated in India, residential accommodation in India. Housing to grant rupee loans to its employees who are Loan may be given for repairs, renovation NRIs or PIOs, subject to the certain and improvement of residential conditions. accommodation owned by them in India. The loan is subject to­ Loans to Foreign National H The quantum of loans, margin money Employees and the period of repayment shall be at par with those applicable to resident Ceiling on loans granted to foreign nationals, borrowers. not permanently resident in India, have been raised for personal purposes such as purchase H The loan shall be fully secured by of household articles, etc., to Rs. 5 lakhs from equitable mortgage of the property Rs. 1 1akh. The same ceiling is applicable to proposed to be acquired, and if necessary, liaisons offices of the companies. also by lien on the borrower’s other assets in India. H The loan amount should not be credited Loans to Employees of to the borrower’s NRE or FCNR Branches outside India account. Employees of branches outside India are to H The instalment of loan, interest and be treated as persons resident outside India other charges, if any, shall be paid by the though loans by a resident to a non-resident borrower through normal channels or require RBI permission. General permission out of his bank accounts in India or out 126
  • 133. Loans & Overdrafts of rental income derived from renting out proprietorship concern or firm in India which the property acquired by utilisation of the has accepted deposits (non-repatriable). loan. Deposits by NRIs with persons other than H The rate of interest on the loan shall ADs out of inward remittances from overseas conform to the directives issued by RBI or by debit to NRE/FCNR accounts are or NHB. prohibited. However, such deposits by debit ADs and certain FIs like HDFC, LIC to NRO accounts may continue as hitherto Housing Finance, etc., may grant housing provided as long as these do not represent loans to NRIs without reference to RBI inward remittances or transfer from NRE/ where the NRI is a principal borrower with FCNR into the NRO account. Similarly, the Resident close relative as a co­obligant/ existing deposits may continue to be held and guarantor or the land is owned jointly by NRI renewed on repatriation or non-repatriation borrower with a resident close relative. In basis. The interest, being current income, such cases the payment of margin money and can be repatriated after the due tax, if any, is repayment of the loan installments should be paid thereon. made by the NRI borrower. The loans can Such deposits are subject to the following also be given to Residents with NRI as a co- conditions: obligant. H Deposits are received under a public Close relatives (as defined u/s 6 of the deposit scheme. Companies Act) of the borrower are allowed H Amount of deposits so collected shall not in India to repay the installment of such be utilised by the company for relending loans, interest and other charges, through (not applicable to an NBFC). their bank account directly to the borrower’s H If the deposit accepting company is an loan account. NBFC, it should be registered with the RBI and should have obtained the Company Deposits required credit rating. The rate of interest Persons other than ADs were permitted to payable on deposits shall be in conformity accept deposits from NRIs. This included a with the RBI guidelines for such company registered under Companies Act companies. In other cases the rate of (including NBFC registered with RBI) or a interest payable on deposits shall not body corporate created under an Act of exceed the ceiling rate prescribed from Parliament or state Legislature who has time to time under the Companies accepted deposits (repatriable) or a company, (Acceptance of Deposit) Rules, 1975. 127
  • 134. Compendium Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Indians Policies, Incentives and Investment Opportunities for Overseas H The maturity period of deposits shall not accepted by the company shall not exceed 3 years. exceed 35% of its net owned funds. H The amount of aggregate deposits ■■ 128
  • 135. Remittance facilities for NRIs/PIOs and Foreign Nationals Remittance facilities for NRIs/PIOs and Foreign Nationals Remittance of assets by a Remittance of sale proceeds foreign national of non- of residential property Indian origin purchased by NRIs/PIOs out of foreign exchange A foreign national of non-Indian origin who has retired from an employment in India or There is no lock-in period for sale of who has inherited assets from a person residential property purchased by NRI/PIO resident in India or who is a widow of an out of foreign exchange. However, Indian citizen resident in India may remit an remittance of sale proceeds of residential amount not exceeding USD one million, per property purchased by NRI/PIO out of calendar year, on production of documentary foreign exchange is restricted to not more evidence in support of acquisition/ than two such properties. inheritance of assets. Remittance representing refund of application/earnest money on account of Remittance of assets by non allotment is permitted together with NRI/PIO interest if the original payment was made out of NRE/FCNR account of the account An NRI/PIO may remit upto $1,000,000 per holder or the remittance was from outside year out of the balances in his Non Resident India through normal banking channels. (ordinary) account/sale proceeds of assets (inclusive of inheritance/settlement). Remittance of current NRI/PIO may remit sale proceeds of income immovable property sold by him out of rupee Remittance of current income like rent, funds. dividend, pension, interest etc. of NRIs/PIOs Regarding remittance of sale proceeds of who do not maintain NRO Account is freely assets acquired by way of inheritance or allowed. NRIs/PIOs have the option to credit legacy for which there is no lock-in period, the current income to their Non-Resident documentary evidence must be submitted. (External) Rupee account. 129
  • 136. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Facilities for Students by the authorized dealers on production of an undertaking by the remitter and a Certificate Students going abroad for studies are treated from a Chartered Accountant. as Non-Resident Indians (NRIs). They are eligible to receive remittances from International Credit Cards close relatives from India upto $ 100,000 for Banks may issue international credit cards to maintenance and upto $1,000,000 out of sale proceeds of assets/balances in their account NRIs/PIOs without prior approval off the RBI. maintained with an authorized dealer in India. ■■ Income- tax clearance The remittances will be allowed to be made 130
  • 137. Overseas Citizenship of India (OCI) O ther Important Matters 131
  • 138. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Overseas Citizenship of India (OCI) OCI Scheme is Operational iii. Parity with NRIs in financial, from 2.12.2005 economic and educational fields except in the acquisition of The Constitution of India does not allow agricultural or plantation properties. holding Indian citizenship and citizenship of 2. Any further benefits to OCIs will be a foreign country simultaneously. Based on notified by the Ministry of Overseas the recommendation of the High Level Indian affairs(MOIA) under section committee on Indian Diaspora, the 7B(1) of the citizenship Act, 1955. Government of India decided to grant 3. A person registered as OCI is eligible to Overseas Citizenship of India (OCI) apply for grant of Indian citizenship commonly known as ‘Dual Citizenship’ under section 5(1)(g) of the Citizenship Persons of Indian Origin ( PIOs) of certain Act, 1955 if he/she is registered as OCI category as has been specified in the for five years and has been residing in Brochure who migrated from India and India for one year out of the five years acquired citizenship of a foreign country before making the application. other than Pakistan and Bangladesh, are eligible for grant of OCI. Brochure on Overseas Citizenship of India (OCI) 1. Persons registered as OCI have not been given any voting rights, election to Lok Eligibility Criteria Sabha/Rajya Sabha/Legislative Assembly A foreign national, who was eligible to /Council, holding Constitutional posts become citizen of India on 26.01.1950 or was such as President, Vice President, Judge a citizen of India on or at anytime after of Supreme Court/High Court etc. 26.01.1950 or belonged to a territory that Registered OCIs shall be entitled to became part of India after 15.08.1947 and following benefits: his/her children and grand children, is eligible for registration as Overseas i. Multiple entry, multi-purpose life Citizenship of India( OCI ). Minor children long visa to visit India; of such person are also eligible for OCI. ii. Exemption from reporting to Police However, if the applicant had ever been a authorities for any length of stay in citizen of Pakistan or Bangladesh, he/she will India; and not be eligible for OCI. 132
  • 139. Overseas Citizenship of India (OCI) Application form and procedure: respects along with enclosures should be A family consisting of spouses and upto two submitted in duplicate to the Indian Mission minor children can apply in the same form / Post of the country of applicant’s citizenship i.e. Form XIX. The form can be filed online or where he/she is not in the country of or downloaded from our website citizenship to the Indian Mission/Post of the www.mha.nic.in. country in which he/she is ordinarily resident. If the applicant is in India, he/she The following documents shall be enclosed can apply to the Foreigners Regional for each application: Registration Officer (FRRO) at Delhi, Proof of present citizenship. Mumbai, Kolkata or Amritsar or Chief Evidence of self or parents or grand parents, Immigration Officer (CHIO) Chennai or to the Under Secretary, OCI Cell, Citizenship a. being eligible to become a citizen of India Section, Foreigners Division, Ministry of at the time of commencement of the Home Affairs ( MHA), Jaisalmer House, 26 Constitution; or Mansingh Road, New Delhi – 110011. b. belonging to a territory that became part of India after 15th August, 1947; or Procedure for granting registration: c. being citizen of India on or after 26 th After Preliminary scrutiny, if there is no January,1950 adverse information available against the These could be: applicant, the Indian Mission / Post shall i. Copy of the passport: or register a person as OCI within 30 days of ii. Copy of the domicile certificate issued by application and the case shall be referred to the Competent authority; or MHA for post verification of the antecedents of the applicant. If during the post iii. Any other proof. verification, any adverse information comes Evidence of relationship as parent / grand to the knowledge of the MHA, the parent, if their Indian origin is claimed as registration as OCI already granted by the basis for grant of OCI. Indian Mission / Post shall be cancelled by an Application fee by way of Demand Draft order under section 7D of the Citizenship (US $ 275 for each applicant or equivalent Act, 1955. in local currency ; US $ 25 or equivalent in local currency for each PIO card holder) After preliminary scrutiny, if there is any adverse information against the applicant, PIO card holders must also submit a copy of prior approval of MHA, shall be required their PIO card. before grant of registration. MHA may The application form completed in all approve or reject the grant of registration 133
