Thane Study Circle of WIRC FEMA Course - Inbound Investment 2 - 15.DEC.2013

P. P. Shah & Associates 1
WIRC’S THANE MID-TOWN
CPE STUDY CIRCLE
FEMA Seminar
on 15th December 2013
INBOUND INVESTMENTS
BRANCH / LIAISON / PROJECT OFFICE, PIS INVESTMENTS, ETC.
Presented by:
Mr. Paresh P. Shah
P.P. Shah & Associates
Chartered Accountants
Email: ppshahandassociates@gmail.com
15/12/2013

Overview of Presentation
 Overview of Scheme of Investment by PROIs in India
 Establishment of Liaison Office, Branch Office or Project Office in
India
 Registration
 Permitted activities/Restricted activities
 Funding of local operation
 Issuance of Invoice
 PE Exposure
 Operating Time Limit
 Closure
 Repatriation of Profit and Surplus
 Compliance under Income Tax and FEMA
 Companies law requirement
15/12/2013

Overview of Presentation (con‟t)
 Automatic Route of Investment in India(Other than FDI Scheme)
 Portfolio Investment by FII & NRI‟s
 Investment by NRI‟s
 Other Investment of FII, NRI, QFI, etc.
 Investment by FVCI
15/12/2013

Foreign Investment in India
Foreign Investment
6th August 2013 P. P. Shah & Associates 4
Foreign
direct
investment
(Sch 1)
Foreign
Portfolio
Investment
Foreign Venture
Capital Investment
(Sch 6)
Other
Investment(G-
sec, NCD) (Sch
5)
Investment on
Non
repatriation
basis
Automatic
route
Government
route
FIIs (sch
2)
NRIs, PIO
(Sch 3)
SEBI regd
FVCIs
VCF, IVCUs
FIIs NRIs, PIO
NRIs, PIO
(Sch 4)
Investment
made by QFI
(Sch 8)
IDR by
companies
resident outside
India (Sch 7)

UNINCORPORATED
ENTITIES
Liaison
Office
Branch
Office
Project
Office
INCORPORATED ENTITIES
Subsidiary Joint Venture
PARTNERSHIP
Foreign Exchange Management
(Establishment in India of Branch
or Office or Other Place of
Business) Regulation, 2000
LLP
Business entities in India for Foreign
Investor
Foreign Exchange
Management (Transfer or
Issue of Security by a
Person Resident Outside
India) Regulation, 2000 and
FDI Policy
15/12/2013
Press
Note 1
of 2011
dated
20 May
2011
Foreign
Exchange
Management
(Investment
in Firm or
Proprietary
Concern in
India)
Regulation
2000

Liaison Office - Overview
 Liaison Office is defined as a place of business to act as channel
of communication between head office abroad and parties in
India
‒ but which does not undertake any commercial / trading / industrial
activity directly or indirectly, and
‒ maintains itself out of the inward remittances received from abroad
through normal banking channel
 Thus it is in the nature of a representative office set up primarily to
explore and understand the business and investment climate
 Regulated by the Foreign Exchange Management (Establishment in India
of Branch or Office or Other Place of Business) Regulations, 2000
 Prior approval of RBI required
15/12/2013

Liaison Office – Permissible activities
 Representing in India the parent company / group companies
 Promoting export / import from / to India
 Promoting technical/financial collaborations between parent/group
companies and companies in India
 Acting as a communication channel between the parent company and
Indian companies
 Summary:
1. Can undertake only liaison activities;
2. Not allowed to undertake any business activity in India;
3. Cannot earn any income in India;
4. Role of such offices limited to collecting information.
15/12/2013

Liaison Office – Approval route
 Applications for establishing a Liaison Office in India are considered by
RBI under two routes:
Reserve Bank
route
 Procedure: Application considered by RBI
 Eligible applications: Where principal business of the foreign entity
falls under sectors where 100 % Foreign Direct Investment (FDI) is
permissible under the automatic route
Government
route
 Procedure: Application considered by RBI in consultation with the
Ministry of Finance, Government of India
 Eligible applications:
• Where principal business of the foreign entity falls under
sectors where 100% FDI is not permissible
• Applications from entities falling under this category and those
from Non-Government Organizations / Non-Profit Organizations
/ Government Bodies / Departments
15/12/2013

Liaison Office – Approval route (con‟t)
 Special conditions for setting up of Liaison Office by Foreign Insurance
Companies / Foreign Banks:
 Foreign Insurance companies establishing Liaison Office in India require
approval from the Insurance Regulatory and Development Authority (IRDA)
 Foreign banks establishing Liaison Office in India require approval from the
Department of Banking Operations and Development (DBOD), RBI
15/12/2013

Liaison Office – Additional RBI criteria
 Track Record:
A profit making track record during the immediately preceding three
financial years in the home country
 Net Worth:
Net Worth as per last Audited Balance Sheet should not be less than USD
50,000 or its equivalent
Net Worth: Total of paid-up capital and free reserves, less intangible assets as per the
latest Audited Balance Sheet or Account Statement certified by a Certified Public
Accountant or any Registered Accounts Practitioner by whatever name
 Applicant not satisfying the aforesaid eligibility criteria and are
subsidiaries of other companies can submit a Letter of Comfort from their
parent company
15/12/2013

Liaison Office – Application procedure
 Application to be forwarded by the foreign entity through a designated
Authorized Dealer (AD) Category - I bank, in Form FNC to the Chief
General Manager-in-Charge, along with the prescribed documents
including:
 English version of certificate of incorporation/registration and Memorandum and
Articles of Association attested by the Indian Embassy/Notary public in the
country of registration
 Latest Audited balance sheet of the applicant entity,KYC,undertaking,
Appointment of Representative, Board Resolution etc
 Letter of Comfort, if applicable
 Approval initially granted for a period of 3 years and may be extended
 Liaison offices established with the RBI‟s approval will be allotted a
Unique Identification Number (UIN) and also obtain Permanent Account
Number (PAN)
15/12/2013

Liaison Office – Restrictions as per RBI
approval letter
 Not to acquire, hold, transfer any property in India without RBI prior approval
 Prior approval of RBI required before shifting of Liaison office
 Shall not enter into contract in its own name
 Shall not borrow/lend any money from/to any person in India without RBI prior
permission .
 The office in India shall not render any consultancy or other services
directly/indirectly with or without consideration
 Shall not have signing /commitment powers except as required for normal
functioning of the office, on behalf of head office
 Not permitted to charge any commission or receive other income from Indian
customers for providing Liaison services
15/12/2013

