C

Ministry of
Overseas Indian Affairs

ompendium on Policies, Incentives and Investment Opportunities for Overseas Indians

+

ompendium on

Policies,
Incentives and

Investment
Opportunities

for Overseas

Indians

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.

Vayalar Ravi

Ministry of Overseas Indian Affairs

Foreword

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

1ndia has transformed into a prosperous, dynamic and cosmopolitan

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.

Contents
Tax Incentives for Non-Residents
H H H H H H H H H H

Residential Status for Tax Purposes Chargeable Income Special Provisions Relating to Certain Income of NRIs Exemptions from Income Tax Exemptions from Wealth Tax Exemptions from Gift Tax Presumptive Tax Provisions Tax Incentives for Industries Authority for Advance Rulings Double Tax Avoidance Agreements (DTAA)

2 8 11 12 13 13 15 17 18 20

Foreign Exchange Management Act Relating to Non-Residents
H H H H H H H H

Important Concepts under Foreign Exchange Management Act, 1999 Facilities Available to Returning Indians and Baggage Rules Bank Accounts of Non-Residents Foreign Direct Investment Portfolio Investment Scheme Immovable Properties Loans & Overdrafts Remittance facilities for NRIs/PIOs and Foreign Nationals

22 39 58 74 107 113 123 129

Other Important Matters
H H H H H H H H

Overseas Citizenship of India (OCI) PIO Card Non-Governmental Organisations (NGOs) Foreign Contributions Special Economic Zones List of Important Websites Contact Details Feedback Form

132 143 145 153 160 167 171

T

ax Incentives for Non-Residents

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Tax Incentives for Non-Residents
Residential Status for Tax Purposes
In India, as in many other countries, the charge of income tax and the scope of taxable income varies with the factor of residence. There are two categories of taxable entities viz. (1) residents and (2) non-residents. Residents are further classified into two subcategories (i) resident and ordinarily resident and (ii) resident but not ordinarily resident. The law prescribes two alternative technical tests of residence for individual taxpayers. Each of the two tests relate to the physical presence of the taxpayer in India in the course of the “previous year” which would be the twelve months from April 1 to March 31. A person is said to be “resident” in India in any previous year if he a. is in India in that year for an aggregate period of 182 days or more; or b. having within the four years preceding that year been in India for a period of 365 days or more, is in India in that year for an aggregate period of 60 days or more. The above provisions are applicable to all individuals irrespective of their nationality. However, as a special concession for Indian citizens and foreign citizens of Indian origin, the period of 60 days referred to in Clause (b) above, will be extended to 182 days in two
2

cases: (i) where an Indian citizen leaves India in any year for employment outside India; and (ii) where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India. In the above context, an individual visiting India several times during the relevant “previous year” should note that judicial authorities in India have held that both the days of entry and exit are counted while calculating the number of days stay in India, irrespective of however short the time spent in India on those two days may be. A “non-resident” is merely defined as a person who is not a “resident” i.e. one who does not satisfy either of the two prescribed tests of residence. An individual, who is defined as Resident in a given financial year is said to be “not ordinarily resident” in any previous year if he has been a non-resident in India in 9 out of the 10 preceding previous years or he has during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 729 days or less. Till 31st March 2003, “not ordinarily resident” was defined as a person who has not been resident in India in 9 out of 10 preceding previous years or he has not during the 7 preceding previous years been in India

Tax Incentives for Non-Residents

for a period of, or periods amounting in all to, 730 days or more. Section 6 of the Income-tax Act, 1961, prescribes the tests for determining the residential status of a person. Section 6, as amended, reads as follows:­ For the purposes of this Act 1. An individual is said to be resident in India in any previous year, if he­ a. is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or b. [* * *] c. having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

b. being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted. 2. A Hindu Undivided Family (HUF), Firm or other Association of Persons (AOP) is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India. 3. A company is said to be resident in India in any previous year, if­ a. it is an Indian company; or b. during that year, the control and management of its affairs is situated wholly in India. 4. Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India. 5. If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.
3

Explanation: In the case of an individual a. being a citizen of India, who leaves India in any previous year [as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purpose of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted.

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

Tax Incentives for Non-Residents

DETERMINATION OF RESIDENTIAL STATUS OF HUF FIRM AOP COMPANY

5

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

6. A person is said to be “not ordinarily resident” in India in any previous year if such person is­ a. an individual who has not been a non-resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or b. a Hindu Undivided Family whose manager has not been non-resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less. An analysis of the above provisions would indicate that ­ 1. To become a non-resident for IncomeTax purposes, an Indian citizen leaving India for the first time to take up employment abroad should be out of the country latest by 28th September and should not return to India before 1st April of the next year. However, in case of a person leaving India for taking up a business or profession, the criteria of 60 days will apply, as defined earlier. 2. An NRI individual, whose total stay in India in 4 preceding years exceeds 364
6

days, will not lose his non-resident status in the following year(s) if his total stay in India in that year (from April 1 to March 31) does not exceed: a. 181 days, if he is on a “visit” to India; or b. 59 days, if he comes to India on “transfer of residence”. 3. An NRI who has returned to India for settlement, whose total stay in India for 4 preceding years does not exceed 364 days will not lose his non-resident status in the following year(s) if his total stay in India in such year(s) (from April 1 to March 31) does not exceed 181 days. 4. A new-comer to India would be treated as “not ordinarily resident” for the first two years of his stay in India or if treated as Non Resident in the year of arrival then for the second and third year of his stay in India. An individual (whether Indian or foreign citizen) who has left India and remains non­resident for at least nine years preceding his return to India or whose stay in 7 years preceding the year of return has not exceeded 729 days would, upon his return, be treated as “non-resident” or “not ordinarily resident” depending upon the number of days stay in India in the year of return. The status of “not ordinarily resident” will remain effective for 2 years including or following the year of return as the case may be.

Tax Incentives for Non-Residents

Important Points to be Borne in Mind While Determining the Residential Status of an Individual
a. Residential status is always determined for the Previous Year because the assessee has to determine the total income of the Previous Year only. In other words, as the tax is on the income of a particular Previous Year, the enquiry and determination of the residence qualification must confine to the facts obtaining in that Previous Year. b. If a person is resident in India in a Previous Year in respect of any source of income, he shall be deemed to be resident in India in the Previous Year relevant to the Assessment Year in respect of each of his other sources of Income. [Section 6(5)] c. Relevant Previous Year means, the Previous Year for which residential status is to be determined d. It is not necessary that the stay should be for a continuous period. e. It is not necessary that the stay should be at one place in India. f. Both the day of entry and the day of departure should be treated as the day of stay in India [Petition No.7 of 1995 225 ITR 462 (AAR)]

grand parents was born in undivided India [Section 115C] i. Official tours abroad in connection with employment in India shall not be regarded as employment outside India. A person may be resident of more than one country for any Previous Year.

j.

k. Citizenship of a country and residential status of that country are two separate concepts. A person may be an Indian national/Citizen but may not be a resident in India and vice versa.

Points to be considered by NRIs
H

Previous Year is period of 12 months from 1st April to 31st March. Number of days stay in India is to be counted during this period. Both the Day of Arrival into India and the Day of Departure from India are counted as the days of stay in India (i.e. 2 days stay in India). Dates stamped on Passport are normally considered as proof of dates of departure from and arrival in India. It is advisable to keep several photocopies of the relevant passport pages for present and future use. Ensure that date stamped on the passport is legible. Keep track of no. of days in India from year to year and check the same before making the next trip to India. It is advisable to maintain a chart for the
7

H

H

H

H

g. Presence in territorial waters in India would also be regarded as stay in India. h. A person is said to be of Indian Origin if he or either of his parents or any of his

H

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

number of days stay in the current and in the preceding seven (7) previous years.
H

In the 1st year of leaving India for employment outside India, ensure that you leave before 29th September. Otherwise total income of the financial year (including the foreign income) will be taxable in India if it exceeds the basic exemption limit. During the last year of stay abroad, on transfer of residence to India, ensure to come back on or after Feb 1st (or Feb 2nd in case of a leap year). Since arrival before this date will result in stay in India exceeding 59 days. However, a person whose stay in India in preceding four (4) previous years does not exceed 365 days, he may return after September 30th of the relevant year without loss of nonresident status.

2. For exemption of income tax in respect of NRE and FCNR deposits investor should be non-resident under FEMA. 3. The special tax rate concessions on income and long-term capital gains on specified assets, purchased in convertible foreign exchange are available to nonresidents under the Income-Tax Act.

H

Chargeable Income
Section 5 of the Income-tax Act lays down the scope of total income of any previous year of any person. The Section reads as follows: 1. Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which­ a. is received or is deemed to be received in India in such year by or on behalf of such person ;or b. accrues or arises or is deemed to accrue or arise to him in India during such year; or c. accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

Implications of Residential Status for NRIs/PIOs
The complexities of determining the residential status for individual NRI/PIO under various statutes and regulations will be obvious from the provisions outlined above and in this context it would be important to note the following: 1. The concepts and rules for determining the residential status Income-Tax laws and FEMA are quite different and it would be possible to be a resident under one law and non-resident under the other.
8

Tax Incentives for Non-Residents

TABLE
Sources of Income
Indian Income Income received or deemed to be received in India during the current financial year. Income accruing or arising or deemed to accrue or arise in India during the current financial year. Income accruing or arising or deemed to accrue or arise outside India, but first receipt is in India during the current financial year Taxable in India Taxable in India Taxable in India

R & OR

R & NOR

NR

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Sources of Income
Foreign Income Income accruing or arising or deemed to accrue or arise outside India and received outside India, during the current financial year. Income accruing or arising outside India from a Business/Profession controlled in/from India during the current financial year. Income accruing or arising outside India from any source other than Business Profession controlled from India.

R & OR

R & NOR

NR

Taxable in India

Not Taxable in India

Not Taxable in India

Taxable in India

Taxable in India

Not Taxable in India

Taxable in India

Not Taxable in India

Not Taxable in India

9

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

2. Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which­ a. is received or is deemed to be received in India in such year by or on behalf of such person; or b. accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a Balance Sheet prepared in India. Explanation 2: For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. Thus, it is clear from the above that the incidence of tax depends upon a person’s Residential Status and also upon the place and time of accrual and receipt of income. In tabular form, the above may be stated in table on previous page. As stated earlier, the charge of income tax varies with the factor of residence in the previous year and the general position with
10

regard to the three categories of taxpayers can be summarised as follows: 1. Taxpayers in all categories are chargeable on income, from whatever source derived, which is received or is deemed to be received in India by or on behalf of them or which accrues or arises or is deemed to accrue or arise to them in India other than income specified as exempt income. In the above context, it may be noted that the ‘receipt’ of income refers to the first occasion when the recipient gets the money under his own control and it is the first receipt that determines the year and place of receipt for the purposes of taxation. If the income is already received outside India, no tax liability will arise when the whole or any part of such income is remitted to India. 2. A “resident and ordinarily resident” pays tax in India on his entire world income, wherever accrued or received. 3. A “non-resident” pays tax only on his taxable Indian income and his foreign income (earned and received outside India) is totally exempt from Indian taxes. 4. A “not ordinarily resident” pays tax on taxable Indian income and on foreign income derived from a business controlled in or a profession set up in India. 5. An individual upon acquiring the status of “not ordinarily resident” would not pay

Tax Incentives for Non-Residents

tax, for a period of two years, on the interest on: a. the continued Foreign Currency Non-Resident (FCNR) account; b. the Resident Foreign Currency (RFC) account; and c. on income earned from foreign sources unless such income is directly received in India or is earned from a business controlled in or a profession set up in India.

Special Provisions Relating to Certain Income of NRIs
Some of the special tax concessions for NRIs/ PIOs investing in India were introduced in the Finance Act, 1983, which became effective on June 1, 1983. The tax provisions were further liberalised by subsequent Finance Acts and other amending laws.

gains on transfer of any foreign exchange asset held by the NRI/PIO. In order to qualify for long-term capital gains, the minimum holding period for shares held in a company or any other security listed in a recognised Stock Exchange in India or units of Unit Trust of India or of a specified Mutual Fund is 12 months and for other assets it is 36 months. Long-term capital gains on foreign exchange assets are, however, exempted from tax if the net proceeds realized on transfer are re-invested, within six months of such transfer, in any specified securities and the new assets are retained for at least three years. The Finance Act, 2003 has withdrawn the taxing provision in respect of dividend received by the shareholders on shares held in Indian companies. Accordingly, dividend received by the shareholders of Indian companies will be exempt from tax. The income received from units of Unit Trust of India and of specified mutual funds will also be exempt. Finance Act 2004 has: a granted tax exemption as regards long term capital gains arising from transfer of equity shares in a company and/or units of equity oriented schemes of Mutual Funds, which are subject to securities transaction tax; and fixed at 10% the tax on short-term capital gains arising from such shares and or units.
11

Special concessions
Investment income from ‘foreign exchange assets’ comprising shares and debenture of and deposits with Indian companies and Central Government securities, subscribed to or purchased in convertible foreign exchange, is charged to income tax at a flat rate of 20%. No deductions are, however, allowed and tax is levied on gross income. The basic exemption, below which income is not taxed in India, is also not allowed. Under these special concessions a reduced rate of 10% is applied to the long-term capital

b

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

The tax concessions in respect of investment income (and not long term capital gain) will continue to apply even after the NRI/PIO returns to India but such exemption would be available only in respect of foreign exchange assets other than shares in Indian companies and the exemption will continue until such time as the assets are transferred or converted into money. However, as dividend is exempt income from 1st April 2003, exclusion of shares from said provision is redundant. In the circumstances where the income of NRI/PIO from such foreign exchange assets is below the taxable limit or the average level of tax is below 20%, he may elect not to be governed by the special tax concessions referred to above. He would then have to furnish a Return of Income in the normal course together with a declaration of such election and he would be entitled to claim a refund of the whole or a part of the tax deducted at source, as may be appropriate. As mentioned above, short-term capital gains arising from transfer of equity shares and/or units of equity-oriented schemes of Mutual Funds, which are subject to securities transaction tax, are taxed at 10%. Other Short-term capital gain is taxable at normal slab rates as applicable to residents, and the return of income has to be filed by the NRI/ PIO making such gain. Capital gain from transfer of shares or debentures of Indian companies will be computed by converting the cost of
12

acquisition, expenses incurred in connection with such transfer and the sale price of the capital asset into the same foreign currency as was initially used in the purchase of these assets and the capital gain so computed in such foreign currency will be reconverted into Indian currency. This computation effectively gives the NRI/PIO the benefit of claiming exchange loss, if any, on all capital gains arising from sale of shares or debentures of Indian companies, whether these are long term or short term. It may be noted that the aforesaid benefit is available only if the investment is made from convertible foreign exchange. In respect of investment made from funds other than convertible foreign exchange, and if the asset is a long-term capital asset benefit of indexation can be availed. However, indexation is not available in respect of debentures.