  • 140. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians within 120 days from the date of the receipt an OCI was obtained by means of fraud, false of the application. If the grant of registration representation or concealment of any as OCI is approved by MHA, the Indian material fact or the registered OCI has shown Mission / Post shall register the person as OCI. disaffection towards the Constitution of India or comes under any of the provisions If the application is filed in India, registration of section 7D of the Citizenship Act, the shall be granted by MHA by following the registration of such person will not only be above procedure. cancelled forthwith but he / she will also be After grant of registration, a registration blacklisted for visiting India. certificate in the form of booklet will be issued and a multiple entry, multi–purpose Benefits to OCI: life long OCI ‘U’ visa sticker will be pasted Following benefits will accrue to OCI: on the foreign passport of the applicant. i. A Multiple entry, multi – purpose life OCI for PIO card holders: long visa for visiting India. PIO card holders who are otherwise eligible ii. Exemption from registration with local for registration as OCI may apply in the same police authority for any length of stay in Form i.e. Form XIX and they will be India. considered for grant of registration in the iii. Parity with Non – resident Indians same manner as other applicants. PIO card (NRIs) in respect of economic, financial holders have to pay a fee of US $ 25 or and educational fields except in relation equivalent in local currency instead of US $ to acquisition of agricultural or 275 for normal applicant. PIO cardholders plantation properties. will have to surrender his/her PIO card after Any other benefits to OCIs will be notified knowledge of acceptance of application. by the Ministry of Overseas Indian Affairs (MOIA) under Section 7B(1) of the OCI for persons who have applied Citizenship Act, 1955. on the earlier prescribed application form Benefits to which OCI is not entitled All such applications will be considered for to: grant of OCI on the same line as in 3 above The OCI is not entitled to vote, be a member without seeking fresh application and fees. of Legislative Assembly or Legislative Council or Parliament, cannot hold Cancellation of OCI registration constitutional posts such as President, Vice If it has been found that the registration as President, Judge of Supreme Court or High 134
  • 141. Overseas Citizenship of India (OCI) Court etc. and he / she cannot normally hold part of India after 15.08.1947 and employment in the Government. his/her children and grand children, is eligible for registration as Overseas Help Desk citizen of India(OCI). Minor For any clarification/query on the scheme, children of such person are also please visit our website www.mha.nic.in. or eligible for OCI. However, if the visit the website of the local Indian Mission applicant had ever been a citizen of / Post or contact the Indian Mission / Post or Pakistan or Bangladesh, he/she will OCI Cell,Citizenship Section, Foreigners not be eligible for OCI. Division, Ministry of Home Affairs, Jaisalmer Q 2. Who was eligible to become Citizen House, 26 Mansingh Road, New Delhi – of India on 26.01.1950? 110011. Any person who or either of whose parents or any of whose grand- Application Fees parents was born in India as defined in the Government of India Act, For application to be filled in India, an 1935( as originally enacted ), and amount of Rs. 12,650 has to be paid for each who was ordinarily residing in any applicant by demand Draft in Favour of “Pay country outside India was eligible to and Account Officer (Secretariat), Ministry become citizen of India on of Home Affairs” payable at New Delhi. In 26.01.1950. case of PIO Card holder, an amount of Q 3. Which territories became part of Rs 1,150 has to be paid. India after 15.08.1947 and from In case of application to be filled outside what date? India , for the amount of fee to be paid in The territories which became part of local currency, please visit the web site of the India after 15.08.1947 are: respective Indian Mission/Post. i. Sikkim from 26.04.1975 ii. Pondicherry From 16.08.1962 Frequently Asked Question iii. Dadra & Nagar Haveli Q.1 Who is eligible to apply? from 11.08.1961 A foreign national, who was eligible iv. Goa, Daman and Diu from 20.12.1961 to become citizen of India on Q. 4 Can the spouse of the eligible person 26.01.1950 or was a citizen of India apply for OCI? on or at any time after 26.01.1950 or Yes, if he/she is eligible in his /her own belonged to a territory that become capacity. 135
  • 142. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Q. 5 Can children of parents, wherein one b. belonging to a territory that of the parents is eligible for OCI, can became part of India after 15th apply for OCI? August, 1947; or Yes. c. being citizen of India on after 26th Q. 6 In what form should a person apply January, 1950 for OCI and where are they These could be: available? i. Copy of the passport : or A family consisting of spouses and ii. Copy of the domicile certificate upto two minor children can apply in issued by the Competent the same form i.e. Form XIX, which authority; or can be filed online or downloaded from our we our website iii. Any other proof. www.mha.nic.in. 3. Evidence of relationship as Q. 7 Can application form be filled and parent / grand parent, if their submitted on line? Indian origin is claimed as basis Yes. Part A of the application form for grant of OCI. can be filed online. Part B can be 4. Application fee by way of downloaded and printed on Demand Draft ( US $ 275 for computer or by hand in Block letters. each applicant or equivalent in Printed Part A and Part B of the local currency ; US $ 25 or application form has to be submitted equivalent in local currency for to the Indian Mission/Post/Office. each PIO card holder) Q. 8 What documents have to be attached 5. PIO card holders must also with the application? submit a copy of their PIO card. The following documents shall be Q. 9 What documents would qualify for “ enclosed for each applicant: Any other proof” for evidence of self 1. Proof of present citizenship or parents or grand parents being 2. Evidence of self or parents or eligible for grant of OCI? grand parents, Any documentary evidence by which a. being eligible to become a citizen the officer equivalent to Under of India at the time of Secretary to the Government of commencement of the India in the Indian Mission/Post can Constitution; or deligently arrive at the decision. 136
  • 143. Overseas Citizenship of India (OCI) Q. 10 How many copies of application All the applications will be subject to have to be submitted? pre or post enquiry depending on Application has to be submitted in whether any adverse information is duplicate for each applicant. available or not. If the Government Q.11 Whether applicant(s) have to go in comes to the knowledge that any person to submit the application(s)? false information was furnished or No. Application(s) can be sent by material information was suppressed, post. the registration as OCI already granted shall be cancelled by an order Q. 12 Whether the applicant(s) have to take oath before the Counsel of the under section 7D of the Citizenship Indian Mission/Post? Act, 1955. The persons will also be blacklisted banning his/her entry into No. Earlier provision in this regard India. has been done away with. Q. 13 Where to submit the application? Q.16 What is the fee for application for registration as OCI? To the Indian Mission / Post of the country of applicant’s citizenship of US $ 275 or equivalent in local the applicant. If the applicant is not currency for each applicant. In case in the country of citizenship, to the of PIO card holder, US $ 25 or Indian Mission / Post of the country equivalent in local currency for each where he is ordinarily residing. If the applicant. applicant is in India, to the FRRO Q.17 What is the time taken for Delhi, Mumbai, Kolkata or Amritsar registration as OCI? or to the Under Secretary, OCI Cell, Within 30 days of the application, if Citizenship Section, Foreigners there is no adverse information Division, Ministry of Home Affairs (MHA), Jaisalmer House, 26, available against the applicant. If any Mansingh Road, New Delhi – adverse information is available 110011. against the applicant, the decision to Q.14 Can a person apply in the country grant or otherwise is taken within where he is ordinarily residing? 120 days. Yes. Q.18 If the registration as OCI is not granted, what amount will be Q.15 What are the consequences of furnishing wrong information or refunded? suppressing material information? An amount of US $ 250 or 137
  • 144. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians equivalent in local currency shall be Q.24 Will a duplicate certificate of refunded, if registration is refused. registration as OCI will be issued? US $ 25 is the processing fees, which Yes. For this purpose, an application is non- refundable. has to be made to the Indian Mission Q.19 Can a PIO cardholder apply? /Post with evidence for loss of Yes, provided he/she is otherwise certificate. In case of mutilated/ eligible for grant of OCI like any damaged certificate an application other applicant. has to be made enclosing the same. Q.20 Will the PIO Cardholder be granted The applications in both the cases OCI registration gratis? have to be made to the same Indian No. He/she has to make a payment Mission/Post which issued the of US $ 25 equivalent in local currency along with the application. certificate alongwith with payment of fee of US $ 25 or equivalent in local Q.21 Will the PIO Card be honored till the time they are valid even after currency. acquisition of OCI? Q.25 Will a new OCI visa sticker be issued No PIO Card will have surrendered on the new foreign passport after the to Indian Mission / Post/MHA for expiry of the old passport? grant of OCI registration certificate Yes. On payment of requisite fee, a and OCI ‘U’ visa sticker. new OCI ‘U’ visa sticker will be Q.22 What will be issued after registration issued. However, the application can as OCI? continue to carry the old passport for A registration certificate in the form visiting India without seeking a new of a booklet will be issued and a visa, as the visa is for lifelong. multiple entry, multi-purpose OCI ‘U’ visa sticker will be pasted on the Q.26 Will the applicant lose his citizenship foreign passport of the applicant. For after registering as OCI? this purpose, the applicant has to No. send the original passport to the Q.27 Can a person holding OCI travel to Indian Mission / Post after receipt of protected area/restricted area the acceptance letter/ verifying the status of the application online. without permission? Q.23 Will a separate OCI passport be No. He/she will be required to seek issued? PAP/RAP for such visits. No. Q.28 Would the Indian civil/criminal laws 138