Liaison Office – Compliance
 An Annual Activity Certificate (AAC) must be provided to both a designated AD
Category I bank and the Directorate General of Income Tax (International Tax),
New Delhi at the end of March 31, along with the audited Balance Sheet on or
before September 30 of that year
 In case the annual accounts of the Liaison office are finalized with reference to a
date other than March 31, the AAC along with the audited Balance sheet may be
submitted within six months from the due date of the Balance sheet to the
designated AD Category I bank and a copy to the Directorate General of Income
Tax (International Tax), New Delhi
 A Chartered Accountant must certify whether the activities of the liaison office are
in line with RBI guidelines
 AAC shall be filed :
 In case of a sole Liaison office, by the Liaison office concerned
 In case of multiple Liaison offices a combined AAC in respect of all offices in
India by the Nodal Office of the Liaison office.
15/12/2013

Liaison Office – Compliance (con‟t)
 As per A.P. (Dir) Circular No. 35 dt. 25.09.2012, in addition to the reporting
described above, all the new entities setting up Liaison/Branch/Project Offices
shall also:
 submit a report containing information as per Annex within five working days of the
LO/BO/PO becoming functional to the Director General of Police (DGP) of the state
concerned in which LO/BO/PO has established its office; if there are more than one
office of such a foreign entity, in such cases to each of the DGP concerned of the state
where it has established office in India;
 a copy of the report as per Annex shall also be filed with the DGP concerned on annual
basis along with a copy of the Annual Activity Certificate/Annual report required to be
submitted by LO/BO/PO concerned, as the case may be
 A copy of report thus filed as above shall also be filed with AD by LO/BO/PO concerned
15/12/2013

Liaison Office – Extension of Validity
 The designated AD Category - I bank may extend the validity period of Liaison
Offices for a period of 3 years provided:
 Liaison Offices have submitted the AAC for the previous years and
 The account of the Liaison Offices maintained with the designated AD Category-I bank
is being operated in accordance with the terms and conditions stipulated in the approval
 Extension has to be granted within a period of one month from the receipt of the
request.
 Application for extension of the validity period of the LOs of banks and entities
engaged in insurance business has to be submitted to the DBOD, RBI and IRDA,
respectively.
 No extension is considered for LOs of entities which are NBFCs and those engaged
in construction and development sectors (excluding infrastructure development
companies).
 Upon expiry of the validity period, these entities have to either close down or be
converted into a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in
conformity with the extant FDI policy.
15/12/2013

Liaison Office – Operational features
 Expenses of liaison offices are to be met entirely through inward remittances
of foreign exchange from the Head Office outside India
 Liaison offices have general permission to carry out permitted / incidental
activities from a leased property subject to lease period not exceeding five
years
 Liaison offices are allowed to open non-interest bearing INR current accounts
in India. Such Offices are required to approach their ADs for opening the
accounts
 Transfer of assets of Liaison Office to subsidiaries or other Liaison/Branch
Offices or any other entity is allowed with specific approval of the Central
Office of the RBI
 Additional place Information to AD, Shifting the office-Approval
15/12/2013

Branch Office - Overview
 Branch Office in relation to a company means-
a. any establishment described as a branch by the company; or
b. any establishment carrying on either the same or substantially the same
activity as that carried on by the head office of the company, or
c. any establishment engaged in any production, processing or manufacture,
but does not include any establishment specified in any order made by the
Central Government - Section 2(9) of the Companies Act, 1956
 Regulated by Foreign Exchange Management (Establishment in India of
Branch or Office or Other Place of Business) Regulations, 2000
 A body corporate incorporated outside India desirous of opening a Branch
Office (BO) in India has to obtain permission from the RBI under the
provisions of FEMA
15/12/2013

Branch Office – Approval route
 Applications for establishing a Branch Office in India are considered by
RBI under two routes:
 Reserve Bank Route
 Government Route
(Sector under Auto Route and Government route under FDI Guidelines)
15/12/2013

Branch Office – Permissible activities
 Export / Import of goods
 Rendering professional or consultancy services
 Carrying out research work, in areas in which the parent company is engaged
 Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.
 Representing the parent company in India and acting as buying / selling
agent in India
 Rendering services in information technology and development of software in
India.
 Rendering technical support to the products supplied by parent/group
companies
 Foreign airline / shipping company
Normally, the Branch Office should be engaged in the activity in which
the parent company is engaged
15/12/2013

Branch Office – Concessions
 General permission to foreign companies for establishing branch/unit in Special
Economic Zones (SEZs) to undertake manufacturing and service activities subject
to the following conditions:
 such units are functioning in those sectors where 100 per cent FDI is permitted;
 such units comply with part XI of the Companies Act,1956 (Section 592 to 602);
 such units function on a stand-alone basis
 Foreign banks do not require separate approval under FEMA, for opening branch
office in India. Such banks are, however, required to obtain necessary approval
under the provisions of the Banking Regulation Act, 1949, from DBOD, RBI
15/12/2013

Branch Office – Prohibitions
 Retail trading activities of any nature is not allowed for a Branch Office in India
 Branch Office is not allowed to carry out manufacturing or processing activities in
India, directly or indirectly
 Without prior permission of the Reserve Bank, no person being a citizen of Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish in India, a Branch or a
Liaison Office or a Project Office or any other place of business
 Entities from Nepal are allowed to establish only Liaison Offices in India
 Branch/Project Offices of a foreign entity are permitted to acquire immovable property
by way of purchase for their own use and to carry out permitted/incidental activities.
However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or
China are not allowed to acquire immovable property in India for a Branch / Project
Office without prior RBI approval
15/12/2013

Branch Office – Additional RBI criteria
 Track Record:
A profit making track record during the immediately preceding five
financial years in the home country
 Net Worth:
Net Worth as per last Audited Balance Sheet should not be less than USD
100,000 or its equivalent
Net Worth: Total of paid-up capital and free reserves, less intangible assets as per the
latest Audited Balance Sheet or Account Statement certified by a Certified Public
Accountant or any Registered Accounts Practitioner by whatever name
 Applicant not satisfying the aforesaid eligibility criteria and are
subsidiaries of other companies can submit a Letter of Comfort from their
parent company
15/12/2013