Exemptions from Income Tax
Income from the following investments made by NRIs/PIOs out of convertible foreign exchange is totally exempt from tax. a Deposits in under mentioned bank accounts:i Non Resident External Rupee Account (NRE) ii b Foreign Currency Non-resident Account (FCNR)

Units of Unit Trust of India and specified mutual funds, other specific securities,

Tax Incentives for Non-Residents

bonds and savings certificates (subject to conditions prescribed under the Incometax laws and regulations). c Dividend declared by Indian company. d Long term capital gains arising from transfer of equity shares in a company and/or equity oriented schemes of Mutual Funds, which are subject to securities transaction tax. It should be noted that the tax exemptions relating to NRE bank deposits cease immediately upon the NRI/PIO becoming a resident in India whereas the interest on FCNR bank deposits continue to be tax free as long as the NRI maintains the status of Resident but Not Ordinarily Resident or until maturity, whichever is earlier.

productive assets like urban land, buildings (except one house property), jewellery, bullion, vehicles, and cash over Rs.50,000/etc. The current rate of Wealth-tax is 1 % on the aggregate market value of chargeable assets as on 31st March every year in excess of Rs.1.5 million. However, it may be noted that NRIs are also liable to pay wealth tax if the market value of taxable assets as on 31st March exceeds Rs.l.5 million.

Exemptions Tax

from

Gift

Exemptions from Wealth Tax
Where an NRI/PIO returns to India for permanent residence, moneys and the value of assets brought by him into India and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter are totally exempt from Wealth-tax for a period of seven years after return to India. The above exemption may not have much relevance now since the Finance Act 1992 has considerably reduced the scope of Wealth-tax. With effect from 1st April, 1993, Wealth-tax is being levied only on non-

Gift Tax Act, 1958 has been repealed with effect from 1st October, 1998 and as such, Gift Tax is not chargeable on any gifts made on or after that date. With regard to gifts of foreign exchange or specified assets made by NRIs to their relatives in India, it should be noted that: 1. Gifts made by an NRI/PIO to his or her spouse, minor children or son’s wife will involve clubbing of income and wealth in the hands of the donor-NRI/ PIO. 2. In the case of gifts to minor children the clubbing of income, as above, will cease upon such children attaining the age of 18 years. 3. The clubbing provisions will apply, in case of gift to spouse or son’s wife in India, only to the’ first-stage of income from the original gift. Second-stage income arising from investment of the income from the
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

original gift is not clubbed and this will constitute the separate wealth/income of the donee spouse. Generally, the income of minor children, from any source (including income from gifts from parents) is clubbed with the income of the parent whose total chargeable income is greater. Other matters to be noted regarding gifts are 1. All gifts received by residents from NRIs/ PIOs may be subject to the tax authorities requiring the recipient to provide evidence as regards the identity and financial capacity of the donor and genuineness of the gift. 2. Under the Foreign Exchange Management Act, 1999 no approval from Reserve Bank of India (RBI) is necessary for the resident donee to hold gifted immovable property outside India provided the said property is gifted by a person resident outside India. General permission, subject to certain conditions, is granted by RBI for the resident donees to hold foreign moveable properties such as shares and securities gifted by NRI/ PIO donors. 3. The Income Tax Act has now provided that any sum of money exceeding Rs. 25,000 received without consideration (i.e., gift) by an individual from any person on or after 1st September, 2004, the whole of such sum will be chargeable to income-tax in the assessment of recipient (i.e., donee)
14

under that head “Income from other sources” for and from assessment year 2005-06 and onwards. However, the above provisions will not apply to any sum of money (gift) received:a. from any relative; or b. on the occasion of the marriage of the individual; or c. under a will or by way of inheritance; or d. in contemplation of death of the payer. The term “relative” is defined as: 1. spouse of the individual; 2. brother or sister of the individual; 3. brother or sister of the spouse of the individual; 4. brother or sister of either of the parents of the individual; 5. any lineal ascendant or descendant of the individual; 6. any lineal ascendant or descendant of the spouse of the individual; and 7. spouse of the person referred to in (2) to (6).

Scope of Receipts
H

As per plain reading of the provision, any receipt without consideration, save exclusions, whether capital or otherwise, may be considered as income. Similar receipts by any person (such as, a Partnership Firm, a Company, and AOP etc.), other than an Individual or

H

Tax Incentives for Non-Residents

a Hindu Undivided Family, would not constitute income in its hands.
H

The provision would apply to an individual irrespective of his residential status. Accordingly, any receipt in India by a non-resident of the nature discussed above would be considered as income in his hands.

However, a non-resident assessee has the option to maintain books of account and get his books of account audited u/s 44AB (“Tax Audit”) and offer lower profits and gains for taxation in India than the profits and gains estimated under Sections 44BB and 44BBB on presumptive basis. Special provisions applicable to nonresidents for computing their income under the head “Business Income”

H

Gifts on occasion other than marriage, for example, birthday, marriage anniversary and other social occasions, religious ceremonies etc., would be taxable as income. Gifts received on the occasion of the marriage of the individual, irrespective of any limit, (but within reasonable limits) would not constitute income.

Shipping Business (Sections 44B & 172)
Section 44B contains special provisions for computing profits and gains of shipping business of a non-resident assessee. In the case of non­residents, such profits and gains will be taken at an amount equal to 7.5% (seven and a half per cent) of the amount paid or payable to the non-resident or to any other person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any Indian port as also of the amount received or deemed to be received in India on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. Section 172, which is a complete code in itself, contains provisions for taxation of occasional shipping business of non-residents in respect of profits made by them from carriage of passengers, livestock, mail or goods shipped at a port in India.
15

H

The receipts should be in the form of money. Accordingly, any gift in kind would not be taxable. The gift. receipts must be without

H

consideration, implying in the nature of

Presumptive Tax Provisions
Certain provisions have been incorporated in the Income-Tax Act whereby the total income of certain non-resident assessee is computed on the basis of certain percentage of their gross total receipts. This estimated income approach is expected to reduce areas of uncertainty and resultant tax litigation.

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Business of Providing Services and Facilities in Connection with Exploration etc. of Mineral Oils (Section 44BB)
Section 44BB contains special provisions for computation of taxable income of a nonresident assessee engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used, in the prospecting for, or extraction or production of, mineral oils. It provides that 10% of the amount paid or payable to, or the amount received or receivable by, the assessee for provision of such services or facilities or supply of plant and machinery, shall be deemed to be the taxable income of such non-resident assessee.

Profits and Gains of Foreign Companies Engaged in the Business of Civil Construction or Erection of Plant and Machinery or Testing or Commissioning thereof, in Connection with certain Turnkey Power Projects (Section 44BBB)
Section 44BBB provides that, notwithstanding anything to the contrary contained in Sections 28 to 44AA of the Income-tax Act, the income of foreign companies who are engaged in the business of civil construction or erection or testing or commissioning of plant or machinery in connection with a turnkey power project shall be deemed at 10 per cent of the amount paid or payable to such assessee or to any person on his behalf, whether in or out of India. For this purpose, the turnkey power project should be approved by the Central Government. It has also been clarified that erection of plant or machinery or testing or commissioning thereof will include lying of transmission lines and systems.

Business of Operation of Aircraft (Section 44BBA)
Section 44BBA contains special provisions for computing profits and gains of the business of operation of aircraft of nonresidents. It provides for determination of the income of non-resident taxpayers on presumptive basis at a flat rate of 5% of the amount received or receivable for carriage of persons, livestock, mail or goods from any place in India or the amount received or deemed to be received within India on account of such carriage from any place outside India.
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Taxation of Non-Resident’s Royalty Income or Fees for Technical Services (Section 44DA)
Royalties and fees for Technical Services received from the Government or an Indian concern by a Non-Resident or a foreign company in pursuance of an agreement entered into after 31-3-2003 shall be computed under the head “Business Income” in accordance with the provisions of the Income Tax Act i.e. after allowing deduction

Tax Incentives for Non-Residents

for various permissible expenses and allowances.

Infrastructure Sectors
Deduction of 100% of the profits from business for a period of 10 years for: a. Development or operation and maintenance of ports, airports, roads, highways, bridges, rail systems, inland water ways, inland ports, water supply projects, water treatment systems, irrigation projects, sanitation and sewage projects, and solid waste management systems. b. Generation and distribution of power that commence before 31.3.2006. c. Development, operation and maintenance of Industrial Park or Special Economic Zone.

Section 44DA does not permit deduction of following expenses
i. expenditure which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India, and

ii. amounts reimbursed by permanent establishment to its head office or to any of its other offices (Other than, reimbursement of actual expenses).

Restriction on Deduction of Head Office Expenses (SECTION 44C)
Section 44C is intended to be made applicable only in the cases of those nonresidents who carry on business in India through their branches. The deduction in respect of head office expenses will be limited to: a An amount equal to 5 per cent of the “adjusted total income” for the relevant year: or The actual amount of head office expenditure attributable to the business in India, whichever is least.

Capital Gains on Infrastructure Funds
Income by way of dividend, interest or longterm capital gain of an infrastructure capital company or an infrastructure capital fund is 100% tax-exempt. Income of venture capital company or venture capital fund set up to raise funds for investment in venture capital undertaking is also tax exempt.

b

Tax Exemptions
Following tax exemptions are available in different sectors: Deduction of 100% of the profit from business of a Development or operation and
17

Tax Incentives for Industries
Tax holidays in the form of deductions are available for private sectors and incentives to industries located in special area/regions are listed below:

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

maintenance of ports, airports, roads, highways, bridges etc. b c Generation, distribution transmission of power and

Authority for Advance Rulings
With a view to avoid a dispute in respect of assessment of Income Tax liability in the case of a non-resident (and also specified categories of residents), a scheme of Advance ruling was incorporated in the Income Tax Act. The Authority for Advance Ruling(AAR) pronounces rulings on the applications of the non-resident/residents submitted and such rulings are binding both on the applicant and the Income Tax Department. Thus the applicant can avoid expensive and time-consuming litigation, which would have arisen from normal income tax proceedings. The application in such cases should be addressed to The Commissioner of Income Tax Authority of Advance Ruling 5th Floor, NDMC Building Yashwant Place, Satya Marg, Chankaya Puri, New Delhi-110021 The Finance Act 1993 has introduced, with effect from 1st June 1993, a new scheme of providing advance rulings on tax matters. The relevant provisions of this scheme, in the Income-tax Act, are as under: 1. “advance ruling” means i a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be

Development, operation and maintenance of an Industrial Park or SEZ

d By undertakings set up in certain notified areas or in certain thrust sector industries in the North Eastern states and Sikkim e By undertakings set up in certain notified areas or in certain thrust sector industries in Uttaranchal and Himachal Pradesh Derived from export of articles or software by undertakings in FTZ, EHTP/ STP Derived from export of articles or software by undertakings in SEZ

f

g

h Derived from export of articles or software by 100% EOU i An offshore banking unit situated in SEZ from business activities with units located in the SEZ Derived by undertakings engaged in the business of developing and building housing projects.

j

k Derived by an undertaking engaged in the integrated business of handling, storage and transportation of food grains l Derived by an undertaking engaged in the commercial production or refining of mineral oil

m Derived by an undertaking from export of wood based handicraft
18

Tax Incentives for Non-Residents

undertaken by a non-resident applicant; or ii a determination by the Authority in relation to the tax liability of a nonresident arising out of a transaction, which has been undertaken or is proposed to be undertaken by a resident applicant with such nonresident, and such determination shall include the determination of any question of law or of fact specified in the application.

either allow or reject the application. Provided that the application will not be allowed by the Authority where the question raised: a is already pending in the applicant’s case before any income­tax authority, the Appellate Tribunal or any Court; involves determination of fair market value of any property; relates to a transaction or issue, which is designed prima facie for avoidance of income tax.

b c

2. The Authority for Advance Rulings, located in Delhi, shall consist of the following Members, appointed by the Central Government: a b A retired Judge of the Supreme Court as Chairman. An officer of the Indian Revenue Service who is qualified to be member of the Central Board of Direct Taxes. An officer of the Indian Legal Service who is, or is qualified to be Additional Secretary to the Government of India.