  • 145. Overseas Citizenship of India (OCI) be applicable to persons registered as c. Parity with NRIs in respect of OCI? economic, financial and Yes. For the period OCI is living in educational fields except in India. matters relating to acquisition of agricultural/ plantation Q.29 Can a person registered as OCI be properties. granted Indian citizenship? Q.34 Will any other benefit be granted to Yes. As per the provisions of section OCI? 5(1)(g) of the citizenship Act, 1955, a person who is registered as OCI for Any other benefits to OCI will be 5 years and residing in India for 1 notified by the ministry of Overseas Year out of the above 5 Years, is Indian Affairs (MOIA) under eligible to apply for Indian Section 7B(1) of the Citizenship Act, citizenship. 1955. Q.30 Will OCI be granted gratis to certain Q.35 Whether the OCI is entitled to voting categories of people? rights? No. No. Q.31 Can OCI be granted to foreign Q.36 Whether the OCI is entitled to hold nationals who ate not eligible for Constitutional post in India? OCI, but married to persons who are No. eligible for OCI? Q.37 Whether the OCI is entitled to hold No. Government post in India? Q.32 Will foreign-born children of PIOs be No, except for the posts specified by eligible to become OCI? an order by the Central Government. Yes, provided one of the parent is eligible to become OCI. Q.38 If a person is already holding more than one nationality, can he/she Q.33 What are the benefits of OCI? apply for OCI? Following benefits will be allowed to Yes. OCI: a. Multi-purpose, multiple entry, Q.39 What are the advantages of OCI lifelong visa for visiting India. when compared to PIO cardholders? b. Exemption from NRIs with local a. OCI is entitled to life long visa police authority for any length of free travel to India whereas for stay in India. PIO cardholder, it is for 15 years. 139
  • 146. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians b. PIO cardholder is required to Press Information Bureau register with the local police Government of India authority for stay exceeding 180 days in India on any single visit Press Note whereas OCI is exempted from registration with police authority Scope of Overseas Citizenship of for any length of stay in India. India Scheme Extended Q.40 Whether an OCI be entitled to apply 1. In Pravasi Bhartiya Diwas, 2005, the for and obtain a normal Indian Prime Minister made a statement on the passport, which is given to a citizen Overseas Citizenship of India (OCI) of India? Scheme to the effect that it has been No. Indian Passport is given only to decided to extend this facility to all Indian citizen. overseas Indians who migrated from India after 26th January,1950, as long as Q.41 Whether national of commonwealth their home country allows dual countries are eligible for OCI? citizenship under the local laws. He also Yes, if they fulfill the eligibility added that the Government would criteria. simplify the application form and format Q.42 Can a person renounce OCI? of certificate of registration of OCI and Yes. He/she has to declare intention spell out the benefits being given to of renunciation in Form XXII to the them. Indian Mission /Post where OCI 2. In pursuance of the Prime Minister’s registration was granted. After statement, Citizenship Act, 1955 has receipt of the declaration, the Indian been amended to extend the scope of Mission/Post shall issue an OCI to Persons of Indian Origin (PIOs) acknowledgement in Form XXII A. of all nationalities other than Pakistan and Bangladesh. Citizenship Rules, 1956 Q.43 Do the applicants who have applied has been amended to simplify the on the earlier prescribed application procedure and application form for grant form have to apply again in the new of OCI registration. Necessary form? amendments have also been carried out No. All such application will be in the Passport (Entry into India) Act, considered for registration as OCI 1920 and Registration of Foreigners Act, without seeking fresh application and 1939 to spell out the following benefits fee. to registered OCIs: 140
  • 147. Overseas Citizenship of India (OCI) H Multi-purpose, multiple entry, OCI Cell in Foreigners Division of MHA lifelong visa for visiting India. in India. An eligible person may apply in H Exemption from registration with the Indian Mission/Post of the country of Foreigners Regional Registration his/her nationality or in the Indian Officer/ Foreigners Registration Mission/Post of any other country if he/ Officer for any length of stay in she is ordinarily residing in that country. India. He/she will have to submit proof for his/ H Parity with NRIs in respect of all her parents/grand parents having facilities to the latter in economic, migrated from India after 26th January, financial and educational fields 1950 or having been eligible to be except in matters relating to the granted Indian citizenship on that date acquisition of agricultural/plantation or having been resident of such territories properties. like Goa, Pondicherry, Sikkim which have been merged with the Indian Union 3. Such registered OCIs shall not be after 15th August, 1947. If he/she is entitled to the rights conferred on a citizen of India under article 16 of claiming his/her eligibility based on the Constitution with regard to equality of Indian citizenship of his/her parents/ opportunity in matters of public grand parents, he/she will also submit a employment. Election to Constitutional proof his/her relationship with a demand offices like President/Vice President/ draft of US$ 275 or equivalent in the Judges of Supreme Court or High Courts/ local currency as application fees. If the Members of Parliament or Legislative application is rejected, US$ 250 or Assembly/Council or right to vote under equivalent in the local currency will be Representation of the People Act, 1950. returned to the applicant after deducting 4. Every registered OCI will be issued a US$ 25 as processing fees. registration certificate, which is printed 6. Such persons, who have been registered like an Indian passport in different colour as PIOs by Government of India and are and an OCI visa sticker will be pasted in otherwise eligible for grant of OCI may the person’s foreign passport. These two submit their applications for OCI. The documents will have the photograph of application fees for such persons will only the individual and all necessary security be US$ 25 or equivalent in the local features. currency. 5. Applications for grant of OCI will be 7. Arrangements have been made for received by all Indian Missions/Posts online submission of applications for outside India and by FRROs/CHIO and grant of OCI. This application form is 141
  • 148. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians available on the MHA’s website: whether granted within one month or www.mha.nic.in The application has four months will be inquired into by the two parts, part A & B. An applicant can security agencies of the Central apply directly online or may download Government so that an OCI certificate the application form and submit in hand- acquired on the basis of concealed written format. A maximum of four information or misrepresentation, persons including spouses and at most could be cancelled under the two minor children can make a joint provisions of the Act. Such persons application while applying online or will be blacklisted for entry into India. otherwise. A bar code and a reference 9. Application form, procedure, brochure number will be generated automatically and FAQs for acquiring OCI have been by the computer as an acknowledgement hosted on MHA’s website: on submission of online application in www.mha.nic.in. This Scheme is being Part A. The Part B of the form can be operationalized from 2 nd December typed after down-loading or hand- 2005 when the facility for online written and be submitted along with application or downloading the online submitted Part A and all necessary application form will be made available enclosures to the concerned Mission/ from MHA’s website. Post/Office. After checking all relevant details, the concerned office will issue an 10. It has been decided that formal acknowledgement and the number launching of scheme will be done by mention thereon (file number) or Prime Minister at Pravasi Bhartiya Divas reference number can be used for on January 7, 2006 at Hyderabad by enquiring status in future. Arrangements symbolically handing over the first OCI have been made for online status enquiry Certificate to a person of Indian origin. on MHA’s website. 11. It is anticipated that a large number of 8. It has been organized such that an Indian Diaspora will be benefited by this application where there is no reporting of Scheme for a hassle free travel to their criminal case against the individual(s) motherland. They will bring economic will be granted OCI within a period of value and benefits to Indian economy and one month whereas in cases where there contribute to the development process. is/are a report(s) of criminal action, it Ministry of Home Affairs may take four months. Every case ■■ 142
  • 149. Overseas Citizenship of India Card PIO (OCI) PIO Card The PIO Card and Scheme Persons of Indian origin upto the fourth generation (great grand parents) settled In a significant step towards granting dual anywhere in the world, except for a few citizenship to overseas Indians, the specified countries , would be eligible. Government approved the person of Indian origin (PIO) card scheme to permit all such individuals visa-free entry into the country. Procedure for Application for PIO Card Definition of Person of The card would be issued to eligible Indian Origin (PIO) applicants through the concerned Indian Embassies/High Commission/Consulates, “Person of Indian Origin” means a foreign and for those staying in India on a long term citizen [not being a citizen of Pakistan, visa, the concerned Foreigners Regional Bangladesh and other countries as may be Registration Officer (Delhi, Mumbai, specified by the central government from Calcutta, Chennai) would do the same and time to time] if” also from the ministry of Home Affairs, 1. He/she at any time held an Indian Foreigners Division, Lok Nayak Bhawan, passport; Khan Market, New Delhi-110003. 2. He/she or either of his/her parents or Detail of obtaining Persons of Indian Origin grand parents or great grand parents was (PIO) Card born in and permanently resident in India as defined in the Government of 1. The card would be issued to the eligible India Act ,1935 and other territories that applicants through the concerned Indian become part of India thereafter provided Embassies / High Commissions / neither was at any time a citizen of any Consulates. of the aforesaid countries [as referred to 2. The fees for the card , which will have in 2(b) above]; or a validity of 15 years would be 3. He/she is a spouse of a citizen of India or Rs. 15,000/- and for the minor, the fees a person of Indian origin covered under is Rs 7,500/-. (I) or (ii) above. 143