Branch Office – Application procedure
 Application should be forwarded by the foreign entity through a
designated Authorized Dealer (AD) Category - I bank, in Form FNC to the
Chief General Manager-in-Charge, along with the prescribed documents
including:
 English version of certificate of incorporation/registration and Memorandum
and Articles of Association attested by the Indian Embassy/Notary public in
the country of registration
 Latest Audited balance sheet of the applicant entity
 Letter of Comfort, if applicable
 Approval valid till revoked
 Branch Offices established with the RBI‟s approval will be allotted a
Unique Identification Number (UIN) and also obtain Permanent Account
Number (PAN)
15/12/2013

Branch Office – Application procedure
(con‟t)
 Requests for establishing additional BO / LO to be submitted through
fresh FNC form (Annex 1), duly signed by the authorized signatory of the
foreign entity in the home country to the Reserve Bank of India as
explained earlier. However, the documents mentioned in form FNC need
not be resubmitted, if there are no changes to the documents already
submitted earlier
 If the number of Offices exceeds 4 (i.e. one BO / LO in each zone viz; East,
West, North and South), the applicant has to justify the need for additional
office/s.
 The applicant may identify one of its Offices in India as the Nodal Office,
which will coordinate the activities of all Offices in India
15/12/2013

Branch Office – Compliance
Procedure similar to Liaison Office as follows:
 An Annual Activity Certificate (AAC) must be provided to both a designated AD
Category I bank and the Directorate General of Income Tax (International Tax),
New Delhi at the end of March 31, along with the audited Balance Sheet on or
before September 30 of that year
 In case the annual accounts of the Branch Office are finalized with reference to a
date other than March 31, the AAC along with the audited Balance sheet may be
submitted within six months from the due date of the Balance sheet to the
designated AD Category I bank and a copy to the Directorate General of Income
Tax (International Tax), New Delhi
 A Chartered Accountant must certify whether the activities of the Branch office
are in line with RBI guidelines
15/12/2013

Branch Office – Compliance (con‟t)
 As per A.P. (Dir) Circular No. 35 dt. 25.09.2012, in addition to the reporting
described above, all the new entities setting up Branch Offices shall also:
 submit a report containing information as per Annex within five working days of the BO
becoming functional to the Director General of Police (DGP) of the state concerned in
which BO has established its office; if there are more than one office of such a foreign
entity, in such cases to each of the DGP concerned of the state where it has established
office in India;
 a copy of the report as per Annex shall also be filed with the DGP concerned on annual
basis along with a copy of the Annual Activity Certificate/Annual report required to be
submitted by BO concerned, as the case may be
 A copy of report thus filed as above shall also be filed with AD by BO concerned
15/12/2013

Branch Office – Repatriation
 Branch Offices are permitted to remit outside India profit of the branch
net of applicable Indian taxes, on production of the following documents
to the satisfaction of the Authorised Dealer through whom the remittance
is effected:
 A Certified copy of the audited Balance Sheet and Profit and Loss account
for the relevant year
 A Chartered Accountant‟s certificate certifying:
 the manner of arriving at the remittable profit
 that the entire remittable profit has been earned by undertaking the permitted
activities.
 that the profit does not include any profit on revaluation of the assets of the
branch
15/12/2013

Branch Office – Operational features
 All Branch offices have general permission to carry out permitted / incidental
activities from a leased property subject to lease period not exceeding five years
 Branch offices are allowed to open non-interest bearing INR current accounts in
India. Such Offices are required to approach their Authorised Dealers for opening
the accounts
 Transfer of assets of Branch office to subsidiaries or other Branch offices or any
other entity is allowed with specific approval of the Central office of the RBI
 The entire expenses of Branch office to be met either out of the funds received
from abroad through normal banking channels or through income generated by it
in India by undertaking permitted activities
15/12/2013

Branch Office – Closure
 Remittance of winding up proceeds of a branch office in India of a person resident outside
India should be supported by following documents:
 Copy of RBI‟s approval for opening branch office
 Auditors certificate:-
 indicating the manner in which the remittance amount has been arrived and supported
by statement of assets and liabilities of the applicant and manner of disposal of assets
 confirming that all liabilities including arrears of gratuity and other benefits to
employees have been either fully met
 confirming that no income accruing from sources outside India has remained un-
repatriated to India
 Tax clearance certificate from Income Tax authority for remittances
 confirmation that no legal proceedings in any court are pending and no legal
impediment
 A report form ROC regarding compliance with the provisions of Companies act 1956, in
case of winding up of office
 Any other document specified by RBI during approval
 Ensure about filing of all annual activity certificate with RBI
15/12/2013

Project Office – Overview & approval
 Reserve bank has granted general permission to foreign companies to establish
Project offices in India, provided they have secured a contract from an Indian
company to execute a project in India,
 the project is funded directly by inward remittance from abroad
 the project is funded by a bilateral or multilateral international financing agency
 the project has been cleared by an appropriate authority
 a company or entity in India awarding the contract has been granted term loan by
a public financial institution or a bank in India for the project. It may be noted
that form FNC can be used for opening along with copy of the secured contract
 Permission to establish offices, in India by foreign Non-Government
Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments,
by whatever name called, are under the Government Route. Accordingly, such
entities are required to apply to the Reserve Bank for prior permission to establish
an office in India, whether Project Office or otherwise
15/12/2013

Project Office – Procedure
 AD category-1 banks can open non-interest bearing Foreign currency account for
Project office in India subject to following:
 The project office has been established in India ,with the general/specific
permission of Reserve bank, having the requisite approval from concerned
project sanctioning authority
 The contract under which the project has been sanctioned, specifically
provides for payment in foreign currency
 Each project has only one Foreign currency account
 The permissible debits to the account shall be payment of project related
expenditure and credits shall be foreign currency receipts from project
sanctioning authority
 The responsibility of ensuring that only the approved debits and credits are
allowed in the Foreign
 Currency account shall rest solely with the concerned branch of the AD.
 Foreign currency account has to be closed at the completion of the project
15/12/2013

Project Office – Remittances
 AD Category-I banks can permit intermittent remittances by Project Offices
pending winding up/completion of the project provided they are satisfied with the
bona fides of the transaction, subject to the following:
 The Project Office submits an Auditors/ Chartered Accountants Certificate to
the effect that sufficient provisions have been made to meet the liabilities in
India including Income Tax etc.
 An undertaking from the Project Offices that the remittance will not, in any
way, affect the completion of the project in India and that any shortfall of
funds for meeting any liability in India will be met by inward remittance from
abroad.
 Inter Project transfer of funds requires prior permission of the concerned
Regional Office of the Reserve Bank under whose jurisdiction the Project
Office is situated
15/12/2013