5. No application can be rejected without giving an opportunity to the applicant of being heard, either in person or through a duly authorized representative. Also, where the application is rejected, reasons for such rejection have to be stated in the order made by the Authority. 6. The advance ruling shall be pronounced by the Authority in writing within six months of receipt of the application and a copy thereof, duly signed by the Members and certified in the prescribed manner, shall be sent to the applicant and to the Commissioner of Income-tax having jurisdiction over the case. 7. The advance ruling will be binding on the applicant as well as on the concerned income tax authorities, only in respect of the specific transaction in relation to which the ruling is sought. The ruling will remain binding unless there is change in
19

c

3. The application, for obtaining an advance ruling, has to be made in the prescribed form in quadruplicate accompanied by the prescribed fee and can be withdrawn within 30 days from the date of the application. 4. The Authority may, after examining the application and the records called for

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

law or facts on the basis of which the ruling has been given. 8. Once the subject matter of the application is rejected or decided against the applicant, there is no provision for appeal. However, in the matter involving gross mistakes/misapplication, the applicant may either file a writ petition to the High Court or a Special Leave Petition with the Supreme Court of India 9. The Authority is empowered to declare the advance ruling void, on ground of fraud or misrepresentation of facts by the applicant. While it must be remembered that the advance ruling has no direct general applicability and is binding only in the case of the particular applicant, it may have considerable value as a persuasive precedent for other concerned individuals.

taxpayers in the international field. The NRIs/PIOs would, therefore, be well advised to take advantage of such treaties in tax planning for their investments in India. DTAA can be defined as an “international agreement between two sovereign States reaching an understanding as to how their residents will be taxed in respect of cross order transactions in order to avoid double taxation on the same income”. In yet another way, DTAA can be defined as “an agreement of compromise between two contracting States whereby each country agrees to give up something in consideration of the other country giving up something in its favour”. It may sometime happen that owing to reduction in tax rates under the domestic law-taking place after coming into existence of the treaty, the domestic rates become more favorable to the NRIs/PIOs. Since the object of the tax treaties is to benefit the NRIs/PIOs, they have, under such circumstances, the option to be assessed either as per the provisions of the treaty or the domestic law of the land. In order to avoid any demand or refund consequent to assessment and to facilitate the process of assessment, the concerned authorities in India have provided that tax shall be deducted at source out of payments to NRIs/PIOs at the prevailing rates at which the particular income is made taxable under the tax treaties. ■■

Double Tax Avoidance Agreements (DTAA)
The Government of India has entered into double taxation avoidance agreements (tax treaties) with several countries with the principal objective of evolving a system for the respective countries to allocate the right to tax different types of income on an equitable basis. Tax treaties serve the purpose of providing full protection to taxpayers against double taxation and also aim at preventing discrimination between the
20

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

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Important Concepts Under Foreign Exchange Management Act, 1999
Introduction
Foreign Exchange Management Act, 1999 (FEMA) replaced Foreign Exchange Regulation Act, 1973 (FERA) with effect from 1st June 2000. The replacement was a great sigh of relief for the people as FERA was unduly stringent in its criminal provisions. FEMA is a civil law and proactive in its outlook compared to FERA. The thrust of FEMA is to “manage” the scarce foreign exchange resources of the country rather than to “control” them as was prevalent under FERA. FEMA met the need of the day in the changed economic scenario of India, especially since 1991. Illustration: If an Indian Company opens a branch in New York, U.S.A., that branch will become resident of India and, therefore, all restrictions applicable to Indian residents for overseas transactions are equally applicable to such a branch. Then right from opening of a bank account to entering into any transaction of capital nature (e.g., acquisition of premises), it will need prior approval from RBI (subject to exemptions/general permissions granted by RBI under various Notifications).

Residential Status
One of the important changes in FEMA relates to the “Residential Status of a Person”. The terms “person” and “person resident in India” are defined under sections 2(u) and 2(v) of FEMA, respectively. Ironically, like FERA, FEMA, too, does not define the term Non-Resident. Section 2(w) defines “person resident outside India” as a person who is not resident in India(For all practical purposes, the term “person resident outside India” is synonymous with the term “non-resident” and these terms are used interchangeably in this book). Let us look closely at these two important definitions under FEMA:-

Applicability of FEMA
FEMA is applicable to the whole of India. The expression “whole of India” would indicate that the provisions of the Act are applicable to all transactions taking place in India. Thus, any person who is present in India at the time of transaction has to comply with the provisions of FEMA. FEMA is applicable to all branches, offices and agencies outside India owned or controlled by a person resident in India. Thus, FEMA has retained its extra-territorial jurisdiction, as under FERA.
22

Important Concepts Under Foreign Exchange Management Act, 1999

Definition of “Person”
Section 2(u) “Person” includes i ii an Individual, a Hindu Undivided Family (HUF),

a b

for or on taking up employment outside India, or for carrying on outside India a business or vocation outside India, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

iii a Company, iv a Firm, v an Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not,

c

vi every artificial juridical person, not falling within any of the preceding subclauses, and vii any agency, office or branch owned or controlled by such person.” Explanation: The above definition is similar to the definition of “person” under Section 2(31) of the Income Tax Act, with some minor differences like exclusion of local authority and inclusion of category (vii) above. This definition is unique to FEMA, not found under FERA. The idea evidently is to provide clarity about its applicability and extend its coverage.

B

a person who has come to or stays in India, in either case, otherwise thana b c for or on taking up employment in India, or for carrying on in India a business or vocation in India, or 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,

“Person Resident in India”
Section 2 (v): The term “person resident in India” means 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

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; Explanation An attempt has been made to link the definition of the person resident In India (PRI) under FEMA with the definition of that term under the Income-Tax Act 1961, by providing the criteria of physical stay of
23

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

183 days or more in India, in so far as individuals are concerned.

Practical Aspects
I First of all, “Financial Year” is not defined under FEMA. For the sake of understanding, we assume it to be from 1st April to 31st March, being the official year of the Government of India. Secondly, the Income-Tax Act requires physical presence of 182 days or more, whereas, FEMA requires 183 days or more. Thirdly, the term “ residing in India” is not defined. We may assume that it is equivalent to physical presence in India. Under FERA, a person’s residential status was determined based on his intention alone, rather than his physical presence in India. FEMA has attempted to blend the two different definitions as prevailed under FEMA and the IncomeTax Act 1961, resulting in confusion. II The Income-Tax Act considers the physical presence of a person in the current financial year for determining his tax liabilities of the current year, whereas FEMA considers physical presence of a person in the preceding financial year, with the result that a person might have to wait for one and a half year to become resident in India. Consider the following illustration:Mr. Sangwan comes to India after a continuous stay abroad for 2 years. During
24

the financial year 2003-2004, i.e. from 1st April 2003 to 31st March 2004 his stay was less than 183 days. Assuming that he stays in India through out the financial year 20042005, he would be a non-resident under FEMA for the financial year 2004-2005 notwithstanding the fact that he was in India for more than 182 days, as his presence in India during the preceding financial year, i.e. 2003-2004 was for a period of less than 183 days. In order to avoid this anomaly, the definition of a “Person resident in India” needs to be interpreted in a manner that leads to a logical conclusion.

Determination of the Residential Status Under FEMA
Individuals In order to make a definition of a person resident in India workable one has to look first at the exceptions given in clauses (A) and (B) and if the person is not falling under either of them, then look at his physical presence in India during the preceding financial year. Thus, in effect, the criteria, for determination of residential status of a person under FERA based on “facts and intentions”, are retained under FEMA, too, as it is evident from the examples given herein below: Examples Mr. Mishra leaves India on 1st December 2004 for taking up employment outside

Important Concepts Under Foreign Exchange Management Act, 1999

India for the first time. What will be his residential status? Mr. Mishra will be considered as a nonresident, w.e.f. 1st December, 2004 irrespective of the fact that he was residing in India for more than 182 days in the preceding financial year (i.e. 2003-2004), for the reason that he is covered by Exception (A) (a) of the definition. Mrs. Katrina a foreign citizen of nonIndian Origin sets up a proprietary concern in India on 1st June 2004 for carrying on business. What will be his residential status for the financial Year 2004-2005? The situation is covered by exception B (b). Mrs. Katrina will be considered as resident in India w.e.f 1st June 2004 as he came to India for carrying on business, irrespective of the fact that he has not at all stayed in India during the preceding financial year (i.e. F.Y 2003-2004). Mr. Singh, who is staying in Dubai for more than ten years, has to come to India on 1st July 2003 for medical treatment. He has not visited India during F.Y. 20022003. He is planning to return to Dubai after medical treatment is over. Doctors have advised him to stay in India up to 31st October 2004. What will be his residential status under FEMA? Mr. Singh is not covered by any of the exceptions laid down under clause (B) as his intention to stay in India is for a specific period. He will be non-resident in F.Y. 2003-

2004 notwithstanding his stay exceeding 182 days in the current year, as in the preceding financial year (i.e. F.Y. 2002-2003), he was not in India for 183 days or more. As far as the F.Y 2004-2005 is concerned he would be resident from 1st April 2004 till 31st October 2004, (as his stay in F.Y. 2003-2004 would have exceeded 182 days). Mr. Shah would be NR, w.e.f. 31st October 2004 as he would be leaving India for an uncertain period covered by exception mentioned in clause A(c).

Residential Status of a Student Leaving for Overseas for the Purpose of Education
A student leaving India for the purpose of further education was treated as a resident by the Reserve Bank of India unless he takes up employment overseas even though his stay in India was less than 183 days. On review of the situation, Reserve Bank has liberalised the provisions as follows: A student leaving abroad for the purpose of further education would be treated as a NonResident Indian on the grounds that his stay abroad is for more than 182 days in the preceding financial year and that his intention is to stay abroad for an uncertain period. As a non-resident, the student would be eligible for receiving following remittances from India (Circular No. 45 dated December 8, 2003). 1. up to USD 100,000 from close relatives from India on self-declaration towards maintenance and studies,
25

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

2. up to USD 1 million out of sale proceeds/ balances in his account maintained with an authorised dealer in India, 3. all other facilities available to NRIs under FEMA, 4. educational and other loans availed of by students as resident in India can be allowed to continue:

Residential Status of Other Entities
Clauses (ii) to (iv) of sub-section (v) of section 2 of FEMA deal with determination of residential status of entities other than individuals. Clause (ii) This clause provides that any person or body corporate (say, HUF, FIRM, AOP BOI, , COMPANIES etc.), registered or incorporated in India would be considered as “person resident in India”. Here, the emphasis is on the registration or incorporation. A question arises as to what about an unregistered FIRM, AOP or BOI or say HUF that recquires no registration? Whether they would be out of the purview of FEMA, although they are included in the definition of person. Here, too, the outcome seems to be unintended. In order to make FEMA workable, it is advisable to consider that FEMA is applicable to such entities. Clause (iii) This clause provides that an office, branch or agency in India owned or controlled by a person resident outside India (PROI) is
26

considered as “resident in India”. Even though such entities are treated as resident in India, under section 6(6) of the Act, RBI is empowered to prohibit, restrict or regulate their establishment as well as activities in India. Notification No.FEMA/22/RB-2000 deals with Regulations pertaining to establishment of such entities in India. One difficulty here is that the terms “ agency”, “ownership” and “control” are not defined. Clause (iv) As per this clause, an office, branch or an agency outside India owned or controlled by a person resident in India would be considered as ‘resident in India’. This is a significant departure from FERA where under such entities were considered as nonresident. The consequences of this change are far-reaching. Under the scheme of FEMA, transactions are divided into two distinct categories, namely, Current Account and Capital Account transactions. Whilst Current account transactions are by and large freely permitted, a lot of restrictions are placed on Capital Account transactions to be entered into by Indian residents. Therefore, treating such entities as residents in India would pose several unforeseen difficulties. Consider the following illustrations An Indian Company sets up a branch in USA. Such a branch cannot carry out following transactions without RBI’s prior approval (the list is just illustrative) i Purchase of any premises (although US laws may be permitting it freely);

Important Concepts Under Foreign Exchange Management Act, 1999

ii

Purchase of any capital assets; (Vide Notification No. 47/2001-RB dtd. 5-12-2001, RBI has clarified that purchase or acquisition of office equipments and other assets required for normal business operations and other assets required for normal business operations of an overseas branch/office/ representative will not be deemed to be Capital Account transactions).

(dealing with various kinds of Bank Accounts) defines the term “Non-Resident Indian (NRI)” to mean a person resident outside India who is either a citizen of India or is a person of Indian origin. The term PIO has been defined differently in different Notifications and therefore, the term NRI in turn will have a different meaning. In short, one should bear in mind that the definitions of NRI and PIO are contextual.

iii Borrow or lend money; (Vide Notification No. 67/2002-RB dtd. 20-08-2002, RBI has permitted Indian Companies to grant rupee loans to their employees, who are NRIs or PIOs). iv Placement or acceptance of deposits. It will thus be observed that this particular change in FEMA would result in undue hardship as such entities will have to comply with legal requirements of two countries, namely, the “host country” (i.e. where they are operating) as well as the “ home country” (i.e. India). Many a time, requirements in either country may be conflicting with each other.

“Person of Indian Origin” (PIO)
The term “Person of Indian Origin” (PIO) is defined differently in different Notifications and therefore, the term NRI will have a different meaning depending upon the Notification one applies. Therefore, when applying provisions of FEMA, one must be careful about the reference and context of such application. Different definitions of the term PIO are as follows:A. The term PIO as defined under Notification No. 5 (dealing with various kinds of Bank Accounts); Notification No. 13 (dealing with Remittance of Assets) and Notification No. 20 (dealing with Inbound Investments including Foreign Direct Investments (FDI) is as mentioned below: “Person of Indian Origin” means a citizen of any country other than Bangladesh or Pakistan, ifi he at any time held Indian passport; or
27

Non- Resident Indian (NRI)
Section 2 of the FEMA deals with various definitions. It defines person resident in India and a person resident outside India. However, it does not define the term nonresident nor it defines the term Non-resident Indian (NRI). However, Notification No. 5/2000-RB

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

ii

he or either of his parents or any of his grandparents was a citizen of India by virtue of the of the Constitution of India or the Citizenship Act, 1955 ( 57 of 1955); or

China, Iran, Nepal, Pakistan, or Sri Lanka are excluded from the definition of PIO.