  • 150. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians for NRIs—including medical/ Benefits of Person of Indian engineering colleges, IITs, IIMs Origin (PIO) Card Schemes etc.; Besides making their journey back to their c. Various housing schemes of Life roots simpler, easier and smoother, this Insurance Corporation of India, scheme entitles the PIOs to a wide range of State Government and other economic, financial, educational and Government agencies; cultural benefits. d. Special counters at the immigration The benefits envisaged under the scheme check post for speedy clearance. include:- v. All future benefits that would be i. No requirement of visa to visit India; extended to NRIs would also be made to PIO Card holders ii. No separate “student Visa” or “Employment Visa” required for vi. They however cannot enjoy political admission in colleges/institution or for rights in India. taking up employment respectively; iii. No requirement to register with the Issue of Gratis PIO Card Foreigners Registration officer if Gratis PIO Card may be issued to an continuous stay does not exceeds 180 exceptionally eminent person of Indian days, then registration is required to be Origin, who plays an important role in done within a period of 30 days after building bridges between India and the expiry of 180 days; country of his/her adoption, if he/she iv. Parity with Non-Resident Indians in expresses a desire to obtain the PIO Card. respect of facilities available to the latter in economic, financial, educational fields, etc. These facilities will include: Duplicate PIO Card a. Acquisition , holding, transfer and Duplicate PIO Card can be obtained in case disposal of immovable properties in of loss, etc., on a request supported by FIR India except for agricultural/ and other documents. A duplicate PIO plantation properties; Card shall be issued on depositing a fee of b. Admission of children in US $ 100. Duplicate PIO Cards will be educational institution in India issued by the same office that issued the under the general category quota original one. ■■ 144
  • 151. Non-Governmental Organisations (NGOs) Non-Governmental Organisations (NGOs) Any organisation working for a social, Formation of Society cultural, economic, educational or religious 1. Seven persons enjoin for a common cause is termed as an NGO. NGOs have purpose made favourable indents to needy sections of The first step in forming a society Indian society at par with a constantly requires the coming together of seven (or changing socio-economic climate. NGOs more) person who have agreed to pursue have reached out to all sections of society a common objective. Please note that the including women, children, pavement dwellers, unorganised workers, youth, slum- seven members or more may be dwellers and landless labourers. NGOs are comprised of one or all foreigners, a viewed as vehicles of legitimization of civil limited company, a partnership firm or society. another registered society. 2. Society’s Objective to be literary, An NGO can be formed under various legal scientific or charitable identities: Section 20 enumerates the purposes for i. Society registered under Societies which a society may be registered under Registration Act, 1860. the Act. ii. Trust (Formed under the Trust deed and 3. Naming the society registered with Income Tax Authority.) The members can arrive a suitable name iii. Limited company incorporated under which gives a clue as to the character of section 25 of the Companies Act, the society, which does not amount to an 1956 improper use of any name, emblem, official seal specified in the Emblems and Society Names (Prevention of Misuse) Act, The most common form of non-profit 1950, does not offend or mislead people, organisations in India is a Society. A Society which is not the name of a society already is formed when people come together to do existing. The registrar will object to something with some common purpose, names containing words like which is legal and useful for others. A society government, ministry, bank, suggesting should generally not get into profit making involvement with the government, activities. which is not allowed. The name of a 145
  • 152. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians society can also end with the word general public. For the purposes of forming “Trust”. an NGO enuring public benefit a public trust 4. Drafting the Memorandum of can be formed. Association and enrolment of members There are two statutes relevant to The Memorandum of Association functioning of Trusts in India: The Indian (“MOA”) is perhaps the most important Trusts Act, 1882; and, Charitable and document of a registered Society since it Religious Trusts Act, 1920. Public trusts are contains the conditions of association of however governed by general law, though the the members and its Objects Clause principles forming the basis of the Indian dictates what can and cannot be done by Trusts Act can be applied in the case. the members of the Society. As a Charter of the Society it should ideally include Features of a Trust name, objects, details of Governing Body A Trust is created when a donor attaches a and signatures of subscribers. legal obligation to the ownership of certain 5. Registration of Society property based on his confidence placed in The registration of a society is important and accepted by the donee or trustee, for the to give the society a legitimate identity benefit of another. and a legal status and particularly more The persons who intends to create the trust so when viewed from the consequences with regard to certain property for a specified and benefits which flow from such beneficiary and who places his confidence in fulfilling the legal formality of registration another for this arrangement is called the of society. Author of the Trust; the person who accepts the confidence is called the Trustee; the Trust person whose benefit the confidence is The three parties (settlor, trustee and accepted is called the Beneficiary; the subject beneficiary of trust) are linked by a trust deed matter of the trust is called Trust Property. which documents the relationship inter se Charity is a matter for State control, so and vis-a-vis the trust property. Trusts are different States of India have their own commonly classified as private/family and legislation in the form of Trusts or public trusts. The main difference between Endowment Acts to govern and regulate a private and public trust is that while the public charitable NGOs. Endowment is the beneficiary of a private trust is one or a few dedication of property by gift or devise to individual (mostly family members of the religious or charitable uses and in a donor), the beneficiary of a public trust is the generalized context trusts include 146
  • 153. Non-Governmental Organisations (NGOs) endowments also. A religious endowment or any similar terms as these words are trust is one that has for its object the practically interchangeable in a legal sense. establishment, maintenance or worship, of an idol or deity, or any object or purpose Non-Profit Company subservient to religion. A Non-Profit Company can be formed for The Trustees control the trust’s assets and any non-profit activity. It is identical to an decide how the income (and capital) of the ordinary company in all respects except that trust is to be distributed, and ensure that it it is not established for profit and commercial is in line with the charitable purposes of the trust. gain. It is also called a Section 25 Company and is a voluntary association of people, A trust must be created for a lawful purpose. registered under the Indian Companies Act, The author of the trust must indicate with 1956. The accountability aspect of a non- reasonable certainty the following: profit company because of statutory H Intention to create trust disclosure requirements is a relevant H Purpose of the trust advantage of a company’s operational H Beneficiaries of the trust, and transparency and ability to invoke and maintain public faith. H The trust property A public trust is of permanent and indefinite Objectives of a Non-profit company character. A public trust benefits the public Objectives of a non-profit company can be at large or at least a section of the including promotion of commerce, art, community. The property forming subject science, religion, charity or any other useful matter of the trust must be capable of being transferable to the beneficiary - thus property object. Profits are applied for promoting only that is inalienable by virtue of public policy the objects of the company and no dividend or statute does not form valid subject matter is paid to its members. (Section 25 (1) (a) for a trust. In terms of section 8 of the Indian and (b) of the Companies Act, 1956). A non- Trusts Act, there cannot be as a trust of a profit company may be Public or Private. If beneficial interest under a trust i.e. there the non-profit company is a private company cannot be a trust upon a trust. a minimum of only two members are required to form it. However, if the non-profit from is Flexibility in naming Trust for a public purpose, then a minimum of Trust can be named as family name, or name seven are needed. A ‘Section 25 company’ is of an honorable person. The organisation can eligible for certain exemption from provisions also be called a “foundation” or “charity” or of law and concessional rate of fees etc. 147
  • 154. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Steps for establishing a section 25 company are directors or hold positions, Company description of the positions held by them (three copies) Application for a name iv. A statement of assets and liabilities Applying for availability of name to the Registrar of Companies is the first step v. Source of income of the Applicant towards registration of the non-profit Company and estimate of annual company. Four names are to be suggested to expenditure; the Registrar in prescribed Form. vi. A statement giving a brief description of the work, if any, Memorandum and Articles already done by the association and Memorandum and Articles of the non-profit of the work proposed to be done by company are required to be approved by the it after registration in pursuance of Regional Director and the ROC. The section 25; documents required for submission of vii. A statement on grounds on which application are: the application is made under i. Three printed copies of the section 25 of the Companies Act, memorandum and articles of association 1956; of the applicant company, signed by all viii. A declaration by each of the persons the promoters with full name, address making the application that he/she and occupation (No stamp duty is is of sound mind, not an payable on the Memorandum and undischarged solvent, not convicted Articles of Association) by a court for any offence and does ii. A declaration by an advocate or a not stand disqualified under section chartered accountant that the 203 of the Companies Act, 1956 for memorandum and articles of association appointment as director. have been drawn up in conformity with License under section 25 the provisions of the Act and that all the An application for the license under section requirements of the Act and the rules 25 for the company is to be submitted to the made there under have been duly Regional Director (Department of Company complied with, in respect of registration; Affairs). The license essentially permits the iii. List of the names, addresses and word ‘Limited’ or ‘Private Limited’ to be occupation of the promoters, members of deleted from name of the company. It could board of directors, name of companies, take upto 12 weeks after application to associations and other institutions in receive the license under section 25 of the which promoters of the applicant Companies Act 1956. Pursuant to 148