Project Office – Compliance
 The foreign company establishing a Project Office in India is to furnish report
through the concerned AD branch, to the concerned Regional Office of Reserve
Bank of India under whose jurisdiction the Project Office is set up, incorporating
various details such as name & address of foreign company, Ref. No. & Dt. of
letter awarding contract; particulars of the authority awarding the
project/contract; amount of contract; tenure of project office; details of project
undertaken, etc
 Submit details to the Director General of Police of the concerned state as per
procedure discussed for Liaison Office / Branch Office
 The Project Office shall also submit to the AD branch on an annual basis, a
Certificate from a Chartered Accountant showing the Project Status and certifying
that the accounts of the Project Office has been audited and the activities
undertaken are in conformity with the General / Specific permission given by the
Reserve Bank.
15/12/2013

LO / BO / PO – Income Tax provisions
LIAISON OFFICE BRANCH OFFICE PROJECT OFFICE
Taxability,S
ec 5,Sec 9
are the
basic
provisions
and the Tax
Treaty
Provisions
BC VS PE
 Liaison Offices
are restricted
from earning any
income in India.
Accordingly, they
are not generally
not liable to tax in
India
 Qualify as a Non-
Resident
 Taxable on its income
arising or deemed to
arise or income accruing
or deemed to accrue in
India
 Taxable @ 40% (plus
applicable surcharge and
cess)
 Qualify as a PE under
the tax treaty
 Eligible for treaty benefit
 Qualify as a Non-
Resident
 Taxable on its income
arising or deemed to
arise or income accruing
or deemed to accrue in
India
 Taxable @ 40% (plus
applicable surcharge and
cess)
 Qualify as a PE under the
tax treaty
 Eligible for treaty benefit
15/12/2013

LO / BO / PO – Income Tax provisions
(con‟t)
LIAISON OFFICE BRANCH OFFICE PROJECT OFFICE
Tax Audit Not applicable As applicable As applicable
MAT Not applicable As applicable As applicable
Filing of Tax
return
No requirement to file
an income tax return.
However, may
consider to file a NIL
return
Required to file an
income tax return
Required to file an
income tax return
Transfer
Pricing
Not applicable As applicable As applicable
Requirement
to deduct tax
Yes Yes Yes
15/12/2013

Project Office – Special issues under
Income Tax
Tax implications for Project Office similar to that of Branch Office but deserves special
consideration on following aspects while examining PE status:
 Whether onshore supply of project goods and services
 Whether offshore supply of project goods and services
 Force of Attraction Rule – whether offshore supply of goods and / or services
constitutes PE
15/12/2013

Liaison Office – Income Tax - recent
developments
 Liaison Office to file a statement with the Assessing Officer in Form 49C
containing such particulars as may be prescribed (effective from financial year
2011-12) – Section 285 of the Income Tax Act, 1961
 Form 49C to be submitted electronically within 60 days from the end of the
financial year
 Copies of the AACs submitted to the DGIT (International Taxation) should be
accompanied by audited financial statements including receipt and payment
account
 Extensive details to be submitted [Illustrative]:
 Information on working of Liaison Office and nature of activities undertaken;
 Details about employees of Liaison office;
 Top five Indian Parties with whom the office is liaising;
 India-specific details for the financial year;
 Details of all purchases and sales of materials and services from and to Indian
parties during the year by the non-resident person; etc
15/12/2013

Branch Office – Income Tax – special
provisions
Section 44C of the ITA
 Head Office expenditure is allowable as a deduction in the hands of the Branch to
the extent of least of the following
 an amount equal to five per cent of the adjusted total income; or
 the amount of so much of the expenditure in the nature of head office
expenditure incurred by the Branch office as is attributable to the business or
profession of the Branch office in India,
 Provided that in a case where the adjusted total income of the Branch office is a
loss, the amount under clause (a) shall be computed at the rate of five per cent of
the average adjusted total income of the Branch office
15/12/2013

Branch Office – Income Tax – special
provisions (con‟t)
Circular No. 740 date 17 April 1996
 Branch of a foreign company / concern in India is a separate entity for purposes
of taxation
 Interest payable by such branch to its head office or any branch located abroad
liable to tax in India
 Requirement to deduct tax on remittance of interest
15/12/2013

Liaison Office – Important Income-Tax
rulings
Rolls Royce Plc
(Delhi High Court) –
339 ITR 147
The High Court concurred with the ruling of the Tribunal
in holding that the offices of Rolls Royce India Limited, a
liaison office, in India constituted a Permanent
Establishment (PE) of the appellant and hence a
percentage of the profits for the marketing activities were
attributable to such PE in India
Columbia
Sportswear
Company (AAR) –
337 ITR 407
Liaison Office of a non-resident taxpayer would qualify as
its business connection and PE in India if the activities of
the Liaison Office are not confined to the purchase of
goods in India for the purpose of export
Jebon Corporation
India (Karnataka
High Court) – 245
CTR 300
Liaison office of Korean company performing functions
such as identifying new customers, pursuit and follow-up
of customer, price negotiation, etc., would be treated as
PE of Korean company as defined under article 5 of India-
Korea Tax Treaty
15/12/2013

Branch Office – Important Income-Tax
rulings
Sumitomo Mitsui
Banking
Corporation (Mum
ITAT – SB) - 136
ITD 66
Interest paid by PE of Foreign Bank in India to Head
Office (HO) deductible. Interest received by Head Office
from PE of Foreign Bank in India not taxable
ABN Amro Bank NV
(Cal HC) - 198
Taxmann 376
Interest paid by the PE to its foreign HO is deductible in
computing the attributable income of the PE. However, no
deduction of tax at source is required to be made on such
interest payment by PE to the HO under India-
Netherlands tax treaty
Betts Hartley Huett
& Co. Ltd (Cal Trib)-
116 ITR 425
There could not be a valid transaction of sale between
branch office of assessee in India and its head office
outside India as it is an elementary proposition that no
person can enter into a contract with oneself
15/12/2013

Branch Office – Provisions
under Company Law
 Sections 591 to 602 of The Companies Act, 1956 apply to all foreign companies
that establish a place of business within India
 As per Section 592 of the Companies Act, within 30 days of establishment of place
of business within India, foreign companies have to deliver to the Registrar of
Companies for registration:
 Certified copy of the charter / statute / memorandum / articles constituting or
defining the constitution of the company
 Full address of the registered or principal office of the company
 List of Directors & Secretary of the company
 Names & addresses of some one or more persons resident in India who are
authorized to accept on behalf of the company service of process and any
notices or other documents required to be served on the company
 Full address of the office of the company in India which is to be deemed to be
the principal place of business in India
15/12/2013