Overseas Corporate Body (OCB)
Like the term NRI, the term “ Overseas Corporate Body (OCB)” is also not defined in the Section 2, which deals with definitions of various words/terms in general. Notification No. 5 (dealing with Bank Accounts) and Notification No. 20 (dealing with Inbound Investments) define the term OCB in following manner. ‘Overseas Corporate Body (OCB)’ means a company, partnership firm, society and other corporate body wholly owned, directly or indirectly, to the extent of at least sixty per cent by Non- Resident Indians and includes overseas trust in which not less than sixty per cent beneficial interest is held by NonResident Indians, directly or indirectly but irrevocably. In order to establish that a particular entity is an OCB, the investor has to furnish a certificate in following forms from the Certified Public Accountant and/or Chartered Accountant of the country to which such entity belongs: However, RBI has issued Notification No. 101/2003-RB dated October 3, 2003 whereby OCBs holding investments/ interests in India as on 16 th September 2003 are derecognised as an eligible “class of investors”. Now, OCBs which did not have any investments/interests in India

B. The term is defined almost identically as above under the Notification No. 24 (dealing with investment in Firm or Proprietary Concern in India) except that the citizens of Sri Lanka are also excluded from the definition in addition to citizens of Bangladesh or Pakistan as mentioned above. C. The term PIO is defined in the following manner in the Notification no. 21 (dealing with the Acquisition and Transfer of Immovable Property In India): “Person of Indian Origin” means an individual (not being a citizen of Afghanistan, Bangladesh, Bhutan, China, Iran, Nepal, Pakistan, or Sri Lanka) who i ii at any time held Indian passport; or who or either of whose father or whose grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).”

It will be thus seen that for the purposes of acquisition or transfer of immovable property in India, persons of Indian origin who are citizens of Afghanistan, Bangladesh, Bhutan,
28

Important Concepts Under Foreign Exchange Management Act, 1999

prior to 16th September 2003 would be treated on par with Foreign Companies.

Current Account and Capital Account Transactions
Under the FERA regime the thrust was on regulation and control of the scarce foreign exchange, whereas under the FEMA, emphasis is on management of foreign exchange resources. Thus, there is a clear shift in focus from control to management. Therefore, under FERA it was safe to presume that any transaction in foreign exchange or with non-resident was prohibited unless it was generally or specially permitted. FEMA has formally recognised the distinction between Current Account and Capital Account Transactions. Two golden rules or principles in FEMA are mentioned below:H

defined u/s 2(j) to mean “a transaction other than a Capital Account transaction and without prejudice to the generality of the foregoing, such transaction includes:1. payments due in connection with foreign trade, other current business, services, and other short term banking credit facilities in the ordinary course of business, 2. payments due as interest on loans and as net income from investments. 3. remittances for living expenses of parents, spouse and children residing abroad, 4. expenses in connection with foreign travel, education and medical care of parents, spouse and children”

Explanation
As discussed earlier, this concept is unique to FEMA and was not found in FERA. When it is said that Current Account transactions are free from controls in India, it does not imply that any amount of remittance is permitted for a Current Account transaction. Section 5 authorizes the Central Government to impose restrictions on Current Account transactions. Exercising this authority, the Central Government has issued Notification No. GSR 381(E) entitled as the F.E.M (Current Account Transactions) Rules, 2000 dated 3rd May 2000, according to which drawal of foreign exchange is prohibited for:
29

All Current Account transactions are permitted unless otherwise prohibited: and All Capital Account transactions are prohibited unless otherwise permitted.

H

Current Account Transactions
India is signatory to the WTO Agreement. As a part of its obligation under the WTO Agreement, India has relaxed (not removed) its exchange control regulations on Current Account transactions. The term “ Current Account Transaction” is

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

1. transactions specified in Schedule I, or 2. travel to Nepal and /or Bhutan, or 3. transactions with a person resident in Nepal or Bhutan. As far as categories (b) and (c) above are concerned, it may be noted that Indian rupee is a widely accepted currency in these countries and hence, drawal of foreign exchange is not permitted for travel to and transactions with these countries. Schedule II of the said Notification lists transactions, which require prior approval of the Government of India, except when the exchange is drawn from RFC/EEFC, Accounts. Schedule III of the said Notification lists transactions, which require prior approval of the RBI. In some cases prior permission is required only if the transaction value exceeds the limits specified therein except where the exchange is drawn from RFC/ RFC (D) Accounts. (Refer Annexure I of this Chapter for items covered by Schedule I, II and III) Reserves Bank of India has liberalised the remittances permissible under the Current Account transactions vide Circular No. 76 dated February 24, 2004. Following transactions are permissible under the automatic route without any monetary ceiling:1. Remittance by Artistes, e.g. wrestler, dancer, entertainer, etc.
30

2. Remittance for securing Insurance for Health from a company abroad. 3. Short-term credit to overseas offices of Indian companies. 4. Remittance for Advertisement on Foreign Television Channels. 5. Remittance of Royalty and Payment of Lump sum fee provided the payments are in conformity with the norms as per item no. 8 of Schedule II, i.e. royalty does not exceed 5% on local sales and 8% on exports and lump-sum payment does not exceed USD 2 million. 6. Remittance for use of Trademark/ Franchise in India. It may be noted from the above that interest and other income on investments are only covered as Current Account transactions. Therefore, the principal amount of investment can be remitted abroad, only if it has been invested on repatriation basis. Any Current Account transaction that is not regulated or prohibited is permitted by implication.

Capital Account Transactions
Section 2(e) defines “Capital Account Transactions” to mean “a transaction which alters the assets or liabilities, including contingent liabilities, outside India of a person resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in subsection (3) of section 6.” [Refer Annexure 2

Important Concepts Under Foreign Exchange Management Act, 1999

for Capital Account Transactions specified in Section 6 (3)]. Section 6 (3) contains ten sub clauses covering a wide range of transactions, namely, Foreign Direct Investments in India, Overseas Direct Investments from India, Borrowing or Lending in foreign exchange and in Indian rupees, various kinds of bank accounts, immovable property in India and abroad, guarantees, etc., for each category, the RBI has issued separate Notifications.

Distinction Between Capital Account and Current Account Transactions
The distinction between the two types of transactions needs to be understood from the viewpoint of ‘balance of payments’ of the country. There is a difference between our normal understanding of a “Capital Asset” or a “Capital Expenditure” and a Capital Account transaction per se. For example, import of machinery on

payment of cash or on normal credit terms of the vendor will be regarded as the Current Account transaction. The importer may capitalise it in his account books and claim depreciation thereon. As far as the country is concerned, it is a trade transaction. However, if the same machinery is imported on deferred credit basis or is funded out of ECB etc., the credit beyond twelve months (as less than twelve months again would fall within the definition of “Current Account transactions”) would result in the creation of the long-term liability outside India and therefore, be termed as a Capital Account transaction. A word of caution here is that, the meaning of “ alteration of assets or liabilities” is not properly defined and therefore, leads to different interpretations. In order to be right side of the law. It is advised that in case of doubt, the matter may be referred to the Reserve Bank of India. ■■

31

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Illustrative list of Current and Capital Account Transaction
Nature of Transaction 1 Import of Machinery Current A/c If imported on COD basis Yes Yes Yes Capital A/c If imported on Suppliers Credit or funded out of Foreign loans. – – –

2 3 4 5

Import, Export of goods on Credit Payment for Web hosting Payment for consultancy Remittance of - Interest on loans/ Investments - Dividend - rental from immovable property - Capital Gains on a) Movable Assets b) Immovable Property Loans/Borrowings other than from banks(whether short term or Long term) Short Term Working Capital from Bank Term Loan from Bank/F1 Living Expenses of Parents, spouse & Children

Yes Yes

– –

– –

Yes Yes

6

– Yes – Yes – Yes –

7 8 9

10 Expenses in connection with foreign travel education and medical care of parents, spouse, children 11 Investments in Securities (whether in India by a nonresident or outside India by a resident) 12 Investments in Immovable Property(whether in India by a non-resident or outside India by a resident

Yes

Yes

Yes

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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 which Drawal of Foreign Exchange is not Permitted 1. Remittance out of lottery winnings. 2. Remittance of income from racing/riding, etc., or any other hobby. 3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes, etc. 4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. 5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable (The condition of dividend balancing not applicable presently). 6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and coffee. 7. Payment related to “Call Back Services” of telephones. 8. Remittance of interest income on funds held in Non-Resident Special Rupee Scheme A/c. 9. Travel to Nepal and/or Bhutan 10. Transaction with a person resident in Nepal and/or Bhutan (RBI has the power to relax this prohibition). 11. Remittance towards participation in lottery schemes involving money circulation or for securing prize money/ awards, etc.

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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 Ministry of Human Resources Development (Department of Education and Culture) Ministry of Finance (Department of Economic Affairs)

1. Cultural Tours 2. Advertisement in foreign print media abroad by any PSU/State and Central Government Department other than promotion of tourism, foreign investments and international bidding (exceeding US$ 10,000) 3. Remittance of freight of vessel Charted by a PSU 4. Payment of import by a Government 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 remittance of their agents abroad 6. Remittance of hiring charges of transponders by - TV Channels - Internet Service Providers 7. Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping 8. Remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lumpsum payment exceeds US $ 2 million

Ministry of Shipping (Chartering Wing) Ministry of Shipping (Chartering Wing)

Registration Certificate from the Director General of Shipping Ministry of Information & Broadcasting Ministry of Communication & Information Technology

Ministry of Shipping (Director General of Shipping) Ministry of Industry and Commerce

34

Important Concepts Under Foreign Exchange Management Act, 1999 Foreign Direct Investment

9. Remittance of prize money/sponsorship of sports activity abroad by a person other than International/National/State level sports bodies, if the amount involved exceeds US$ 100,000 10. Remittance for membership of P&I Club (remittances from other than RFC account)

Ministry of Human Resource Development (Department of Youth Affairs and Sports)

Ministry of Finance (Insurance Division)

35

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 out of RFC or RFC (Domestic) Account) 1. Release of exchange exceeding US $ 10,000 or its equivalent in one calendar year, for one or more private visits to any country (except Nepal and Bhutan). 2. Gift remittance exceeding US $ 5,000 per remitter/donor per annum. 3. Donation exceeding US $ 5,000 per remitter/donor per annum. 4. Exchange facilities exceeding US $ 1,00,000 per persons going abroad for employment. 5. Exchange facilities for emigration exceeding US $ 1,00,000 or amount prescribed by country of emigration. 6. (a) Remittance for maintenance of close relatives abroad exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who is resident but not permanently resident in India and is a citizen of a foreign state other than Pakistan or is a citizen of India, who is on deputation to the office or branch or subsidiary or joint venture in India of such foreign company. (b) Exceeding USD 100,000 per year, per recipient, in all other cases.
36

Explanation: For the purpose of this term, a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignment; the duration of which does not exceed three years, is a resident but not permanently resident. 7. Release of foreign exchange, exceeding US $ 25,000 to a person, irrespective of period of stay, for business travel, or attending a conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up. 8. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India. 9. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US $ 1,00,000 per academic year, whichever is higher. 10. Release of exchange for commission to agents abroad for sale of residential flats/ commercial plots in India, exceeding 5%

Important Concepts Under Foreign Exchange Management Act, 1999 Foreign Direct Investment

of the inward remittance per transaction or USD 25,000 whichever is higher. 11. Remittances exceeding US $ 1,000,000 per project for consultancy services procured from abroad subject to the applicant submitting documents to the satisfaction of the authorised dealer. 12. Remittance exceeding US $ 1,00,000 for reimbursement of incorporation expenses.

13. Remittance exceeding US $ 5,000 or its equivalent for small value remittances. Note: The above restrictions shall not apply on the use of International Credit Card for making payment by a person towards meeting expenses while such person is on a visit outside India.

37

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, restrict or regulate the following types of transactions:a. transfer or issue of any foreign security by a person resident in India; b. transfer or issue of any security by a person resident outside India; c. transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; d. any borrowing or lending in foreign exchange in whatever form or by whatever name called; e. any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;

f.

deposits between persons resident in India and persons resident outside India;

g. export, import or holding of currency or currency notes; h. transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; i. acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India. Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred: i by a person resident in India and owned to a person resident outside India; or by a person resident outside India.

j.

ii

38

Facilities Available to Returning Indians and Baggage Rules

Facilities Available to Returning Indians and Baggage Rules
Change of Residential Status
A Non-Resident Indian will be treated as a person resident in India if he returns to or stays in India, in either case:a b c for or on taking up employment in India, or for carrying on in India, a business or vocation, or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period. in India. Their Non-Resident Accounts/ Investments etc., would continue without any change and they will also not be required to surrender any foreign exchange. Once an NRI becomes resident of India, all the rules and regulations of FEMA, as are applicable to the person resident in India would be applicable to him except that he continues to enjoy various facilities such as maintaining his foreign securities, currency, properties situated abroad or maintaining and operating Resident Foreign Currency Account in India.

From the definition given above, it can be concluded that the purpose/intention of stay in India is the most relevant factor for determining the residential status of a person. The period of stay is only of secondary importance.