  • 155. Non-Governmental Organisations (NGOs) application to the Regional Director (within If a foreign donor agency opens a branch seven days thereafter), the applicant office in India, the Indian office needs FCRA company has to publish a notice in a registration or prior permission. Further, the newspaper where the registered office is second, third, fourth, fifth and all the situate and certified copy of the notice to subsequent receivers of foreign funds need filed with the Regional director. FCRA registration or prior-permission. It is said that the colour of money never changes Registration with ROC and in this regard it is interesting to note that Registration certificate is normally granted the foreign funds remain ‘foreign’ in the within one month after filing section 25 hands of NGO at all time, its foreign origin license; does not change with transfer – only when it is spent or given to individual beneficiaries, Converting existing company to the funds become Indian. An NGO would section 25 company need prior permission in the following four The Companies Act, 1956 also facilitates the situations: conversion of an existing company to a non- profit company. H The NGO does not have permanent FCRA registration; Foreign Director H The FCRA number has been cancelled There is no bar under Indian law for a by the Government; foreigner to be a Director in a section 25 H The NGO has been asked to get prior- company, (relevant permissions prescribed permission under section 10(b). under the Foreign Exchange Management H The FCRA number is ‘frozen’ due to Act.) change in Governing Body. FCRA conditions for accepting foreign Foreign Contribution funds: An NGO seeking to receive foreign funds is Prior Permission always statutorily required to do the following: The Foreign Contribution (Regulation) Act, 1976 (FCRA) requires all Indian NGOs that a. Register with the Central Government; receive foreign contributions to receive b. Intimate the Central Government of (i) clearance from the Ministry of Home Affairs, the amount of each foreign contribution in the form of either permanent FCRA received by it; (ii) source; (iii) manner in registration or prior permission on a case-to- which foreign contribution is to be case basis. received; and (iv) purposes for which and 149
  • 156. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians the manner in which such foreign Government and should also give contribution is to be utilised by it. intimation to the Central Government as Those NGOs, which are not registered, the registered association does. with the Central Government can accept The procedure for obtaining prior foreign contribution only after obtaining permission from the FCRA is as the prior permission from the Central follows: Apply in Form FC – 1A Applicant (s) to file Form FC – 1A alongwith required documents. Field Inquiry Official from the Intelligence Bureau visits your main office, may inspect accounts and ask questions, can also visit the field area, inquire at local police station and thereafter he prepares confidential report to FCRA Department. FCRA permission Within 90 days thereafter, you will receive a registered letter from the Department either granting the permission or stating rejection of your request. Applying again rejection Applying again One party can apply for prior permission You can reapply after ascertaining and more then once if needed – considering rectifying objections on your file. You that projects are varied and or are under can also file an appeal in the High different agencies. Appeal against rejection Court within 60 days of the date of letter. When FCRA permission is not a. Salary, wages or other remuneration needed: either to individual or payment for business purposes. Prior permission from the FCRA is not required for receiving amounts in the b. Payment for international trade or for following forms:- business transacted by him outside India. 150
  • 157. Non-Governmental Organisations (NGOs) c. By way of a gift or presentation received accepted foreign contribution and is under as member of any Indian delegation. an obligation to intimate the Central d. Gift not exceeding Rs. 8,000/- per Government. If the NGO does not have annum. requisite FCRA registration or prior permission it cannot accept the sponsorship Profit-oriented organisations are not covered in the first place. by FCRA. Remember Bank Account for foreign funds H If the foreign funds are already laying on An NGO is required to open and use bank your account, do not spend the money account exclusively for foreign funds under till you receive permission. FCRA. H Form FC-3 is to be filed at the end of each financial year (by 31st July). Filing Income Tax Benefits on foreign funds required to be done annually till such 1. Benefits for the NGO time the FCRA funds are exhausted. Income receive by any religious or H Always make two complete sets of charitable trust or institution registered documents – one for filings with the with the income tax authorities, is not FCRA, the other for the NGO records. taxable as long as this income is applied Wherever documents have been for the objects of the organisation. delivered by hand, to obtain written acknowledgment with date, stamp and 2. Benefits to Donors signatures (when documents are sent by The donors are also entitled to get an registered post – to retain proof of posting exemption on their donation which and acknowledgment card (when exemption can be 50% or 100% received back) carefully. depending on category of organisations. H Documents to attach with Form FC 8 – Attach one copy of each of the Illustrative example of NGOs following documents handling foreign money/materials 1. Certificate from concern District Sponsorships by foreign parties:- Collector/Department of State Government/Ministry or Department of An occasion can arise where a moneyed Central Government; foreign person agrees to kindly sponsor an NGOs annual charity festival and the foreign 2. Activity report for past three years; funds are forwarded directly to the printers 3. Audited Statements of Account for past for printing of catalogues for this festival by three years; them, the NGO accepting the catalogues has 4. List of state or districts of focus of work; 151
  • 158. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 5. Note on socio-economic background of certificate issued by the Registrar of the beneficiaries and of the region to be Companies, (c) section 25 license issued covered; by the Regional Director, Department of 6. Where NGO is a society, then also attach Company Affairs (if NGO is a non-profit certified copy of Registration Certificate company); issued by the Registrar of Societies; 9. FCRA does not allow mixing up of 7. Certified copy of registered Trust Deed (if Indian funds and FCRA funds. This NGO is a Trust); means both funds are to be maintained 8. Certified copies of (a) Memorandum and separately. Articles of Association, (b) registration ■■ 152
  • 159. Non-Governmental Organisations (NGOs) Foreign Contributions Foreign Contributions Foreign Contribution kind. It also includes any foreign security as defined under FERA (Now, FEMA), as well (Regulation) Act, 1976 as any currency, be it Indian or foreign. However, it does not include personal gifts Objective whose market value in India on date of such An Act to regulate the acceptance and gifts is Rs. 1,000/- or less. utilisation of foreign contribution or foreign hospitality by certain persons or associations, It is further clarified that a donation, delivery with a view to ensuring that Parliamentary or transfer of any article, currency or foreign institutions, political associations and security shall be deemed to be foreign academic and other voluntary organisations contribution when received by any person as well as individuals working in important from any foreign source, whether directly or areas of national life may function in a indirectly, through one or more persons. manner consistent with the values of a e.g. A Christian Missionary under whose sovereign democratic republic and for umbrella a number of other missionaries are matters connected therewith or incidental functioning. If such head missionary receives thereto. any donation and who in turn transfers the amount to its sister missionary, then in such Applicability a circumstances, the transfer received by the Like FEMA, the FCRA has extra-territorial sister missionary will be treated as foreign jurisdiction. It extends to the whole of India, contribution and the FCRA shall apply as well as to: accordingly. a. citizens of India outside India; and Foreign Source b. associates, branches or subsidiaries, The definition is an inclusive one. It outside India of companies or bodies includes: corporate registered or incorporated in India. i. Government of any foreign country or territory and agency of such Important Definitions Government, Foreign contribution ii. any international agency not being the Essentially, it refers to donations in cash or United Nations or any of its specialised 153