Branch Office – Implications under
Company Law (con‟t)
 As per Section 594 of the Companies Act, every foreign company shall in every
calendar year make out a Balance Sheet and Profit & Loss Account in such form
and attach such documents as it would under the provisions of the Companies Act
if it had been a company within the meaning of the Act and lay before the
company in general meeting and deliver the same to the Registrar
 As per Section 600 of the Companies Act, provisions regarding registration of
charges, appointment of receiver and books of account i.e. Provisions of Part V
(Sections 124 to 145) applies mutatis mutandis to charges on property in India
which is acquired by any foreign company
NOTE: Liaison office and Project office may also fall under „place of
business‟ in India under the Companies Act, 1956 because Section 602(c)
states “the expression „place of business‟ includes a share transfer or share
registration office”
15/12/2013

 Portfolio Investment and its meaning:
 “Investment made with an intention to maximise profits, without
any interest in the management and control of the company, may
be defined as “ Portfolio Investment”.
 SEBI Registered FII and FII Sub accounts - are eligible.
 Total shareholding of each FII / sub account of FII shall not exceed
10% of the paid up capital of the concerned company or 10% of the
paid up value of debentures of each series.
 Total holding of all FIIs / sub accounts of FIIs put together shall not
exceed 24% of paid up capital.
 Limit of 24% can be increased by the concerned company by
passing special resolution up to the percentage as permitted under
FDI guidelines under the Sectoral policy.
Portfolio Investment by FII in India
15/12/2013

 Domestic Asset management company or portfolio manager
registered as FII for managing fund of sub account: limit as referred
above, of 10% in Equity shares / Convertible debentures under sub
account scheme is 5% within overall ceiling of 10% for each FII and
24% for all FIIs put together.
 FII, FII sub account, Domestic Asset management company and
Portfolio manager are defined under the SEBI Guidelines. FII is also
defined at paragraph 2.1.14 of the consolidated FDI policy dt. 1st April
2013
 FII means an entity established or incorporated outside India which
proposes to make investment in India and which is registered as a
Foreign Institutional Investor in accordance with SEBI (FII)
Regulations 1995.
Portfolio Investment by FII in India contd.
15/12/2013

 Purchase of shares / convertible debentures only through Registered
broker in India.
 Short selling or borrowing of securities, permitted subject to SEBI /
RBI Guideline. [Sub Para 6 of Para 1 of Schedule 2]
 Borrowing of securities only for delivery into short sale.
 Payment for purchase : Either by Inward remittance or through
special rupee account maintained in accordance with Schedule 2
scheme, with designated branch of an Authorised Dealer in India,
[Para 2 of the Schedule 2]
 Remittance of sale proceeds : Sale proceeds net of taxes, may be
deposited in Foreign Currency account or the special rupee account.
Portfolio Investment by FII in India contd.
15/12/2013

 NRI means an Individual resident outside India who is a citizen of India
or is an individual of Indian origin (Paragraph 2.1.25 of the
Consolidated Policy)
 Eligible Securities : Purchase of shares and convertible debentures of
an Indian company only through Stock Exchange in India.
 Repatriation : Either on Repatriation or on a non repatriation basis.
 Purchase or sale only through designated branch of an Authorised
Dealer
 Each NRI can purchase upto 5% of paid up value of shares or 5% of
paid up value convertible debentures of each series.
 In case of all NRIs put together, above limit will be 10% .
 Limit of 10% as aforesaid can be raised by the company concerned
upto 24%.
Portfolio Investment by NRI in India
[Schedule 3]
15/12/2013

 NRI can purchase / sale the shares only on delivery basis.
 Maintenance of accounts by an NRI for routing transaction of purchase
and sale of Shares/Convertible Debentures –
An NRI may open a separate sub-account of NRE/NRO account (opened
and maintained by Authorised Dealer bank in terms of the Foreign
Exchange Management (Deposit) Regulations, 2000) with a designated
branch of an Authorized Dealer bank referred to in paragraph 1, for
routing the receipt and payment for transactions relating to purchase
and sale of shares /convertible debentures under this Scheme.
NRE(PIS) account shall be opened for investment made on repatriation
basis and NRO(PIS) account shall be opened for investment made on
non-repatriation basis under the Scheme. The designated branch of an
Authorised Dealer bank shall ensure that sale proceeds of shares /
convertible debentures which have been acquired by modes other than
Portfolio Investment Scheme such as underlying shares acquired on
[Schedule 3] contd.
15/12/2013

conversion of ADRs/GDRs, shares/ convertible debentures acquired
under FDI Scheme, shares/ convertible debentures purchased outside
India from other NRIs, shares/ convertible debentures acquired under
private arrangement from residents / non-residents, shares/
convertible debentures purchased while resident in India, do not get
credited/debited in the NRE(PIS)/NRO (PIS) account opened
exclusively for routing transactions under this Scheme.”
[ Notification 261 dt. 27/02/2013]
 NRE / NRO accounts are also used to make other investment such as
units of mutual fund, debt instruments, etc., PIS a/c is used only for
purchase and sale through Stock Exchange.
 Private placement as specified under FII portfolio scheme is missing
under this scheme.
 FII can purchase only on repatriaton basis unlike NRIs who can
purchase the shares and convertible debentures on non repatriation
basis also.
[Schedule 3] contd.
15/12/2013

 FII : Registered FII can purchase Government dated securities /
treasury bills, listed NCD‟s / Bonds, commercial papers, issued by an
Indian company/ies, units of a domestic mutual funds.
 Security Receipts issued by Asset Reconstruction Companies provided
that the total holdings of all eligible Investors put together shall not
exceed 74% of the paid up value of each tranche of scheme of Security
Receipts issued by the Asset Reconstruction Companies .
 Perpetual Debt instruments eligible for inclusion as Tier I capital and
Debt capital instruments as upper Tier II capital issued by banks in
India to augment their capital (Tier I capital and Tier II capital as
defined by Reserve Bank, and modified from time to time) provided
that the investment by all eligible investors in Perpetual Debt
instruments (Tier I) shall not exceed an aggregate ceiling of 49 per
cent of each issue, and investment by individual FII shall not exceed
the limit of 10 per cent of each issue
Purchase of securities other than shares
and convertible debentures [Schedule 5]
15/12/2013