Formalities to be Completed on becoming Resident
This is the most significant practical aspect of FEMA. Quite a few formalities have to be complied with, upon change of residential status either way. A large number of violations of FERA were occurring in this area due to ignorance. RBI was considerate in pardoning genuine mistakes thus far. The scenario has changed, now that the RBI’s power to regularise mistakes or give postfacto approval has been withdrawn. In view of this, it is imperative that we get to know about obligations under FEMA upon change of residential status.
39

Status of Non-Residents on Temporary Visits/Stay in India
Non-Resident Indian citizens and Persons of Indian Origin on the temporary visits/stay in India without any intention to stay in India for an uncertain period shall continue to be treated as Non-Residents, during their stay

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Assets Abroad
Section 6(4) of the Act deals with provisions relating to “Returning NRls”. Accordingly, a person resident in India (here the reference is to returning NRls) is permitted to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, provided such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. Under FERA, general permission was given to the returning NRls to hold their investments and assets outside India under several Notifications. These Notifications permitted the returning NRls to hold, convert, sell, re-invest the assets abroad and/ or earn income thereon. In short, the returning NRls were permitted to deal with these assets in whatever manner they feel appropriate even after becoming resident. The only two conditions were that the assets should have been acquired legitimately (without FERA violation) while residing abroad and the returning NRI should have stayed outside India for at least one year continuously. The condition of continuous period of one year has been removed under FEMA. However, Section 6(4) is silent on reinvestment of income/sale proceeds of assets abroad after becoming resident of India, which was freely allowed under FERA. Thus, applying provisions of surrender of foreign
40

exchange representing income on assets held outside India, all such income or sale proceeds have to be deposited, with the authorised person in India, within seven days of their receipt.

Continuation of proprietary/ partnership business abroad
Section 6(4) is silent on this issue; moreover, there is no direct provision dealing with this situation. However, Section 3 puts a general restriction on a person resident in India to deal in foreign exchange or enter into any transactions of receipts or payments with non-residents, unless there is a general or special permission in that behalf. Besides this, there are specific regulations concerning a person resident in India pertaining to foreign currency bank accounts, lending and borrowing in foreign exchange, acquisition and transfer of immovable property outside India and so on. Therefore, it is advisable that a specific permission be obtained from the Reserve Bank in respect of these types of interests.

Other Movable Assets held Abroad
There are no provisions under FEMA governing movable assets held abroad, excepting foreign currency and foreign securities covered by section 6(4) of the Act, pertaining to returning NRls. There are two views, namely, (i) whatever is not expressly prohibited is permitted under the law, and (ii) wherever the Act is silent, it is considered as implied prohibition. It is difficult to accept

Facilities Available to Returning Indians and Baggage Rules

the second view; however, in order to be on right side of the law and to avoid possibility of litigation, one may obtain permission to hold such assets from the RBI. Other movable assets may include:
H H H H

continued till maturity, will be eligible for concessional tax under Chapter XII-A. FCNR, too, can be converted into RFC Account on its maturity. RFC account is fully convertible. Therefore, it is advisable that whatever repatriable incomes are due on arrival are credited to RFC account.

Jewellery Motor car Personal household effects Personal computers, Cell phones and other gadgetry.

Investments
A person can continue to hold an investment without requiring prior permission of the RBI, provided such investments were acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

Bank Accounts Abroad
FEMA does not specifically contain provision for maintaining foreign currency accounts abroad in respect of returning Indians. Therefore, it is advisable to obtain a specific permission from the RBI in this regard.

Time Limits for Intimation
As stated earlier, no specific time limits are prescribed. However, as far as bank accounts are concerned, the regulations stipulate immediate redesignation as resident account. This is one area where many people fail to comply with the provisions of law. Many people continue to maintain NRE/FCNR and other non-resident accounts for years after becoming resident. The Reserve Bank was considerate in condoning such lapses under FERA. Now it will be difficult for the Reserve Bank to condone delay, and such lapses may invite monetary penalty.

Bank Accounts in India
Upon change of residential status, the returning NRI must inform the bank, where upon all bank accounts would be re designated as “Resident A/C”. RBI has allowed continuance of NRE and FCNR accounts till maturity so that there is no loss of interest. Funds in NRE account can be deposited in RFC Account on returning to India. The time limit is not specified. However, it is advisable to transfer the funds immediately after maturity. In any case, it is obligatory on the part of the returning NRI to inform the banker about his change of residential status immediately upon such change. Interest on NRE deposits which are

VISA
Foreign National of Indian Origin can visit India under multi-entry visa when they hold
41

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

letter of Intent/Acknowledgement of Industrial Entrepreneurs Memorandum/ License or Provisional Registration with the Directorate of Industries etc. Such persons can get endorsement on their passport for single/multi-entry visa from the Consulate General/High Commissioner/Embassy of India. Their spouses can also be granted multi-entry visa upto 5 years.

Warehouse and pay the duty before clearance. The imported gold or silver can be sold in open market without any restrictions, but are subject to applicable Sales Tax and Octroi Duty of the respective state in which it is imported. When gold is sold in India, the profit is liable to tax as business income or capital gains, depending upon the facts of each case i. e., the intention of the NRI. If his intention was to take advantage of the business opportunity and sell gold/silver, it will be treated as business profit. If his intention was to hold it as a Capital Asset, it will be treated as capital gains. In a majority of the cases, the NRI would have purchased the precious metal just prior to his return to India and sold it within a short time after his arrival in India, such a transaction constituting an “adventure in the nature of trade” and the income therefrom would be taxable as business income. It is a well-settled principle that income from a single transaction could also constitute business income. Hence profit on sale of gold/ silver would be treated as business income. If however, the NRI has acquired the precious metal as a capital asset, the income will be treated as short-term or long-term capital gain depending upon the period of holding.

Import of Gold and Silver
An NRI returning to India after staying abroad for a period of more than six months is permitted to import Gold upto 10 kgs and Silver upto 100 kgs on payment of custom duty which on Gold is @ Rs. 10 per gm. for a 100 gm bar and for a Tola bar it is Rs. 250 per 10 gm and on silver is @ Rs. 500 per kg subject to following conditions:H

Ornaments studded with stones and pearls will not be allowed to be imported under the scheme mentioned above. The passenger can bring the gold/silver himself at the time of arrival or import the same within fifteen days of his arrival in India. The passenger can also obtain the permitted quantity of gold/silver from Customs Bonded Warehouse of the State Bank of India; if he had filed a declaration on the prescribed form before the Customs Officer at the time of arrival in India stating his intention to obtain the gold/silver from the Customs Bonded
42

H

H

Import of Currency
Any person who arrived from outside India, may bring into India at the time of his return

Facilities Available to Returning Indians and Baggage Rules

from any place outside India (other than from Nepal and Bhutan):­ 1. No limit is prescribed for the import of coins. 2. There is no limit as such to bring in foreign exchange by an incoming passenger; however, a declaration in form CDF (Currency Declaration Form) is required if the value of such currency exceeds US $ 10,000 or its equivalent (in the form of currency notes, bank notes or traveler’s cheques) and US $ 5,000 (foreign currency notes) or its equivalent.

Tax Act, 1961 whereby his specified assets in India (for example, deposits with public limited companies in India placed out of convertible foreign exchange) can continue to be taxed at the concessional rate of 20 per cent. Moneys and the value of assets brought by Returning Indian and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter are totally exempt from Wealth-Tax for a period of seven years after return to India. The NRI has to consider whether it is advantageous to keep foreign currency assets abroad, carrying much lower returns but which provides protection against the exchange rate fluctuation, as well as Indian tax on foreign incomes. In some cases, it may be advantageous to invest a large portion of their foreign liquid funds in India and earn higher income thereon, sometimes even when there are no plans to return to India permanently. Each individual NRI has to examine in detail the various avenues available in India, which give the right to repatriability, offer much higher returns than those available abroad and at the same time protect the investor against the depreciation of the Indian rupee.

Concessions Available to NRIs on their Return to India
A returning Indian is permitted to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, provided such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. A returning Indian can convert his balances in NRE/FCNR account into RFC account. RFC account is convertible on Capital Account, whereby he can buy or invest in properties and securities abroad without any permission from RBI.

Bank Accounts Abroad
Under the FERA, RBI had granted general permission to returning Indians to maintain and operate their foreign currency accounts
43

Tax Benefits
A returning Indian can opt to be governed by provisions of Chapter XII-A of the Income

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

abroad provided the funds held in bank accounts were acquired by such person not in contravention of provisions of FERA while he was resident outside India and he had been non-resident for a continuous period of one year. There were no restrictions on utilization of the balances in these accounts for any bona fide payments in foreign currency. Further, funds were allowed to be utilised for making investments abroad in any shares/securities, immovable properties, etc. This facilitated account holders to make any payments to persons resident outside India. FEMA is silent on the issue of maintenance of foreign currency accounts abroad by returning NRls. Section 6(4) permits returning NRls to hold, own, transfer or invest in foreign currency, foreign security, or immovable property outside India; however, it does not mention about bank account abroad. Thus, technically a returning NRI would require approval from RBI to maintain bank accounts abroad. However, there is a school of thoughts that believes that the beneficial provisions of FERA would continue and no permission would be required in such cases. Yet, it is advisable to approach RBI for approval to be on right side of the law.

banks on return of the account holders to India and consequently becoming resident in India. b Non-resident (External) Rupee Accounts: Non-resident (External) Rupee Accounts can be converted to resident rupee accounts or RFC (Resident Foreign Currency) accounts (which is explained below vide item d) at the option of the account holder on his return to India and becoming resident in India. In case of NR(E) fixed deposits, the accounts will continue to earn agreed higher rates of interest till maturity, even after being converted to resident account. c FCNR (Banks) Account: FCNR (Banks) deposits can be converted to resident rupee account or RFC account at the option of the account holder on his return to India and becoming resident in India. In case the deposit is converted to resident rupee account the foreign currency amount will be converted to Indian rupees at IT buying rate ruling on the day of conversion. Interest on the new deposit would be payable at the relevant rate applicable for such a deposit. In case the amount is transferred to RFC account, the rate of interest as applicable to RFC deposit will be allowed. d Resident Foreign Currency Account: The returning NRI being the citizen of

Bank Accounts on Return to India
a Ordinary Non-Resident Accounts: Ordinary Non-Resident Accounts have to be converted to resident accounts by
44

Facilities Available to Returning Indians and Baggage Rules

India or a PIO who has permanently settled in India and is in India for a period of more than one year can open an RFC account on account of the following receipts: i Funds received as pension or any other superannuation or other monetary benefits from his employer outside India. Funds realized on conversion of assets referred to in sub-section (4) of section 6 of the FEMA, and repatriated to India (i.e. foreign currency, foreign security or any immovable property situated outside India).

Baggage Rules and Transfer of Residence
Baggage
Baggage is an aspects of customs network through which common man going abroad or returning from abroad comes in contact with customs. Under the general Baggage Rules, 1 2 used personal effects, and new article up to a value of Rs. 12,000/per adult passenger ( Rs. 25,000/- if the person return to India after more than three days) are exempt.

ii

iii Received or acquired as gift or inheritance from a person Funds referred to in sub-section (4) of section 6 of FEMA (i.e. returning non- resident). iv Funds Acquired or received before July 8, 1947 or any income arising or accruing thereon which is held outside India by any person, or acquired as gift or inheritance therefrom [i.e. under section 9(c)]. Funds held in the RFC Account are free from all restrictions regarding utilization of foreign balances including any restrictions on investment in any form outside India. Thus, RFC account is convertible on Capital Account.

A lower Free Allowance of Rs. 6,000/- is allowed to passengers coming ( after 3 days) from Nepal, Bhutan, Burma or China provided they do not come across land boarders with these countries. Passengers returning from Pakistan by road are allowed duty free baggage up to Rs. 12,000/-. For child passengers (below 10 years of age), free allowance is 50% of the allowance admissible to an adult passenger of that category. The General Free Allowance of passenger is not clubbable with similar allowance of another passenger ( for example, husband or wife or any other relative traveling with the passenger) to permit clearance of a costly article of baggage.
45

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Laptop computer (computer notebook) brought by a passenger of the age of 18 years and above has been exempted w.e.f from 91-2004. Alcoholic liquor or wines up to two liters, 200 cigarettes and jewellery upto Rs. 20,000/- for a lady and Rs. 10,000/- for a gentleman can be brought as part of the free baggage allowance. Import of cinematography films, exposed but not developed, brought as part of baggage has also been made duty free. In case a single article exceeding the limit of Rs. 12,000 ( or Rs. 25,000 in value) is brought, 35% flat rate of duty with no SAD or CVD is payable on excess value. 40% without SAD & CVD is also the effective rate of Duty for any article of bona fide baggage brought in excess of free allowance except for fire arms, cartridges of fire arms exceeding 50 and excess cigarettes, cigars or tobacco. But in term of exemption Notification No. 49/96-Cus., dated 23-7-1996, specified goods covered under listed Headings and Notifications therein attract merit rate (as applicable to cargo) even if imported as baggage . However, conditions, if any, prescribed in the listed Notification will apply to imports under baggage also. Free allowance is restricted in case of visit to contiguous countries like Maldives, Sri Lanka, Nepal and Bhutan. ‘Baggage’ does not include motor vehicle, fire arms and goods of commercial nature or in commercial quantities.
46

There are value/ quantity restrictions on bringing jewellery, cigarettes and liquor. However , primary gold up to ten kgs. per passenger and silver up to one hundred kgs. per passenger can be imported on payment of normal duties in convertible foreign exchange provided the concerned passenger is coming to India after at least six months’ stay abroad. For crew members of a vessel or aircraft, free allowance for petty gifts is Rs 600/Allowance for gifts as well as for travel souvenirs in the case of foreign tourists is Rs. 8,000/-( Rs.6,000/- in the case of tourists from Pakistan origin), apart from personal effects in use of tourist. Peak rate of duty for baggage goods of Heading 98.03 is 150% non-bona fide baggage is in addition to fine and penalty. Foreign Travel Tax and Inland Air Travel Tax have been exempted for all passengers with effect from 9-1-2004. Passengers not carrying any dutiable goods can walk through the Green Channels. Others are required to come to the Red Channel and report at customs counter. There are now no restrictions on resale of baggage goods. Passengers importing/exporting commercial samples as accompanied baggage should follow the procedure laid down in this behalf. If an importer is desirous of paying duty on an article at the cargo rate but by mistake he has brought the said article as baggage, he

Facilities Available to Returning Indians and Baggage Rules

can rectify the error by filling an application before the authorities along with submission of a bill of entry(Collector vs. A.K.Dhawan)

omitted to be done before such supersession, the Central Government hereby makes the following rules, namely:­ 1. Short Title and Commencement i These rules may be called the Baggage Rules, 1998. ii They shall come into force on the date of their publication in the Official Gazette.