  • 160. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians agencies, the World Bank, International territory, whether or not registered in Monetary Fund or such other agency as such foreign country or territory, Central Government may by notification viii.a foreign trust by whatever name called in Official Gazette specify in this behalf, or a foreign foundation which is either in iii. a foreign company within the meaning of the nature of trust or is mainly financed section 591 of the Companies Act, 1956 by a foreign country or territory, and also includes ix. a society, club or other association of a. a company which is a subsidiary of a individuals formed or registered outside foreign company, and India, b. a multi-national corporation within x. a citizen of foreign country, the meaning of this Act, but does not include any foreign institution which has been permitted by iv. a corporation not being a foreign Central Government, by notification in company, incorporated in foreign Official Gazette, to carry on its activities country or territory, in India. v. a multi national corporation within the Contribution given by Non-Resident Foreign meaning of this Act, Citizen of Indian Origin but of funds held in vi. a company within the meaning of the NRI and FCNR account maintained in India Companies Act, 1956 if more than one would also attract FCRA regulation and half of the nominal value of its share would be treated as “foreign source”. Thus, capital is held, either singly or in the we find that the definition of “foreign source” aggregate by one or more of the following, is very exhaustive. It not only includes namely:­ foreign company per se (i.e. a company a. Government of foreign country or incorporated outside India having a place of territory, business in India) but also covers subsidiary of such company (may be Indian subsidiary, b. citizens of a foreign country or too). It includes multi-national corporations territory, as well. However, the United Nations, the c. corporations incorporated in a World Bank, IMF, etc., are not covered by foreign country or territory, this definition. d. trusts, societies or other associations E.g: Donation from Hindustan Lever by an of individuals (whether incorporated association would be a foreign contribution. or not) formed or registered in a Even a donation made by a liaison/project foreign country or territory, office or a branch of a foreign company would vii. a trade union in any foreign country or be termed as a foreign contribution. 154
  • 161. Foreign Contributions NRI who is an Indian citizen is not i. Salary, wages or other remuneration from considered as a foreign source and hence any foreign source or payment in the donation received from NRI is not a foreign ordinary course of business transacted in contribution even if it is in convertible India by such foreign source; or foreign exchange. However, if he is a foreign ii. Payment in the ordinary course of citizen then the NRI will be considered as a business or in the course of international foreign source. trade or commerce; or iii. Working in the capacity of an agent of a Multi –National Corporations(MNC) foreign source in relation to any MNC has been defined to mean a transaction made by such foreign source corporation incorporated in a foreign country with Government; or or territory if such corporation iv. Acceptance of gift or presentation as a a. has a subsidiary or a branch or a place of member of any Indian delegation subject business in two or more countries or to the provisions of the Foreign territories Contribution (Acceptance or Retention b. carries on business, or otherwise of Gifts or Presentations) Regulations, operates, in two or more countries or 1978; territories. v. Receipt of contribution from Relative: Prior approval of the Central General Prohibition Government is not required if the amount of contribution does not exceed, Following categories of persons are in value, Rupees eight thousand per prohibited from accepting any foreign annum and an intimation is given to the contribution Central Government about the amount a. Candidate for election, received, purpose and the manner in b. Correspondent, columnist, cartoonist, which the same is utilized. ‘Relative’ has editor, owner, printer or publisher of a the same meaning as it is assigned in the registered newspaper, Companies Act, 1956. c. Judge, Government servant or employee vi. Remittance received in the ordinary of any Government corporation/ course of business, through any official undertaking, channel, post office, or any authorised dealer in foreign exchange. d. Member of any Legislature, Note:- Central Government has reserved e. Political party or office-bearer thereof. power to prohibit any person including Exemptions from General Prohibition exempted category as mentioned above from In following situations, persons specified accepting foreign contribution if it finds supra may accept foreign contribution.­ reasonable causes to do so. 155
  • 162. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Permissible Foreign Contribution contribution upon fulfillment of Besides the exempted situations as discussed following conditions: in paragraph supra above, certain other a. such an association should register categories of persons are permitted to accept itself with Central Government in foreign contribution upon fulfillment of accordance with rules made under certain conditions/procedures and/or with this Act; and prior approval of Central Government. An b. such an association agrees to receive application for seeking prior permission to such foreign contributions only accept foreign contribution is to be made in through designated branch of a bank Form FC-IA and for grant of registration in as it may specify in its application for Form FC-8 respectively. An application (one registration; and copy only) for seeking prior permission or Intimation has to be given to Central registration is to be sent by registered post to Government with following details ­ The Secretary, Ministry of Home Affairs, c. the amount of foreign contribution, Foreigners Division, Lok Nayak Bhavan, Khan Market, New Delhi – 110003. d. the source of foreign contribution, and Organisations of Political Nature e. the manner of utilization. Organisation of political nature, not being a Consequences of Default political party may accept any foreign contribution with prior permission of Central In case of failure to comply with any of the Government. Organisation of political conditions mentioned above, the Central nature not being a political party is defined Government may issue notification in the to mean “organisation” notified as such by Official Gazette that the defaulting the Central Government in the Official association would require its prior approval Gazette, having regard to the activities the before accepting any further foreign organisation or the ideology propagated by contribution. the organisation or the programme of the organisation or the association of the Unregistered Association organisation with the activities of any An association, which is not so registered, political party. may accept any foreign contribution after obtaining prior permission of the Central Certain Association and Persons Government and shall also give an i. Association having a definite cultural, intimation to the CG about the amount, the economic, educational, religious or social source, the purpose and the manner of programme can accept foreign utilization of such foreign contribution. 156
  • 163. Foreign Contributions Designated Bank Account the balance sheet and statement of receipt An association granted prior permission or and payment, duly certified by a Chartered registration under the Act can receive the Accountant, also in duplicate. foreign contribution and subsequently utilize it using a single designated bank account, as Time Limit for Intimation intimated in the application form. Do not The time limit for intimation to Central deposit any local funds in this bank account. Government of receipt of foreign contribution is four months after the closure Time Limit for Disposal of of the year in case of both registered as well Applications as unregistered association. The intimation should be in form FC-3 in duplicate and shall An application for registration is normally be sent to Secretary to the Government of disposed within six months. An application India, Ministry of Home Affairs, New Delhi seeking prior permission is disposed within by registered post. 90/120 days. It is advisable to obtain a certificate, in the Recipients of Scholarships, Stipend, format incorporated at the end of the etc. application form, from any of the competent Every citizen of India (whether in India or authority mentioned therein viz., Any abroad) who is in receipt of any scholarships, concerned - Collector of District; Department stipend or any similar payment from any of the State Government; Ministry/ foreign source shall give intimation thereof Department of the Government of India. to Central Government. Filing of Returns Intimation An association permitted to accept foreign Rule 4(c) provides that such intimation contribution is required to submit an annual should be submitted in form FC-5 within 30 days of receipt of such scholarships, stipend return, duly certified by a Chartered or payment of like nature. However, if such Accountant, giving details of the receipt and citizen is residing outside India, then time purpose­ wise utilization of the foreign limit for intimation is sixty days. contribution. The return is to be filed for every year (1st April to 31st March) within However, if any recurring payments are being a period of four months from the closure of received as discussed above, it shall be the year, i.e. by 31st July of each year. sufficient if the intimation referred above includes precise information as to the The return is to be submitted, in duplicate, intervals at which, and the purpose of which, in Form FC-3. It is to be accompanied with such recurring payments will be received. 157
  • 164. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Exemption from Intimation Affairs, New Delhi, within four months after Rule 5 provides exemption from such the closure of the year (i.e. on or before 31st intimation in case the value of such July, 2001). scholarship, stipend or other payment does not exceed thirty six thousand rupees, in an Checklist academic year. Checklist for ensuring proper submission of applications, under the provisions of the In calculating the value, Foreign Contribution (Regulation) Act, a. the amount received by citizen for 1976, for acceptance of foreign purchase of books, clothing and contribution equipment and for sight-seeing in a foreign country or territory shall be taken 1. Eligible category into account; but An association with a definite cultural, economic, educational, religious or social b. the amount spent in travel by air in programme. economy class from India to a foreign country or territory and back to India 2. Types of permission from such foreign country or territory, i. Registration under Section 6(1)(a); and the amount spent by the foreign and, source in respect of such citizen towards ii. Prior permission under Section 6 tuition and other fees, shall not be taken (I A). into account. 3. Application form Maintenance of Accounts i. For grant of registration in form Rule 8 of the Foreign Contribution FC-8; and, (Regulation) Rules, 1976, provides that a ii. For grant of prior permission in separate set of accounts and records shall be form FC-IA. maintained exclusively for foreign 4. Essential requirements contribution received and utilized. A. Bank Account Such accounts shall be maintained on an Open a separate bank account for the yearly basis from April to March. A receipt and utilisation of foreign certificate from a Chartered Accountant in contribution in a bank of your choice and Form FC-3 along with a balance sheet and furnish particulars of the same at the statement of receipt and payment shall be appropriate place. submitted, in duplicate, to the Secretary to Note: Do not deposit any local funds, other Government of India, Ministry of Home than the essential initial deposit specified by 158