 With effect from29/4/2011, listed and unlisted non-convertible
debentures/bonds issued by an Indian company in the infrastructure
sector, where „infrastructure‟ is defined in terms of the extant ECB
guidelines
 With effect from November 3, 2011 non-convertible debentures/bonds
issued by Non-Banking Finance Companies categorized as
„Infrastructure Finance Companies‟(IFCs) by the Reserve Bank
 With effect from November 22, 2011, Rupee denominated bonds/units
issued by Infrastructure Debt Funds subject to residual maturity as
stipulated by the Reserve Bank and SEBI from time to time
contd.
15/12/2013

 With effect from March 1, 2012, primary issues of non-convertible
debentures / bonds provided such non-convertible debentures / bonds
are committed to be listed within 15 days of such investment. In the
event of such non-convertible debentures / bonds issued not being listed
within 15 days of issuance, for any reason, then the FII shall
immediately dispose of those non-convertible debentures / bonds either
by way of sale to a third party or to the issuer and the terms of offer to
FIIs should contain a clause that the issuer of such debt securities shall
immediately redeem / buyback those securities from the FIIs in such an
eventuality.
 Credit enhanced bonds
Purchase of securities other than shares and
convertible debentures [Schedule 5]
contd
15/12/2013

 Permission for Qualified Foreign Investors for purchase of securities
[Notification no. 242 dt 19/10/2012 w.e.f. 9/08/2011]
 Qualified Foreign Investor‟ (QFI) means
(a) during the period from 9th day of August, 2011 to 15th day of July, 2012, a
person who satisfied the following criteria at the relevant time,
resident of a country, that is compliant with the Financial Action Task Force
(FATF) standards and is a signatory to the IOSCO‟s Multilateral Memorandum of
Understanding (MMoU); and
satisfied the KYC requirements stipulated by SEBI
Provided that such a person is not registered with SEBI as a Foreign Institutional
Investor (FII) or Foreign Venture Capital Investor (FVCI).
contd
15/12/2013

15/12/2013 P. P. Shah & Associates 54
(b) With effect from 16th day of July, 2012, a person who satisfies the
following criteria at the relevant time:
(i) Resident in a country that is a member of FATF or a member of a group
which is a member of FATF; and
(ii) Resident in a country that is a signatory to IOSCO‟s MMoU (and referred to
as Appendix A Signatories therein) or a signatory of a bilateral MoU with SEBI
Provided that the person is not resident in a country listed in the public
statements issued by FATF from time to time on jurisdictions having strategic
AML/CFT deficiencies to which counter measures apply or that have not made
sufficient progress in addressing the deficiencies or have not committed to an
action plan developed with the FATF to address the deficiencies;
Provided that such person is not resident in India;
Provided further that such person is not registered with SEBI as a FII or Sub-
Account of an FII or FVCI. [Notification no. 242 dt 19/10/2012 w.e.f.
9/08/2011]
contd

15/12/2013 P. P. Shah & Associates 55
 QFI – Can purchase Rupee denominated unit of Equity schemes of SEBI
registered Domestic Mutual funds, debt scheme of SEBI registered domestic
mutual funds which invest in infrastructure, any scheme of SEBI registered
domestic mutual funds that hold at least 25 per cent of their assets (either in
debt or equity or both) in infrastructure.
 A QFI may purchase above securities under following routes:
Direct Route- SEBI registered Qualified Depository Participant (QDP)
route;
Indirect Route – Unit Confirmation Receipt (UCR) route.
contd


 QFI may purchase, on repatriation basis through SEBI registered Qualified Depository
Participant(QDP), either directly from the issuer or through a registered broker on
recognized Stock Exchange in India the following securities:
a) dated Government securities/ treasury bills
b) commercial papers issued by an Indian company
c) Security Receipts issued by Asset Reconstruction Companies provided that the total
holding by an individual QFI in each tranche of scheme of Security Receipts shall not
exceed 10 per cent of the issue and the total holdings of all eligible investors put
together shall not exceed 49 per cent of the paid up value of each tranche of scheme
of Security Receipts issued by the Asset Reconstruction Companies;
d) Investment by eligible investors in Perpetual Debt instruments (Tier I) shall not exceed
an aggregate ceiling of 49 per cent of each issue, and investment by individual QFI
shall not exceed the limit of 10 per cent of each issue;
e) listed and unlisted non-convertible debentures/bonds issued by an Indian company in
the infrastructure sector, where „infrastructure‟ is defined in terms of the extant ECB
guidelines;
contd.
15/12/2013

f) non-convertible debentures / bonds issued by Non-Banking Finance Companies
categorized as „Infrastructure Finance Companies‟(IFCs) by the Reserve Bank;
g) Rupee denominated bonds/units issued by Infrastructure Debt fund
h) credit enhanced bonds
 Other Non Resident Investors [Notification No. 242 dt 19/10/2012
w.e.f.22/11/11]
a)Long Term Investor like Sovereign Wealth Funds (SWFs), Multilateral Agencies,
Endowment Funds, Insurance Funds, Pension Funds and High Networth Individuals
which are registered with SEBI as eligible non-resident investors in Infrastructure
Debt Funds may purchase on repatriation basis Rupee denominated bonds/ units
issued by Infrastructure Debt Funds
b) Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies,
Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks
registered with SEBI may purchase, on repatriation basis, dated Government
Securities
contd
15/12/2013

contd
 Long term investors like Sovereign Wealth Funds (SWFs), Multilateral
Agencies, Endowment Funds, Insurance Funds and Pension Funds and
Foreign Central Banks registered with SEBI may purchase, on repatriation
basis, either directly from the issuer of such securities or through registered
stock broker on a recognised Stock Exchange in India, the following
securities, subject to the terms and conditions as specified by the SEBI and
the Reserve Bank from time to time, namely:
(a) dated Government securities/ treasury bills;
(b) commercial papers issued by an Indian company ;
(c) units of domestic mutual funds;
(d) listed non-convertible debentures/bonds issued by an Indian company;
(e) listed and unlisted non-convertible debentures/bonds issued by an Indian
company in the infrastructure sector, where „infrastructure‟ is defined in
terms of the extant ECB guidelines;
P. P. Shah & Associates 5815/12/2013

