In India, the investments by Indian Diaspora, that is, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), are rapidly rising year after year. They are looking for viable investment opportunities in almost all the sectors of the Indian economy. Accordingly, there have been some changes in the legal framework governing the Overseas Indians. The most important law, being the Foreign Exchange Management Act (FEMA),1999 which regulates all foreign exchange transactions including investments abroad. A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) can invest in India, subject to the Foreign Direct Investment (FDI) policy of the Government of India.

FEMA applies to all branches, offices and agencies outside India, owned or controlled by a person resident in India. The term 'person resident in India' implies "(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include:- (A) a person who has gone out of India or who stays outside India, in either case- (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come to or stays in India, in either case, otherwise than- (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India; (iii) an office, branch or agency in India owned or controlled by a person resident outside India; (iv) an office, branch or agency outside India owned or controlled by a person resident in India".

The Act is considered to be an investor friendly legislation which has been enacted to facilitate external trade and payments; as well as to promote the orderly development and maintenance of foreign exchange market. It has assigned an important role to the Reserve Bank of India (RBI) in the administration of FEMA. As per the Act, NRI is a citizen of India resident outside India. While, PIO is an individual (not being a citizen of Pakistan/ Bangladesh/ Sri Lanka/Afghanistan/ China/ Iran/ Nepal/ Bhutan), who:- (i) at any time, held Indian passport; or (ii) who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.

Indian companies can freely issue equity shares/ convertible debentures and preference shares subject to valuation norms prescribed under FEMA regulations. NRI resident in, as well as citizens of, Nepal and Bhutan are permitted to invest in these under FDI scheme on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/ FCNR (B) accounts of NRIs. All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.

Further, NRIs can purchase:- Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking (PSU) in India; and shares in Public Sector Enterprises being disinvested by the Government of India. They can also invest, on non-repatriation basis, in dated Government securities (other than bearer securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds in India, or National Plan/ Savings Certificates.

Under the general permission available, both NRIs and PIOs can freely purchase immovable property in India. This general permission covers only purchase of residential and commercial property and not for purchase of agricultural land/ plantation property/ farm house in India. The purchase of latter requires specific approval of RBI and are considered in consultation with the Government of India. Further, a foreign national of non-Indian origin cannot be a second holder to immovable property purchased by NRI/PIO.

NRI can transfer any commercial or residential immovable property to:- (i) a person resident outside India who is a citizen of India (NRI); or (ii) Person of Indian Origin (PIO) resident outside India; or (iii) a person resident in India. He may transfer agricultural land/ plantation property/ farm house, acquired by way of inheritance, only to Indian citizens permanently residing in India.

While, PIOs can acquire immovable property (other than agricultural land/ plantation property/ farm house) by way of:- (i) purchase out of funds received by way of inward remittance through normal banking channels or by debit to his NRE/ FCNR (B)/ NRO account; (ii) gift from a person resident in India or a NRI or a PIO; or (iii) inheritance from any of a person resident in India or a person resident outside India, who had acquired such property in accordance with the law. A PIO can transfer such property by way of sale to a person resident in India, or by way of gift to a person resident in India or a NRI or a PIO. Whereas, other properties can be transferred by way of sale or gift to person resident in India who is a citizen of India.

^ Top