  • 165. Foreign Contributions the bank for opening an account, in this 5. Miscellaneous account. Furnish information exactly in the manner asked for in the form, especially B. Documents the names and addresses of the members Remember to enclose copies of the of the Executive Committee/Governing following documents with your Council, etc. application:- The forms can be downloaded from i. Certified copy of registration Ministry of Home Affairs Web Site at certificate or Trust deed, as the case http://mha.nic.in/fcra/intro/forms.html may be; ii. Details of activities during the last 6. Chartered Accountants/Banks three years; Chartered Accountants, before certifying iii. Copies of audited statement of the accounts of an association in form accounts for the past three years FC-3, must ensure that they have been (Asset and Liabilities, Receipt and prepared in accordance with the Payment, Income and Expenditure); provisions of the Foreign Contribution (Regulation) Act, 1976 and the Rules iv. Commitment letter from foreign framed there under. donor specifying the amount of foreign contribution (only with prior No bank should credit any foreign permission application); contribution to the account of an v. Copy of project for which foreign association/organisation unless it contribution was solicited/is being produces documentary proof of having offered (only with prior permission obtained registration/prior permission application); from the Central Government for the vi. If functioning as editor, owner, same. Crediting of foreign contribution printer or publisher of a publication by a bank to the account of an registered under the Press and association/organisation that has not Registration of Books Act, 1867, a obtained registration or prior permission certificate from the Press Registrar from the Central Government that the publication is not a constitutes a violation and will render newspaper in terms of section 1 (1) the defaulting bank liable for action by of the said Act. the Reserve Bank of India. ■■ 159
  • 166. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Special Economic Zones A policy for setting up of SEZs in the Surat (Gujrat), Coachin (Kerala), Santa country with a view to provide an Cruz ( Mumbai-Maharashtra), Falta ( West internationally competitive and hassle free Bengal), Madras (Tamil Nadu), environment for exports was introduced on Vishakhapatnam (Andhra Pradesh) and April 1, 2000. Units may be set up in SEZ for Noida (Uttar Pradesh) into a Special manufacture of goods and/or rendering of Economic Zones. In addition, 3 new Services. All the import/export operation of additional SEZs approved for establishment the SEZ units will be on self-certification at Indore (Madhya Pradesh) , Manikanchan- basis. The units in the Zone have to be a net Salt Lake (Kolkata) and Jaipur have since foreign exchange earner but they shall not be commended operations. subject to any predetermined value addition or minimum export performance In addition, approval has been given for requirements. Sales in the Domestic Tariff setting up of 42 SEZs in various parts of the area by SEZ units shall be subject to payment country in private/joint sectors or by the of full custom duty and import policy in force. State Govt. Further offshore banking unit may be set up in the SEZs. Distinguishing Features Special Economic Zone Act has been Indian SEZ Act has following distinguishing introduced in the year 2005. It is an act to features: provide for the establishment, development and management of the Special Economic 1. The zones are proposed to setup by Zones for the promotion of exports and for private sector or by State Govt. in matters connected therewith or incidental association with private sector. Private thereto. sector is also invited to develop infrastructure facility in the existing The policy provides for setting of SEZ’s in the SEZs. public, private joint sector or by State Govts. It was also envisaged that some of the 2. State Govt. has a lead role in the setting existing Export Processing Zones would be up of SEZ. converted into SEZs. Accordingly, the 3. A framework is being developed by Government has converted the Export creating special by creating special Processing Zones located at Kandla and Windows under existing rules and 160
  • 167. Special Economic Zones regulations of the central Govt. and state units provide employment to about Govt. for SEZ 100650 persons out of which 32185 are females. Performance As on 31st March 2005, there are 811 units Exports in operation in the 8 functional SEZs. Export performance of the SEZ are as given Investment by the units in these Zones are below:- of the order of Rs 18309 million. The SEZ Exports from Special Economic Zones are given below;- Zone 2003-2004 2004-2005 (Rs in crores) (Rs in Crores) Kandala SEZs 1018.82 1060.14 Seepz SEZ 7832.81 8298.59 Noida SEZ 1534.17 4266.00 Madras SEZ 1037.96 1376.91 Coachin SEZ 298.91 462.99 Falta SEZ 825.34 569.15 Vishakhapatnam SEZ 435.67 579.27 Surat SEZ 869.90 1539.72 Manikchand SEZ – 95.54 Jaipur SEZ – 5.27 Indore SEZ – 55.02 Total 13853.58 18308.60 161
  • 168. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Setting Up of SEZ by ii. The SEZ and units therein shall abide by local laws, rules , regulations or bye-laws Developer in regard to area planning, sewerage disposal, pollution control and the like. Setting up of SEZ in the Public, They shall also comply with industrial Private, Joint Sector or by the State and labour laws and such other laws / Govt. rules and regulations as may be locally With a view to augmenting infrastructure applicable. facilities for export production it has been iii. Such SEZ shall make adequate decided to permit the setting up of Special arrangements to fulfill all the Economic Zones (SEZs) in the public, requirements of laws, rules and private, joint sector or by the State Govt. The procedures applicable to such SEZ. minimum size of the Special Economic Zone shall not be less than 1000 hectares. iv. Only units approved under the SEZ Minimum area requirement shall, however, schemes would be permitted to be not be applicable to product specific and located in these SEZ. port/airport based SEZ. This measure is v. At least 25% area of the SEZ shall be expected to promote self-contained areas used for developing industrial area for supported by world-class infrastructure setting up such units. oriented towards export production. Any How to apply private /public/joint sector or State Govt. or its agencies can set up Special Economic Applications (15 copies) indicating the name Zone (SEZ) and address of the applicant, status of the promoter (whether individual/ private Criteria for approval company/ State Govt. /NRIs etc.) along with a project report covering the following Proposals for setting up SEZ in the Public/ particulars shall be submitted to the Chief Private/Joint/State sector are required to Secretary of the State: meet the following conditions: i. Location of the proposed zone with i. Minimum size of the SEZ shall not be less details of the existing and proposed than 1000 hectares. This would however, infrastructure, not apply to existing EPZs converting into SEZs as such or for notifying ii. Area of the proposed SEZ and its area additional area as a part of such SEZ or distance from the nearest Sea Port/ to product specific port/airport based Airport/ Rail/ Road head etc. SEZs. iii. Financial details including investment 162
  • 169. Special Economic Zones proposed, mode of financing the project provided to the units in the Zone under and viability of the project. State Laws/ Rules. iv. Details of foreign equity and repatriation The proposal incorporating the of dividend etc., if any. commitments of the State Govt. shall be v. Whether the zone will allow only certain considered by the Board of Approval specific industries or will be a (BOA) as notified vide notification No multinational zone or it is a port /airport 14/ 1 / 2001-EPZ dated 7.8.2001. based zone. On acceptance of the proposal by the The State Govt. shall, forward it along BOA , the Department of Commerce with their commitment to the following, will issue a Letter of Permission to the to the Department of Commerce , Govt. applicant; of India. Facilities and Incentives for The area incorporated in the proposed Developers Special Economic Zone is free from H Developers of SEZ may import / procure environmental prohibition; goods without payment of duty for the Water and Electricity and other services development, operation and would be provided as required; maintenance of SEZ. Full exemption in electricity duty and tax H Income tax exemption for a block period on sale of electricity for self generated of 10 year in 15 years at the option of and purchase power; To allow developer as per Section 80IAB of the generation, transmission and distribution Income Tax Act. of power within SEZ. H Full freedom in allocation of developed vi. Exemption from State Sales Tax, Octroi, plots to approved SEZ units on a purely Mandi tax, Turnover tax and taxes, duty, commercial basis. cess, levies on supply of goods from H Full authority to provide service like Domestic Tariff Area to SEZ units; water, electricity, security , restaurants, vii. For units inside the Zone, the power recreation centers etc. on commercial under the Industrial Dispute Act and lines. other related Act would be delegated to H Foreign investment permitted to develop the Development Commissioner. township within the SEZ with residential viii.The Zone will be declared as a Public area , market, play grounds, clubs, Utility Service under Industrial Dispute recreation centers etc. Act. H Develop Standard Design Factory (SDF) ix. Single point clearances system would be building in existing SEZ. 163
  • 170. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians H Income Tax Exemption to investor’s in H Exemption from Central Excise duty on SEZ’s under Section 10(23G) of Income procurement of Capital goods, raw Tax Act. materials, consumables spares etc. from H Exemption from Service Tax the domestic market. H Investment made by individuals etc. in H Supplies from DTA to SEZ units treated SEZ company also eligible for exemption as deemed exports. u/s 88 of the Income Tax Act. H Reimbursement of Central Sales Tax paid H Development promoted to transfer on Domestic purchases. infrastructure facility for operation and H 100% income tax exemption for a block maintenance u/s 80-IA of the Income period of 5 years, 50% tax exemption for Tax Act. next five years u/s 10AA of the Income H Generation, Distribution and Tax Act. Transmission of Power in SEZs allowed. H Carry forwarded of losses. H 100% income tax exemption for 5 Setting up of SEZ consecutive years & 50% for 5 years Enterprise under section 80LA of the Income Tax Act for off shore banking units Facilities in Special Economic Zone H Reimbursement of duty paid on furnace A new Special Economic Zone (SEZ) scheme oil, procured from domestic oil has been introduced in the Export and companies to SEZ units as per the rate of Import policy from 1st April 2000, with a view drawback notified by the Directorate to provide an internationally competitive & General of Foreign Trade. hassle free environment for export production. H SEZ units may be for manufacturing, trading or service activity. Indian SEZ – Salient Features and H SEZ unit to be positive net foreign net Facilities exchange earner within three years. H A designated duty free enclave and to be H Performance of the unit to be monitored treated as foreign territory for trade by a committee headed by Development operations and duties and tariffs. Commissioner and consisting of H No License required for import. Customs. H Exemption from custom duty on import H 100% foreign direct investment in of capital goods, raw materials, Manufacturing, sector allowed through consumable spares etc. automatic route barring a few sectors. 164