Transfer of Residence
In the case of passengers transferring their resident to India after stay abroad of two years or more, personal and household effects in use abroad and six new specified household gadgets are exempt from duty but 15 % flat duty without SAD has to be paid on 17 listed articles of consumer durables within value ceiling of 5 lakhs. In the case of transfer of resident after stay abroad of at least one year, other personal and household effects in use abroad and not exceeding Rs. 75,000/- in aggregate value can be brought in free. In addition, there are free allowances of varying value of professional artisans coming to India after 3 months/6 months (duty free household article worth Rs. 12,000/- and professional equipment worth Rs. 20,000/- / 40,000/-).

2. Definitions In these rules, unless the context otherwise requires:i ii “appendix” means an Appendix to these rules; “resident” means a person holding a valid passport issued under the Passports Act, 1967 (15 of 1967) and normally residing in India;

The Baggage Rules, 1998
(Notification No. 30/98 - Cus(NT) dt. 2-6-1998, as amended by Corrigenda F. No. 334/6/97 – TRU dt. 2-6-1998 and 16-6-1998) Notification No. 11/2002-Cus.(N.T.), dated 1-3-2002 In exercise of the powers conferred by section 79 of the Customs Act, 1962 (52 of 1962), and in supersession of the Baggage Rules, 1994, except as respects things done or

iii “tourist” means a person not normally resident in India, who enters India for a stay of not more than six months in the course of any twelve months period for legitimate non-immigrant purposes, such as touring, recreation, sports, health, family reasons, study, religious pilgrimage or business; iv “family” includes all persons who are residing in the same house and form part of the same domestic establishment; v “professional equipment” means such portable equipments, instruments, apparatus and appliances as are required in his profession, by a carpenter, a
47

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

plumber, a welder, a mason, and the like and shall not include items of common use such as cameras, cassette recorders, dictaphones, personal computers, typewriters, and other similar articles. 3. Passengers’ returning from countries other than Nepal, Bhutan, Myanmar or China An Indian resident or a foreigner residing in India, returning from any country other than Nepal, Bhutan, Myanmar or China, shall be allowed clearance free of duty articles in his bona fide baggage to the extent mentioned in column (2) of Appendix A. Provided that such Indian resident or such foreigners returning from Pakistan, by land route, shall be allowed clearance free duty articles in his bona fide baggage to the extent mentioned in column (2) of Appendix “B. 4. Passengers returning from Nepal, Bhutan, Myanmar or China. An Indian resident or a foreigner residing in India, returning from Nepal, Bhutan, Myanmar or China, other than by land route, shall be allowed clearance free of duty articles in his bona fide baggage to the extent mentioned in column (2) of Appendix B. 5. Professionals returning to India An Indian passenger who was engaged in his profession abroad shall on his return to India be allowed clearance free of duty,
48

in addition to what he is allowed under rule 3 or, as the case may be, under rule 4, articles in his bona fide baggage to the extent mentioned in column (2) of Appendix C. 6. Jewellery A passenger returning to India shall be allowed clearance free of duty jewellery in his bona fide baggage to the extent mentioned in column (2) of Appendix D. 7. Tourists A tourist arriving in India shall be allowed clearance free of duty articles in his bona fide baggage to the extent mentioned in column (2) of Appendix E. 8. Transfer of residence 1 A person who is transferring his residence to India shall be allowed clearance free of duty, in addition to what he is allowed under rule 3 or, as the case may be, under rule 4, articles in his bona fide baggage to the extent mentioned in column (1) of Appendix F, subject to the conditions, if any, mentioned in the corresponding entry in column (2) of the said Appendix. 2 The conditions may be relaxed to the extent mentioned in column (3) of the said Appendix.

9. Provisions regarding unaccompanied baggage 1 Provisions of these Rules are also extended to unaccompanied

Facilities Available to Returning Indians and Baggage Rules

baggage except where they have been specifically excluded. 2 The unaccompanied baggage had been in the possession abroad of the passenger and is dispatched within one month of his arrival in India or within such further period as the Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow.

country or countries concerned or any other reasons, which necessitated a change in the travel schedule of the passenger. 10. Application of these Rules to members of the crew 1 Provided that except as specified in this sub-rule, a crew member of a vessel shall be allowed to bring items like chocolates, cheese, cosmetics and other petty gift items for their personal or family use which shall not exceed the value of rupees six hundred. 2 Notwithstanding anything contained in these rules a crew member of an aircraft shall be allowed to bring items gifts like chocolates, cheese, cosmetics and other petty gift items at the time of the returning of the aircraft from foreign journey for their personal or family use which shall not exceed the value of rupees six hundred. ■■

The unaccompanied baggage may land in India upto 2 months before the arrival of the passenger or within such period, not exceeding one year, as the Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow, for reasons to be recorded, if he is satisfied that the passenger was prevented from arriving in India within the period of two months due to circumstances beyond his control such as sudden illness of the passenger or a member of his family, or natural calamities or disturbed conditions or disruption of the transport or travel arrangements in the

49

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Appendix – A
(See rule 3)
(1) Articles allowed free of duty (2) All passengers of and above 10 years of age and returning after stay abroad of more than three days. i Used personal effects, excluding jewellery, required for satisfying daily necessities of life. 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. Used personal effects, excluding jewellery, required for satisfying daily’ necessities of life. 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. Used personal effects, excluding jewellery, required for satisfying daily necessities of life. 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. Used personal effects, excluding jewellery, required for satisfying daily necessities of life. 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.

a

ii

b

All passengers of and above 10 years of age and returning after stay abroad of three days or less.

i

ii

c

All passengers up to 10 years of age and returning after stay abroad of more than three days.

i

ii

d

All passengers upto 10 years of age and returning after stay abroad of three days or less.

i

ii

Explanation: The free allowance under this rule shall not be allowed to be pooled with the free allowance of any other passenger.

50

Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment

Appendix – B
(See rule 4)
(1) Articles allowed free of duty (2) Passengers of and above 10 years of age and returning after stay abroad of more than three days. i Used personal effects, excluding jewellery, required for satisfying daily necessities of life. 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. Used personal effects, excluding jewellery, required for satisfying daily necessities of life. 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.

i

ii

ii

Passengers upto 10 years of age and returning after stay abroad of more than three days.

i

ii

Explanation: The free allowance under this rule shall not be allowed to be pooled with the free allowance of any other passenger.

51

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Appendix – C
(See rule 5)
(1) Articles allowed free of duty (2) Indian passenger returning after at least 3 months. i ii Used household articles upto an aggregate value of Rs. 12,000/Professional equipment upto a value of Rs. 20,000. Used household articles up to an aggregate value of Rs.12,000. Professional equipment upto a value of Rs. 40,000. Used household articles and personal effects, (which have been in the possession and use abroad of the passenger or his family for at least six months), and which are not mentioned in Annex I or Annex. II or Annexure – III upto an aggregate value of Rs. 75,000.

a

b

Indian passenger returning after atleast

i ii

c

Indian passenger returning after a stay of minimum 365 days during the preceding 2 years on termination of his work, and who has not availed this concession in the preceding three years

i

52

Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment

Appendix – D
(See rule 6)
(1) Articles allowed free of duty (2) Indian passenger who has been residing abroad for over one year. i Jewellery upto an aggregate value of Rs. 10,000 by a gentleman passenger, or Upto aggregate value of Rs. 20,000 by a lady passenger.

a

ii

53

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Appendix – E
(See rule 7)
(1) Articles allowed free of duty (2) Tourists of Indian origin other than those coming from Pakistan by land route. i a b used personal effects and travel souvenirs, ifthese goods are for personal use of the tourist, and these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. articles as allowed to be cleared under rule 3 or rule 4. used personal effects and travel souvenirs, ifthese goods are for personal use of the tourist, and these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. articles up to a value of Rs.8,000 for making gifts. No free allowance.

a

ii

b

Tourists of foreign origin other than those of Nepalese origin coming from Nepal or of Bhutanese origin coming Bhutan or of Pakistani origin coming from Pakistan.

i a i

ii

c

Tourists of Nepalese origin coming from Nepal or of Bhutanese origin coming from Bhutan. Tourists of Pakistani origin or foreign tourists coming from Pakistan or tourists of Indian origin coming from Pakistan by land route. i a b

d

ii

used personal effects and travel souvenirs, if these goods are for personal use of the tourist, and these goods, other than those consumed during the stay in India, are re-exported when the tourist leaves India for a foreign destination. articles upto a value of Rs.6,000 for making gifts.

54

Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment

Appendix – F
(See rule 8)
Articles allowed free of duty Used personal and household articles, other than those listed at Annex. I or Annex. II, but including the article listed at Annexure III and jewellery upto ten thousand rupees by a gentleman passenger or rupees twenty thousand by a lady passenger. Conditions Relaxation that maybe considered 1. For condition (1) Shortfall of upto 2 months in stay abroad can be condoned by Assistant Commissioner of Customs or Deputy Commissioner of Customs if the early return is on account of: i terminal leave or vacation being availed of by the passenger; or(ii) any other special circumstances. b For condition (2) Commissioner of Customs may condone short visits in excess of 6 months in deserving cases. c For condition (3) No relaxation –

1

Minimum stay of two years abroad, immediately preceding the date of his arrival on TR,(2) total stay in India on short visit during the 2 preceding years should not exceed 6 months, and(3) passenger has not availed this concession in the preceding three years.

Jewellery taken out earlier by the passenger or by a member of his family from India.

Satisfaction of the Asstt. Commissioner of Customs regarding the jewellery having been taken out earlier from India.

55

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Annexure I

1. Firearms. 2. Cartridges of fire arms exceeding 50. 3. Cigarettes exceeding 200 or cigars exceeding 50 or tobacco exceeding 250 gms.

4. Alcoholic liquor and wines in excess of two litres. 5. Gold or silver, in any form, other than ornaments.

Annexure II

1. Colour Television or Monochrome Television. 2. Digital Video Disc Player. 3. Video Home Theatre System. 4. Dish Washer. 5. Music System. 6. Air -Conditioner. 7. Domestic refrigerators of capacity above 300 litres or its equivalent. 8. Deep Freezer. 9. Microwave Oven. 10. Video camera or the combination of any such video camera with one or more of the following goods, namely:­

a b c

Television Receiver; Sound recording or reproducing apparatus; Video reproducing apparatus.

11. Word Processing Machine. 12. Fax Machine. 13. Portable Photocopying Machine. 14. Vessel. 15. Aircraft. 16. Cinematographic films of 35 mm and above. 17. Gold or Silver, in any form, other than ornaments

56

Facilities Available to Returning Indians and Baggage Rules Foreign Direct Investment

Annexure III

1. Video Cassette Recorder or Video Cassette Player or Video Television Receiver or Video Cassette Disk Player. 2. Washing Machine. 3. Electrical or Liquefied Petroleum Gas Cooking Range 4. Personal Computer (Desktop Computer) 5. Laptop Computer) 6. Domestic Refrigerators of capacity up to 300 litres or its equivalent. Computer (Notebook

Notification No. 30/98- Cus.(N.T.), dated 2-6-1998 as amended by Notification No. 29199­Cus (N.T.), dated ll-5-1999, Notification No. 50/2000-Customs (N.T.), dated 9-8-2000, Notification No.ll/2002Customs (N.T) dated 01/03/2002, Notification No. 5/2004­ Customs (N.T) dated 8th January, 2004, Notification No. 1112004- Customs (N.T) dated 8th January, 2004, Notification No. 13/2004- Customs (N.T) dated 3rd February, 2004 and Notification No. 33/2004-Customs (N.T) dated 3rd February, 2004.

57

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Bank Accounts of Non-Residents
Types of Non-Resident Bank Accounts
Bank Accounts of non-residents may be classified on the basis of: H H

Non-Repatriable Accounts
Ordinary NRO Accounts in Rupees
It is mandatory for a person to get all his bank accounts redesignate as NRO accounts within a reasonable limit when he becomes an NRI. Many ignore this requirement. Fresh accounts may be opened with authorised dealers or some designated post offices in India when the person is in India on holidays or short tour. The account can be freely operated by the account holder or the joint holder (who can be a resident) for bonafide transactions. The corpus in this account is understandably non repatriable but the interest thereon is, only after correct tax thereon is paid or arranged to be paid. When the individual once again becomes a Resident in India, NRO accounts should be redesignated as resident rupee accounts. Opening of an account 1. Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transactions in rupees without violating any of the provisions of the Act, rules and regulation made thereunder. 2. The operations on the accounts should not result in the account holder making

Repatriation facility, and Currency of account

On the basis of repatriation facility, there shall be two types of accounts namely ordinary accounts without any repatriation facilities and external accounts with full repatriation rights. On the basis of currency of account, non-residents can maintain their accounts either in Indian rupees or in designated foreign currencies. The non-repatriable account is the Non Resident Ordinary Account (NRO), though the interest is repatriable after the correct tax is paid thereon. The NRI related accounts with repatriation rights that can be maintained in India are a b Non Resident External Rupee Account (NRE) maintained in Indian rupees Foreign Currency Non-Resident Account (FCNR) maintained in foreign currencies c Resident Foreign Currency Account
58

Bank Accounts of Non-Residents

available exchange to any person resident in India against reimbursement in rupees or in any other manner. 3. At the time of the opening of the account, the account holder should furnish an undertaking to the authorised dealer/authorised bank with whom the account is maintained that in the case of debits to the account for the purpose of investment in India and credits representing sale proceeds of investments, he will ensure that such investments/disinvestments will be in accordance with the regulation made by Reserve Bank in this regard. Notes H Opening of account by individuals/ entities of Bangladesh/Pakistan nationality/ownership requires approval of Reserve Bank.
H

laid down in the directives issued by Reserve Bank in regard to resident accounts shall apply to NRO accounts as well. Operation of Accounts A resident power of attorney (POA) holder can operate the NRO Account on behalf of the non-resident account holder. Regulations governing NRE account scheme specifically prohibit the resident POA holder from repatriation outside India of funds held in NRE account or make payment by way of gift to a resident on behalf of the account holder. There is no such specific prohibition in case of NRO account scheme; however, it is advisable to approach RBI for the guidance in the matter. There are not many restrictions on operations of these accounts and the undernoted debit and credit transactions are allowed in these accounts.
Credits

Post offices in India may maintain saving bank accounts in the names of persons resident outside India and allow operations on these accounts subject to the same terms and conditions as are applicable to NRO accounts maintained with an authorised dealer/authorised bank.

i.