contd
f) non-convertible debentures/bonds issued by Non-Banking Finance Companies
categorized as „Infrastructure Finance Companies‟(IFCs) by the Reserve Bank
(g) Security Receipts issued by Asset Reconstruction Companies provided
that the total holding by an individual long term investor in each tranche of
scheme of Security Receipts shall not exceed 10 per cent of the issue and the
total holdings of all eligible investors put together shall not exceed 49 per
cent of the paid up value of each tranche of scheme of Security Receipts
issued by the Asset Reconstruction Companies;
(h) Perpetual Debt instruments eligible for inclusion as Tier I capital and Debt
capital instruments as upper Tier II capital issued by banks in India to
augment their capital (Tier I capital and Tier II capital as defined by Reserve
Bank, and modified from time to time) provided that the investment by all
eligible investors in Perpetual Debt instruments (Tier I) shall not exceed an
aggregate ceiling of 49 per cent of each issue, and investment by individual
long term investor shall not exceed the limit of 10 per cent of each issue;

contd
(i) primary issues of non-convertible debentures / bonds provided such non-
convertible debentures / bonds are committed to be listed within 15 days of
such investment. In the event of such non-convertible debentures / bonds
issued not being listed within 15 days of issuance, for any reason, then the
long term investor shall immediately dispose of those non-convertible
debentures / bonds either by way of sale to a third party or to the issuer and
the terms of offer to long term investors should contain a clause that the
issuer of such debt securities shall immediately redeem / buyback those
securities from the long term investors in such an eventuality.
(j) credit enhanced bonds

 NRIs Repatriation : Can purchase, Government dated securities or
treasury bills or units of Domestic mutual fund, Bonds issued by PSU in
India, shares issued by PSU being disinvestment by Government of
India, as per Government Bid Guidelines,Bonds issued by Infrastructure
Debt fund
 Perpetual debt instruments upto 5% of the each series for each NRI and
upto 24% of each series for all NRIs put together as Tier I capital of banks
in India. Investment by NRI in debt capital instrument shall be as per
extant policy
 NRI on Non Repatriation basis can invest, in Government dated
Securities, treasury bills, units of money market mutual funds in India or
National Plan / Saving Certificate.
contd
15/12/2013

 Multilateral Development Bank which is specifically permitted to float
rupee Bonds in India, may purchase Government dated securities.
 Central Bank of country outside India may purchase / sale government
dated securities / treasury bills.
 Payment method : FII may pay by Inward remittance from abroad or
from special rupee account.
 Multilateral Development Bank : Inward remittance from outside
India or from account in India held with specific approval of RBI
 NRI can make payment from outside India through normal banking
channels or by debit to NRE / FCNR account if investment is held on
a repatriation basis and can make payment from outside India
through normal banking channels or by debit to NRE / FCNR
/NRO/NRSR/NRNR account if investment is held on a Non
repatriation basis .
contd.
15/12/2013

 A QFI who purchases securities under this Schedule (other than by
way of Indirect Route) shall make payment out of funds held in a
single non-interest bearing Rupee Account maintained with an AD
bank.
 A registered Foreign Institutional Investor who purchases securities
under the provisions of this Schedule shall make the payment for
purchase of such securities either by inward remittance through
normal banking channels or out of funds held in Foreign Currency
Account or Non-resident Rupee Account maintained by the Foreign
Institutional Investor with a designated branch of an authorised
dealer with the approval of Reserve Bank.
contd
15/12/2013

 Prohibitions : In a case if company concerned is a chit fund or a nidhi
company, or is engaged in agricultural / plantation activities or Real
Estate business or construction of farm houses or dealing in
TDRs, investment is not permitted.
 It can be through Public issue, private placement or right issue.
 Permission to sell shares is subject to approval of FIPB by
transferee, in case of previous joint venture or Tie up in India.[Deleted
vide Notification No. 229 dt 23/04/2012]
 Payment can be made by NRIs either through inward remittance
through banking channels or out of funds held in NRE / FCNR / NRO
account maintained in India. Except
In cases of NRIs Resident in Nepal and Bhutan payment has to be
received by way of inward remittance in Foreign Exchange through
normal banking channels.
 Sale proceeds (Capital plus surplus) cannot be repatriated outside
India and can be credited to NRO account only.
Purchase and sale of shares/ convertible
debentures by NRIs on Non Repatriation
basis (Schedule 4)
15/12/2013

 Notification No. FEMA 20/2000-RB dt. 3rd May 2000
Regulation 2 (iiia):
'Foreign Venture Capital Investor‟ (FVCI) means an investor
incorporated and established outside India which proposes to make
investment in Venture Capital Fund(s) or Venture Capital
Undertaking(s) in India and is registered with SEBI under SEBI
(Foreign Venture Capital Investors) Regulations, 2000;]
Regulation (2) (vb):
'Indian Venture Capital Undertaking‟ (IVCU) means a company
incorporated in India whose shares are not listed on a recognized
stock exchange in India and which is not engaged in an activity under
the negative list specified by SEBI.”
Investment by FVCI- Important Definitions
15/12/2013

Regulation 2 (xia):
'Venture Capital Fund‟ (VCF) means a fund established in the form of
a trust, a company Including a body corporate and registered under
the Securities and Exchange Board of India (Venture Capital Fund)
Regulations, 1996 which has a dedicated pool of capital raised in a
manner specified under the said Regulations and which invests in
venture Capital Undertakings in accordance with the said
Regulations;"
Investment by FVCI- Important
Definitions contd.
15/12/2013

 As per Regn. 2(1)(b) “Alternative Investment Fund” means any fund established or
incorporated in India in the form of a trust or a company or a limited liability partnership or a
body corporate which,-
(i) is a privately pooled investment vehicle which collects funds from investors, whether
Indian or foreign, for investing it in accordance with a defined investment policy for the
benefit of its investors; and
(ii) is not covered under the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, Securities and Exchange Board of India (Collective Investment
Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund
management activities
 The following are not considered as AIFs:
 Family Trusts / ESOPs / Employee welfare / Gratuity Trusts
 Holding Companies within the meaning of Section 4 of Companies Act, 1956
 Other special purpose vehicles not established by fund managers, including
securitization trusts, funds managed by securitisation company or reconstruction
company which is registered under SARFAESI
Investment by FVCI- Recent developments – SEBI
(Alternative Investment Funds) Regn, 2012
15/12/2013