  • 171. Special Economic Zones H Facility to retain 100% foreign exchange Proposals for setting up units in the SEZ receipts in EEFC a/c requiring Industrial Licence may be granted H Facility to realize and repatriate export approval by the Development Commissioner proceeds within 12 months after clearance of the proposal by the SEZ Board of Approval and Department of H Re-export imported goods found Industrial Policy and Promotion within 45 defective, goods imported from foreign Days. supplier on loan basis etc. without G.R. Waiver under intimation to the Letter of permission (LOP) / Letter of Intent Development Commissioner (LOI) issued to SEZ units by the Development Commissioner would be H “Write off “of unrealized export bills up construed as a licence for all purposes, to 5% including for procurement of raw material H Commodity hedging by SEZ units and consumables either directly or through permitted canalizing agency. H Capitalisation of import payables. The LOP/LOI shall specify the items of H No Cap on foreign investment for SSI manufacture/service activity, annual reserved items capacity, projected annual export for the first H Exemption from industrial licensing years in dollar terms, Net Foreign Exchange requirement for items reserved for SSI Earning (NFE), limitations, if any, regarding sectors sale of finished goods, by products and rejects in the DTA and such other matter as may be H Profits allowed to be repatriated freely necessary and also impose such conditions as without any dividend balancing may be required. requirement How to apply Terms and Conditions For setting up a unit in an SEZ, three SEZ units have to be a Positive Net Foreign copies of the application in the specified Exchange Earner. form may be submitted to the Performance of the unit will be monitored by Development Commissioner (DC) of the a committee consisting of Development SEZ Concerned. Commissioner of the Zone and Customs. Proposals for setting up units in the SEZ Units shall maintain proper accounts and other than those requiring industrial Licence furnish details regarding value of import, may be granted approval by Development export etc. to Development Commissioner Commissioner within 15 Days. on a quarterly basis. 165
  • 172. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians Criteria to be Adopted for Automatic The Unit Approval Committee shall meet on Approval of Units under EOU/SEZ Monday, every week. In case of the absence Schemes of the Development Commissioner, the meeting will be held by the next senior officer Approval of New Units in the Zone. The unit shall intimate the Proposals for setting up units under EOU/ problems being faced by them in advance. In SEZ scheme under automatic route shall be the meetings, apart from the promoters, the considered by the Unit Approval Committee taking into account the following :- other concerned agency with which difficulties are being faced by the unit may i. Residence proof in respect of individual/ also be called. partnership firms of all Directors/ Partners. (Passport/ ration card/ driving Recycling of ferrous and non-ferrous metal licence /voter identity card or any other proposal will be considered only if the unit proof to the satisfaction of Development has Ignots making facility and proposes to Commissioner; achieve value addition. ii. Income Tax return of all the promoters Sensitive Sectors for the last three years; Care shall be taken by the Development iii. Experience of the promoters; Commissioner while approving projects in iv. Marketing tie-ups sensitive sectors such as yarn texturising unit, v. In case of EOUs, inspection of the project textile processing, pharmaceuticals/ drugs site by an officer formulations/ recycling of ferrous and non- vi. A report from other DCs as to whether ferrous metal scraps etc. Projects for setting any case under SEZ/EOU Schemes in up units in sensitive sectors under EOU regard to diversion of goods etc. is schemes shall be approved by the pending. Development Commissioner after personal Whether necessary, the above may be verification of the Directors and inspection verified through personal interview with the of the factory site before signing LUT. promoters of the project. In the event of the Verification could also be carried out through promoters being a well-established entity, the General Manager, District Industries Centre procedure of personal interview may be or jurisdictional DY/ Assistant Commissioner dispensed with. of Excise/Customs. ■■ 166
  • 173. List of Important Websites List of Important Websites Website addresses of Important Ministries/Departments Ministry of Overseas Indian Affairs http://www.moia.gov.in Ministry of Biotechnology http://dbtindia.nic.in Bureau of Indian Standards http://www.bis.org.in Ministry of Chemicals & Petrochemicals http://chemicals.nic.in Ministry of Civil Aviation http://civilaviation.nic.in Department of Commerce http://commerce.nic.in Ministry of Coal http://coal.nic.in Ministry of Company Affairs http://www.mca.gov.in/ Department of Education http://education.nic.in Ministry of Environment and Forests http://envfor.nic.in Department of Explosives http://explosives.nic.in Ministry of External Affairs http://www.meanindia.nic.in Ministry of Finance http://finmin.nic.in Ministry of Home Affairs http://mha.nic.in Directorate General of Foreign Trade http://dgft.delhi.nic.in Department of Heavy Industries http://dhi.nic.in Department of Industrial Policy & Promotion http://dipp.nic.in Ministry of Information and Broadcasting http://mib.nic.in Department of Information Technology http://www.mit.gov.in Ministry of Labour http://labour.nic.in Department of Mines http://mines.nic.in Ministry of Non-Conventional Energy Sources http://mnes.nic.in Office of The Controller General Of Patents http://patentoffice.nic.in Ministry of Petroleum And Natural Gas http://petroleum.nic.in 167
  • 174. Compendium on Policies, Incentives and Opportunities for Overseas Indians Ministry of Overseas Indian Affairs http://www.moia.gov.in Ministry of Power http://powermin.nic.in Ministry of Railways http://www.indianrailways.gov.in Reserve Bank of India http://www.rbi.org.in Ministry of Road Transport & Highways http://morth.nic.in Department of Shipping http://shipping.nic.in Ministry of Small Scale Industries & Agro and Rural Industries http://ssi.nic.in Ministry of Statistics and Programme Implementation http://mospi.nic.in Department of Telecommunication http://www.dotindia.com Ministry of Textile http://texmin.nic.in Ministry of Tourism http://tourismofindia.com Ministry of Urban Development http://urbanindia.nic.in Ministry of Water Resource http://wrmin.nic.in Website Addresses of States/Union Territories Andaman & Nicobar (UT) http://andaman.nic.in Andhra Pradesh http://www.andhrapradesh.com Arunachal Pardesh http://arunachalpradesh.nic.in Assam http://assamgovt.nic.in Bihar http://bihar.nic.in Chandigarh(UT) http://chandigarh.nic.in Chhattisgarh http://chattisgarh.nic.in Dadra & Nagar Haveli http://oidc.nic.in Daman & Diu http://daman.nic.in Delhi http://delhigovt.nic.in Goa http://goagovt.nic.in Gujarat http://www.gujaratindia.com Haryana http://haryana.nic.in Himachal Pradesh http://himachal.nic.in 168
  • 175. List of Important Websites Ministry of Overseas Indian Affairs http://www.moia.gov.in Jammu & Kashmir http://jammukashmir.nic.in Jharkhand http://jharkhand.nic.in Karnataka http://www.karnataka.nic.in Kerala http://www.kerala.gov.in Lakshdweep(UT) http://lakshadweep.nic.in Madhya Prdesh http://www.mp.nic.in Maharashtra http://maharashtra.gov.in Manipur http://manipur.nic.in Meghalaya http://meghalaya.nic.in Mizoram http://mizoram.nic.in Nagaland http://nagaland.nic.in Orissa http://orissagov.nic.in Pondicherry(UT) http://pondicherry.nic.in Punjab http://punjabgovt.nic.in Rajasthan http://www.rajasthan.gov.in Sikkim http://sikkimgov.nic.in Tamil Nadu http://www.tn.gov.in Tripura http://tripura.nic.in Uttar Pradesh http://upgov.nic.in Uttranchal http://gov.ua.nic.in West Bengal http://www.wbgov.com 169
  • 176. Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians 170
  • 177. Bank Accounts ofContact Details Non-Residents Contact Details Ministry of Overseas Indian Affairs 9 th Floor, Akbar Bhawan, Chanakya Puri, New Delhi - 110 021 Tel: +91-11-2419 7900 Fax: +91-11-2467 4140 Contact details of the Senior Officers of the Ministry 1. Mr. Nirmal Singh Secretary Ministry of Overseas Indian Affairs Tele: 24674143/ 24674144 e-mail: secretary@moia.nic.in 2. Mr. Malay Mishra Joint Secretary (Diaspora Services) Ministry of Overseas Indian Affairs Tele: 26874240 e-mail: jsds@moia.nic.in 3. Mr. G. Gurucharan Joint Secretary (Financial Services) Ministry of Overseas Indian Affairs Tele: 24676210 e-mail: jsfs@moia.nic.in 4. Mr. Jagadananda Panda Protector General of Emigrants Ministry of Overseas Indian Affairs Tele: 26874250 e-mail: pge@moia.nic.in For further details about the book please contact 1. Ms. Sandhya Shukla Director Ministry of Overseas Indian Affairs Tele: 26874231, 24197918 e-mail: dirss@moia.nic.in 2. Ms. Anupma Aggarwal Partner Peeyush Aggarwal & Co. Chartered Accountants B-132 Anand Vihar, Delhi-110092 Tel: 011-22164800, 22164700 Fax: 91-11-22164800 Mobile: +919312276731 e-mail: anupma@indialiaison.com Website: www.indialiaison.com 171
  • 178. Feedback Form Feedback Form Kindly give us your feedback on the document as this will help us in making the revised edition of this book more valuable. We will be obliged if any mistake, error or discrepancy is brought to our notice for carrying out necessary corrections and modifications. Suggestions Please mail/fax/e-mail your suggestions to: Ms. Sandhya Shukla Ms. Anupma Aggarwal Director Partner Ministry of Overseas Indian Affairs Peeyush Aggarwal & Co. 9th Floor, Akbar Bhawan Chartered Accountants Chanakya Puri B-132 Anand Vihar New Delhi Delhi-110092 Tel: +91 11 2419 7918, 2687 4231 Tel: +91 11 2216 4800, 2216 4700 E-Mail: dirss@moia.nic.in Fax: +91 11 22164800 Mobile: +9312276731 E-Mail: anupma@indialiaison.com Website: www. indialiaison.com
  • 179. www.cyberart.co.in Ministry of Overseas Indian Affairs Akbar Bhawan, Chanakya Puri, New Delhi 110 021

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