Join Accounts with Residents The account may be held jointly with residents. Types of Accounts NRO account may be opened/maintained in the form of current, savings, recurring or fixed deposit accounts. The requirements

Proceeds of remittances received in any permitted currency from outside India through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.

ii. Legitimate dues in India of the account holder. iii. Maturity proceeds of their term deposit held under NRSR Accounts Scheme may be credited to NRO account.
59

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Debits

i.

All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank in this behalf.

immovable property purchased by him as a resident or out of rupee funds as NRI/PIO.
Other financial assets

ii. Remittance outside India of current income in India of the account holder net of applicable taxes. Remittance of Funds held in NRO Accounts Balances in NRO accounts are not eligible for remittance outside India without approval of Reserve Bank. Funds received by way of remittances from outside India in foreign exchange which have not lost their identity as remittable funds will only be considered by Reserve Bank for remittance outside India.
Remittance of assets by NRI/PIO

For remittance of sale proceeds of financial assets, there is no lock-in-period. Assets Acquired by way of Inheritance/ Legacy or Settlement For remittance of sale proceeds of assets, both financial and immovable property acquired by way of inheritance/legacy or settlement from a person who was resident in India there is no lock-in­-period. NRI/PIO may submit to the satisfaction of Authorised Dealer documentary evidence in support of inheritance/legacy or settlement. Remittance of Assets out of NRO Account by a Person Resident Outside India other than NRI/PIO A citizen of a foreign state not being a citizen of Pakistan, Bangladesh, Nepal or Bhutan who ­ i ii has retired from an employment in India, or has inherited assets from a person who was resident in India, or

NRls/PIOs are permitted to remit through an Authorised Dealer, an amount not exceeding USD One million per calendar year, out of balances held in the NRO account representing the sale proceeds of assets (a) acquired in India out of rupee/foreign currency funds or (b) by way of inheritance/ legacy or settlement from a person who was resident in India subject to conditions outlined below: Assets Acquired in India out of Rupee/ Foreign Currency Funds
Immovable property

iii is a widow resident outside India and has inherited assets of her deceased husband who was an Indian citizen resident in India. may remit an amount up to USD One million, per calendar year, on production of documentary evidence in support of acquisition, inheritance or legacy of assets to the authorised dealer.

NRI/PIO may remit sale proceeds of
60

Bank Accounts of Non-Residents

Restrictions The facility of remittance of sale proceeds of immovable property to a citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan, Iran, Nepal and Bhutan is not available. The facility of remittance of sale proceeds of other financial assets is not available to a citizen of Pakistan, Bangladesh, Nepal and Bhutan. Change of Residential Status
Bank Account

overdraft facilities while resident in India and who subsequently becomes a person resident outside India, the authorised dealer may at his discretion and commercial judgement, allow continuance of the loan/overdraft facilities. In such cases, payment of interest and repayment of loan may be made by inward remittance or out of legitimate resources in India of the person concerned. Payment of funds to Non-resident Nominee The amount due/payable to non-resident nominee from the account of a deceased account holder, shall be credited to NRO account of the nominee with an authorised dealer/ authorised bank in India. Foreign Nationals of Non-Indian Origin on a Visit to India NRO account (current/savings) can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. The balance in the NRO account may be converted by the authorized dealer into foreign currency for payment to the account holder at the time of his departure from India provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.
61

(a) From Resident to Non-resident When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non-Resident (Ordinary) Account. (b) From Non-resident to Resident NRO accounts may be re-designated as resident rupee accounts on return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit. Loans/Overdrafts In case of person who had availed of loan or

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Repatriable Accounts
Non Resident (External) Rupee Account (NRE Accounts)
NRIs and PIOs, are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts can be in the in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts for limited purposes. The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest is lying to the credit of NRE accounts is exempt from tax in the hands of the NRI. Funds held in NRE accounts may be freely transferred to Foreign Currency Non Residents (FCNR) accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders. Opening of An Account Persons of Indian nationality or origin resident abroad may open, with authorised banks in India, Non-resident (External) Accounts (NRE Accounts), designated in rupees. These accounts can be maintained in
62

the form of savings, current or term deposit accounts. Opening of NRE Accounts jointly in the names of two or more non-residents is permitted provided all the account holders are persons of Indian nationality or origin. For opening these accounts, the funds are required to be remitted to India through any bank from the country of residence of the prospective account holder. The account holder has to furnish an undertaking on the account opening form that he would promptly send intimation to his bank if and when he returns to India for permanent residence. Advantages Non-Residents can enjoy the following advantages by maintaining NRE Accounts: 1. Term deposits for one year and above made by non-residents carry interest at rates higher than those available to residents in India. 2. The interest on deposits and any other income accruing on the balances in the accounts are free of Indian Income-tax. 3. The balances in the accounts are free of Wealth­tax as well. 4. Gifts to persons other than relatives over and above Rs. 25,000 in a year would be taxable in the hands of the recipient. Exemptions are provided for gifts on occasion of marriage, or in contemplation of death or order a will or by way of inheritance. 5. The entire credit balance (inclusive of

Bank Accounts of Non-Residents

interest earned thereon) can be repatriated outside India at any time without reference to Reserve Bank. 6. Local disbursement from the accounts can be made freely. 7. Purchase of Units of Unit Trust of India (UTI), Mutual Funds, Central and State Government Securities and National Plan/Savings Certificates can be made freely from the balances in these accounts. 8. Sale proceeds/maturity proceeds/ repurchase price of Units of UTI, securities or certificates originally purchased out of the funds in the accounts can be freely credited to these accounts by banks, without reference to Reserve Bank. 9. Account holders are supplied special series of cheque leaves for operation on these accounts. 10. Account holders can avail of loans/ overdrafts from banks against security of fixed deposits from out of their NRE accounts. Types of Accounts All types of accounts, viz. current, savings and term deposit, etc., can be opened under Non-Resident (External) Accounts Scheme. A Non-Resident can open a joint account with other non­resident provided all the account holders are persons of Indian nationality or origin. Opening of a joint account by a non-resident

person with a person resident in India is not permitted under NRE Scheme. Non-resident account holders can grant power of attorney or such other authority to residents in India for operating their NRE Accounts in India. Such authority is however, restricted to withdrawals for local payments and remittance to the account holder himself. In cases where the account holder or a bank designated by him is eligible to make investment in India, the Power of Attorney holder is permitted by the AD/bank to operate the account to facilitate such investment. RBI has permitted banks/ authorised dealers to allow remittance abroad to the non-resident account holder by his constituted attorney under a specific power in this regard. The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances (other than to the account holder himself) or make payment of gifts on behalf of the account holder, or transfer funds from the said account to another NRE account. Such account can also be opened by an eligible non­resident Indian during his temporary visit to India, against tender of foreign currency traveller cheques/currency notes, provided the bank is satisfied that the prospective account holder has not ceased to be a non-resident. The amount so tendered would be endorsed on the Currency Declaration Form (CDF) where applicable, before crediting the rupee equivalent to the account.
63

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

The initial deposit in NRE account can be made in any of the following manners ­
H

Transactions where Form A4 is to be completed.
H

By proceeds of foreign exchange remittances from abroad through banking channels in an approved manner. By proceeds of foreign currency notes and traveller cheques brought into India by non-resident while on a temporary visit to India. By transfer from an existing NonResident (External) FCNR account of the same person.

Proceeds of foreign exchange remittances, drafts, personal cheques, etc., in the name of the account holder. Proceeds of foreign currency travellers, cheques, drafts and personal cheques drawn by account holder on a foreign currency account maintained abroad by him (including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency or in rupees from the account of a nonresident bank) deposited by account holder during his temporary visit to India; provided authorised dealer is satisfied that the account holder is still ordinarily resident abroad, the travellers’ cheques/drafts are standing in the name of account holder and have not been endorsed in his favour and in the case of travellers’ cheques, they are discharged by the account holder in the presence of the bank officials. Proceeds of foreign currency/bank notes tendered by account holder during his temporary visits to India, provided these are tendered to authorised dealer in person by account holder himself and the authorised dealer is satisfied that account holder is still ordinarily resident outside India’.

H

H

H

Operation of Accounts There are certain restrictions on operation of NRE accounts and Form A2/ A4 are to be completed for a few transactions. These forms may be completed either by the resident party to the transaction or by the bank after obtaining necessary information from the resident party account holder. Credits in the Account, i.e. amounts that can be deposited into the account Transaction where Form A4 is not to be completed:
H H

Proceeds of remittances to India in any permitted currency. Transfer from FCNR accounts of the same account holder. Interest accruing on balances in Nonresident (External) or FCNR accounts of the account holder.
64

H

H

Notes: H Purchases of travellers, cheques/currency notes/ bank notes made in terms of (ii)

Bank Accounts of Non-Residents

and (iii) above should be endorsed on the reverse of Currency Declaration Form (CDF), wherever applicable. A photocopy of CDF should be kept on record by authorised dealer.
H

Foreign currency notes/bank notes and travellers’ cheques tendered by Power of Attorney holder of any person other than account holder, should not be credited to NRE Account. Form A4 is to be completed only for transactions of Rs. 1,00,000 or above.

H

pension, interest, etc., of NRI can be credited to NRE Account by authorised dealer, if the credit represents current income of the NRI account holder and income tax thereon has been deducted/ paid/provided for, as the case may be. If NRI/PIOs do not have a taxable income in India, then a simple declaration, in duplicate, from the NRls/PIOs to the effect that he/ she is not a tax-payer in India, is to be submitted to the authorised dealer. Debits in the Account, i.e. amounts that can be withdrawn from the account Transactions where Form A4 is not to be completed.
H

Other Credits H Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/FCNR account of the account holder or by remittances from outside India through normal banking channels.
H

All local payments except for purposes of investment. Transfer to any other NR(E) or FCNR account of the same person. Transfer to NR(E) accounts of persons other than the account holder for bona fide personal purposes.,

H

Refund of application/earnest money/ purchase consideration made by the house building agencies/ seller on account of non-allotment of flat/plot/ cancellation of booking/deals for purchase of residential/commercial property together with interest, if any (net of Income Tax payable thereon), provided the original payment was made out of NRE/FCNR account or remittance from outside India through normal banking channels. Current Income like rent/dividend,

H

Transactions where Form A4 is required to be completed.,
H

Payments for permissible investments by the account holder. Payments towards purchase price of immovable property by account holder. Any other transaction if covered under general or special permission granted by Reserve Bank.
65

H

H

H

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Note: Form A4 is required to be filled in and retained for scrutiny by auditors of banks. Transaction required to be reported on Form A2
H H

In respect of funds held in fixed deposits in NR(E) Accounts, interest will be payable at the rate originally fixed, provided the deposit is held for the full term, even after conversion into resident account. International Credit Cards NRIs/PIOs can be issued international credit cards provided the charges for the use of the card are by way of inward remittances from balances in NRO/NRE/FCNR(B) Accounts. Disadvantages of NR(E) Accounts H NR(E) accounts are opened in Indian rupees and all foreign exchange remittances received for credit of those accounts are first converted into Indian rupees at buying rates by banks. Any withdrawal in foreign currency will be permitted by bank by converting Indian rupees in the account into foreign currency at selling rate, at the cost/loss of account holder.
H

Remittances abroad. Sale of foreign currency, traveller cheques etc. to account holder himself or his requiring provided that they hold a ticket showing journey date which should not be later than thirty days from the date of sale.

All other transactions of credit/debit to these accounts not covered under the above provisions required prior approval of Reserve Bank. Form A4 is to be completed in duplicate in such cases and forwarded to Reserve Bank through the bank with whom the account is maintained. The transaction will be put through the account only after a copy of Form A4 duly approved by Reserve Bank is received back by bank. Change of Status from Non-Resident to Resident Immediately upon return of account holder to India and on his becoming resident in India, NR(E) account will be redesignated as resident rupee account or converted to RFC account at the option of the account holder. However, if the account holder is only on a short visit to India, the account will continue to be treated as NR(E) account even during his stay in India.
66

Exchange rates are subject to fluctuation on day-to-day basis and Indian rupee has depreciated against all major foreign currencies in recent past. Balances held in Indian rupees in NRE accounts are thus exposed to exchange. fluctuation risk.