 As per Regn. 2(1)(z) “venture capital fund” means an Alternative Investment Fund which
invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital
undertakings mainly involved in new products, new services, technology or intellectual
property right based activities or a new business model and shall include an angel fund as
defined under Chapter III-A
 As per Regn. 2(1)(aa) “venture capital undertaking” means a domestic company:
(i) which is not listed on a recognised stock exchange in India at the time of making
investment; and
(ii) which is engaged in the business for providing services, production or manufacture of
article or things and does not include following activities or sectors:
(1) non-banking financial companies;
(2) gold financing;
(3) activities not permitted under industrial policy of Government of India;
(4) any other activity which may be specified by the Board in consultation with Government
of India from time to time;
(Alternative Investment Funds) Regn, 2012 (con‟t)
15/12/2013

 As per Regn. 39, the Securities and Exchange Board of India (Venture Capital
Funds) Regulations, 1996 stands repealed
 Provided however that all venture capital funds or schemes launched by such
venture capital funds prior to date of notification of these regulations shall
continue to be governed by provisions of Securities and Exchange Board of India
(Venture Capital Funds) Regulations, 1996 till the fund or Scheme is wound up;
provided that such funds shall not launch any new Scheme after notification of
these regulations
(Alternative Investment Funds) Regn, 2012 (con‟t)
15/12/2013

 Registered FVCI may invest in Indian VCU or VCFs by making
application to RBI, through SEBI.
 The Regulatory Framework:
 The SEBI (Venture Capital Funds) Regulation 1996.
 The SEBI (Foreign Venture Capital Investors) Regulation 2000.
 The SEBI (Alternative Investment Funds) Regulations 2012
 Investment by registered FVCI in India, under FEMA.
 Government Guidelines of 20th September 1995.
 Such FVCI may invest into Equity / Equity linked instruments, Debt /
Debt Instruments, debentures of IVCU or a VCF through Initial Public
Offer (IPO) or Private Placement (PP) or in units of schemes / Funds set
up by VCF.
Investment by Registered FVCI in an IVCU
15/12/2013

 Payment for purchase : Either inward remittance from abroad
through normal banking channels or out of funds held in account
maintained with the Designated Branch of an Authorised Dealer in
India.
 Forward cover is permitted.
 Valuation of Investments : A departure from normal method, which is
specified in Schedule 1 (FDI Scheme) and Schedule 2 (Portfolio
investment by FII). A mutually acceptable price to the buyer and the
seller / issuer is specified. Thus it is a free pricing without any
restriction as to maximum or minimum price
 Investment by FVCI into VCF requires FIPB approval as per
Government Guideline dt. 20th September 1995.
[F.No.11/66/CCI/87-FIR,GOI,MOF,DEA,Investment devision]
 Government guideline provides for tax break to VCF if investment is
made in specified sectors only
contd.
15/12/2013

 Consolidated Policy of April 2013 at paragraph 3.1.6 states that a
Foreign Venture Capital Investor(FVCI) may contribute upto 100% of
the capital of an Indian Venture Capital Undertaking and may also set
up a domestic asset management company to manage the fund. All
such investments can be made under automatic route in terms of
Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can
also invest in domestic venture capital fund registered under the SEBI
(Venture Capital Fund) Regulations, 1996. Such investments would
also be subject to RBI regulations and FDI policy. SEBI registered
FVCIs are also allowed to invest under FDI scheme , as non resident
entities, in other companies ,subject to FDI policy and FEMA
regulation.
contd.
15/12/2013

Further, FVCIs are allowed to invest in the eligible securities (equity,
equity linked instruments, debt , debt instruments, debentures of an
IVCU or VCF , units of schemes/Funds set up by VCF) by way of
private arrangement / purchase from a third party also, subject to
terms and conditions as stipulated in Schedule 6 of Notification No.
FEMA 20 / 2000 RB dated May 3, 2000 as amended from time to
time. It is also being clarified that SEBI registered FVCIs would also
be allowed to invest in securities on a recognized stock exchange
subject to the provisions of the SEBI (FVCI) Regulation 2000, as
amended from time to time , as well as the terms and conditions
stipulated therein.
 Both SEBI & Government guidelines have framed rules of investment
as to maximum percentage of Equity in an IVCU, corpus of VCF into
an IVCU etc.
contd.
15/12/2013

Investment through VCF Investment directly into IVCU
FVCI FVCI
VCF
IVCUVCU
Outside India
In India
Investment by FVCI- Method of Investment
15/12/2013

FVCI
Registered with SEBI and subject to Government
Guidelines dt. 20th September 1995.
Domest
ic VCF
Subject to Government Guidelines.
Registered with SEBI.
Registered under section 10(23FB) of the
Income Tax Act, 1961 for tax exemption
subject to Ntf. No FEMA 20/2000-RB dt. 3rd
May 2000, Schedule 6.
VCU Subject to Ntf. No. FEMA 20/2000-RB dt.
3rd May 2000, Schedule 1.
Investment by FVCI into Domestic VCF/ VCI
- Regulatory Framework
15/12/2013

FVCI No Registration will be required
No Registration required
IVCU
Schedule 1 of Ntf. No. FEMA
20/2000-RB dt. 3rd May 2000
Investment by FVCI into an IVCU
15/12/2013

 Issues and Distinction
 Can Prohibited activities under the Government Policy be carried out
by NRIs, on non repatriation basis?
 FII portfolio and NRI Portfolio scheme distinction
 Portfolio Investment both on the basis of repatriation and non
repatriation together are covered under the scheme in case of NRIs.
 Schedule 3 for NRI includes permission for both purchase as well as
sale
 Purchase and sale through stock exchange is only permitted to
NRIs, no private placement or IPO is covered
 Shortsale or borrowing of shares are not covered under schedule 3 for
NRIs
Critical Analysis of the Scheme
15/12/2013

 Investment by NRI through sub account of FII – not allowed
 Investment by NRIs through FVCI route may be possible
 Investment in listed NCDs/Bonds, Commercial paper and ARC is
not found as securities for NRIs.
 Investment in PSU Bonds, PSU shares (as found in case of NRI
on Repatriation basis) are missing in case of FII.
 Investment in savings plan and also money market instruments
(as allowed to NRIs on non repatriation basis) is also missing in
case of FII.
 Permission to purchase shares/securities are covered in Schedule 1,
2, 4 and 6 whereas Schedule 3 and 5 includes both sale as well as
purchase
Critical Analysis of the Scheme contd.
15/12/2013

Thane Study Circle of WIRC FEMA Course - Inbound Investment 2 - 15.DEC.2013

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Thane Study Circle of WIRC FEMA Course - Inbound Investment 2 - 15.DEC.2013