Foreign Currency (Non-Resident) Account Bank Scheme (FCNRB)
Introduction NRIs/PIOs are permitted to open such

Bank Accounts of Non-Residents

accounts in US dollars, Sterling Pounds, Japanese Yen ,Euro, Canadian Dollars and Australian Dollars. The accounts may be opened in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less then two years.(b) two years and above but less then three years. and (c) three years only. Now RBI has allowed banks to accept FCNR(B) deposits upto maximum period of five years. Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws. FCNR (B) accounts can also be utilised for local disbursement including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guideline. Eligibility NRIs are eligible to open and maintain these accounts with authorised dealer. However, opening of FCNR(B) accounts in names of NRIs Bangladesh/Pakistan nationality/ownership require approval of Reserve Bank. Types of Accounts FCNR(B) account can only be opened in the form of term deposits. The deposits are accepted for the terms not exceeding five years. The rate of interest on funds held in these deposit accounts will be in accordance with

the directives issued by Reserve Bank from time to time. A non-resident can open a joint account with the other non-resident provided all the account holders are persons of Indian nationality or origin. Opening of a joint account by a non-resident with a person resident in India is not permitted. Opening of Accounts 1. Accounts can be opened with funds remitted from outside India through normal banking channels or funds received in rupees by debit to account of a non-resident bank maintained with authorised dealer in India or funds which are of repatriable nature in terms of regulations made by Reserve Bank. 2. Accounts can also be opened by transfer of funds from existing NRE/FCNR accounts. 3. Remittances from outside India for opening of or crediting to these accounts should be made in the designated currency in which the account is desired to be opened/maintained. Without prejudice to the above, if the remittance is made in a currency other than designated currency (including funds received in rupees by debit to account of a non-resident bank), it should be converted into the latter currency by authorised dealer at the risk
67

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

and cost of the remitter and account should be opened/credited in designated currency only. 4. In case depositor with any convertible currency other than designated currency desires to place a deposit in these accounts, authorised dealers may undertake with the depositor a fully covered swap in that currency against the desired designated currency, such a swap being possible between any two designated currencies. 5. Where the funds are received in Indian rupees for opening these accounts shall be converted by authorised dealer into designated foreign currency at clean T.T. selling rate for that currency ruling on date of conversion. Designated Currencies Deposit of funds in accounts may be accepted in Pound Sterling, Japanese Yen, US Dollar, Euro, Canadian Dollar, Australian Dollar and such other currencies as may be designated by Reserve Bank from time to time. Operations of Accounts
i Debits in Accounts

b

The maturity proceeds of NRNR deposits credited to NRE Account can also be subsequently transferred to FCNR(B) Account. Non-Resident Indians/Persons of Indian Origin can credit refund of application/earnest money/purchase consideration made by the housing building agencies/seller on account of non-allotment of flat/plot/ cancellation of bookings/deals for purchase of residential, commercial property, together with interest, if any (net of income tax payable thereon), to NRE/FCNR account, provided, original payment was made out of NRE/FCNR account of account holder or remittance from outside India through normal banking channels and authorised dealer is satisfied about genuineness of the transaction.

c

Maturity proceeds of deposit

All debits as permissible under NRE Account scheme are also permissible from this account.
ii Credits in Accounts

a

All the credits as permissible under NRE Account scheme are also permissible from this account

Principal Amount and Interest will be payable in the same designated currency. The depositor, thus, will not be exposed to any exchange risk fluctuation. The depositor will have option to convert the foreign currency amount of designated currency into any other convertible currency at appropriate rate of exchange. For the purpose of payment in rupees, the amount shall be converted at the clean T.T buying rate ruling on the date of withdrawal.

68

Bank Accounts of Non-Residents

Interest

Interest is payable either half-yearly or on annual basis at option of the depositor. Interest can be either credited to a new FCNR(B) Account or his existing/new NRE/ NRO Account. Change of Resident Status of Account Holder When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at contracted rate of interest, if so desired by him. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR(B) deposits; for all other purposes such deposits shall be treated as resident deposits from the date of return of the account holder to India. Authorised dealers should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the account holder and interest on the new deposit (rupee account or RFC account) shall be payable at the relevant rates applicable for such deposits. Miscellaneous The terms and conditions as applicable to NRE accounts in respect of joint accounts, repatriation of funds, opening account during temporary visit, operation by power of attorney holder, loans/overdrafts against security of funds held in accounts, shall apply mutatis mutandis to FCNR (B) accounts.

Resident Foreign Currency Accounts (RFC)
Any person who has been an NRI is eligible to open an RFC account, irrespective of the period for which he enjoyed the status. The funds in RFC shall be free from all restrictions regarding utilization of foreign currency balances including any restriction on investment in any form, by whatever name called, outside India. The most important aspect of RFC is that the account holder can freely repatriate the entire or part of balance as desired by him. However, the utility of RFC has been much diluted ever since the Residents are allowed to purchase legally sufficient foreign exchange (FE) for bona fide reasons. Moreover, NRIs are allowed to continue to hold bank accounts and investments abroad. Main Features H The scheme is available to NRIs returning only from External Group of countries
H

RFC can be opened and maintained in any convertible foreign currency. The account can be held singly or jointly, though nomination facility is available. RFCs can be maintained in the form of current or savings or tern deposits. No loans or overdrafts will be permitted in these accounts.
69

H

H

H

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Permissible Credits H FE balances repatriated from abroad.
H

The scheme of importing gold and silver is extended to RFC and EEFC account holders.

Incomes or sale proceeds from FE assets held abroad. Sale proceeds of FE Assets held in India sold. Pension, superannuation or other monetary benefits from ex-employer outside India. Transfer from NRE and FCNR balances. Proceeds of foreign currency notes and foreign travelers’ cheques brought in by the account holder. Transfers from other RFC accounts of the account holder. Interest earned on RFC accounts. Recredit of unspent FE surrendered by the account holder on his return to India, provided that unspent exchange had in fact been released for travel, etc., and it is surrendered within the stipulated period. Gifts or inheritance received from abroad.

H

International Credit Cards (ICC) to NRIS/PIOS
NRI/PIOs can obtain International Credit Cards without the prior approval of Reserve Bank of India. The only condition prescribed is that the charges for the use of ICC are paid out of inward remittances of balances in their NRE Accounts/Foreign Currency Non ­Resident Accounts. However, the Reserve Bank has made further relaxation vide Circular No. 59, dated December 9, 2002 in which the NRIs/PIOs are allowed to settle/debt the charges/ expenses through credit card upto the limit of the card out of funds held in NRO account as well. The debits shall also be subject to the conditions for use of the International Credit Cards by residents.

H

H H

H

H H

H

H

Nomination Facility for Bank Accounts in India
The Banking Companies (Nomination) Rules, 1985 framed under Banking Regulation Act, 1949 enable banks to accept nominations. Nomination can be made by account holder or, as the case may be, by all joint account holders together, in respect of an account held by them with a bank in India. The nomination can be made only in respect of a deposit held in the individual

Permissible Debits H Remittance abroad for any bona fide purpose of the account holder or for his dependents. This may
H H

include Purchase of a foreign security. Transfers to other RFC accounts of the account holder. All local disbursements and bank charges.
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H

Bank Accounts of Non-Residents

capacity of the depositor, and not in any representative capacity as a holder of an office or otherwise. The nomination has to be made in favour of only one individual. The nominee may be a minor but in that case the account holder should, while making the nomination, appoint another individual (who is not a minor) to receive the amount of deposit on behalf of the nominee during his minority, in case of need. The nomination made can be varied or cancelled by the account holder any time during the currency of the account by filing an application in the prescribed form. The nomination facility is also available to holders of non-resident accounts. However, in case of deposits held in FCNR and NRE accounts, the deceased account holders’ nominees (who could also be residents in India) would not be automatically entitled to the right of repatriation of funds acquired by them. Similarly, credit of the amount becoming payable to a nominee to his NRE/ FCNR account requires prior permission of Reserve Bank of India. In such cases, the nominees are required to make separate applications to Reserve Bank of India, which would be considered in the light of the residential status of individual nominees and the relevant Exchange Control Regulations. Utilisation of the funds in India by the nominees would not, however, need exchange control approval. The forms prescribed for deposit accounts

under Nomination Rules are DA 1 for nomination, DA 2 for cancellation and DA 3 for variation.

Questions and Answers
Q.1 Can an NRI account be opened in the name of crew members of shipping companies? NRI accounts can be opened in the name of crew members of shipping companies if their posting is not based in India and they derive their income from abroad in foreign currency. Shipping crew members visit. India and sometimes they are on vacation for family reasons for four to six months or more. In which case what will be their status? Are they resident or non­resident and are their bankers obliged to ascertain their status? Bankers are under no obligation to ascertain the number of days the NRI is in India, and it is for the NRI to inform his bankers about any change in his status. Further, the purpose of stay in India is material to define an NRI as per FEMA. Therefore, as long as the person is gainfully employed outside India and is only on a long leave in India for reasons of family convenience (where admittedly his stay in India would be for a specific or certain duration), he will continue
71

Ans.

Q.2

Ans.

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

be an NRI for purposes of his bank accounts in India. Q.3 Ans. Q.4 Can Non-residents open these accounts from abroad? Yes. Many banks in India provide online account opening facility. Can NRO/NRE account holders obtain loans/overdrafts against their fixed deposits? Loans to Non-resident account holders can be granted for personal as well as business purpose. The loan for the purpose of re-lending, or carrying on agricultural/plantation activities or investment in real estate business is not permitted. Can funds in NRE/NRO accounts be utilised for payment of airfare to and to/in India of the account holder and/ or his dependents? Banks maintaining the accounts have been authorised to permit such payments. Airlines/Shipping companies and their agents have also been permitted to accept payments in rupees from the funds held in NRO/ NRE accounts for the purpose. Is transfer of funds between NRE accounts maintained by two different account holders permitted? Yes. Authorised dealers can permit transfer of funds from the NRE account of one person to the NRE account of another person for bona fide personal purposes.

Q.7 Ans.

Is there a limit on the number of accounts which an NRI can open? No. An NRI can open as many NRO, NRE or FCNR accounts as he desires. Can a foreign shipping or airline company open a foreign currency account in India? A shipping or airline company incorporated outside India or its agent in India may open, hold and maintain a Foreign Currency Account with an authorised dealer in India for meeting the local expenses in India of such airline or shipping company. What kinds of credits are permitted in the foreign currency accounts of a foreign shipping or airline company or its agent in India? Foreign shipping or airline company or its agents in India are permitted, to credit freight or passage fare collections in India or an inward remittance through normal banking channels from its office outside India, and in case of agent, from his principal outside India.

Q.8

Ans.

Ans.

Q.5

Q.9

Ans.

Ans.

Q.6

Ans.

Q.10 Can an Indian Branch or liaison office of a foreign company have a fixed deposit account in India? Ans. Recently, RBI has permitted such entities to open a term deposit account for a period not exceeding

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Bank Accounts of Non-Residents

six months provided Authorised Dealer is satisfied that the term deposit is out of temporary surplus funds. The branch/liaison office also needs to furnish an undertaking that the maturity proceeds of the term

deposit will be utilised for its business in India within three months of its maturity. However, branch/liaison offices of foreign shipping/airline companies are not allowed such a facility. ■■

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Foreign Direct Investment
Policy on Foreign Direct Investment
India has among the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government: 1. Activities/items that Industrial license require an Department of Industrial Policy and Promotion. All Press Notes are available at the Website (www.dipp.gov.in) Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) also notifies FDI policy. Please refer to RBI website (www.rbi.org.in).

Procedure Under Automatic Route
FDI in sector/ activities to the extent permitted under automatic route does not require any prior approval either by Government of India or RBI. The investor are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 Days of shares to foreign investors.

2. Proposals in which the foreign collaborator has an existing financial / technical collaboration in India in the ‘same’ field (refer press Note no. 1 of 2005 series), 3. Proposals for acquisition of shares in an existing Indian Company in:
H H

Financial Service Sector and Where Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) regulation, 1997 is attracted;

Procedure Under Government Approval
FDI in activities not covered under the automatic route requires prior Government Approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/ foreign technical collaboration are also granted on the recommendation of the FIPB. Application of all FDI cases, except NonResident Indian (NRI) investments and

4. All proposals falling outside notified sectoral policies/caps or under sectors in which FDI is not permitted. FDI policy is reviewed on an on going basis and changes in spectral policy/sectoral equity cap are notified through Press Notes by the secretariat for industrial assistance (SIA),
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Foreign Direct Investment

100% Export Oriented Units (EOUs), should be submitted to the FIPB Units, Department of Economic Affairs (DEA), Ministry of Finance. Applications for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion. Application can also be submitted with Indian Missions abroad who forward them to the Department of Economic Affairs for further processing. Application can be made in Form FC-IL, which can be downloaded from http:// www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

General Permission of RBI Under FEMA
Indian companies having foreign investment approval through FIPB do not require any further clearance from RBI for receiving inward remittance and issue of shares to foreign investors. The companies are required to notify the concerned Regional Office of the RBI of receipt of inward remittances within 30 Days of such receipt and within 30 days of issue of shares to foreign investors or NRIs Participation by International Financial Institutions Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI.

Prohibited Sectors
The extant policy does not permit FDI in the following cases; 1. Gambling and Betting 2. Lottery Business 3. Atomic Energy 4. Retail Trading 5. Agricultural or Plantation activities or Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea plantations)

Issue and Valuation of Shares in Case of Existing Companies
According to RBI / SEBI guidelines, in case of listed companies, the issue price shall be either at: a The average of the weekly high and low of the closing prices of related shares quoted on the stock exchange during the six months preceding the relevant date, or The average of the weekly high and low of the closing prices of related shares
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b

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

quoted on the stock exchange during the two weeks preceding the relevant date. The stock exchange referred to is the one at which the highest trading volume in respect of the share of company has been recorded during the preceding six months prior to the relevant date. The relevant date is the date thirty days prior to the date on which the meeting of the General Body of the shareholder is convened. In all other cases a company may issue shares as per the RBI regulation in accordance with the guidelines issued by the erstwhile Controller of Capital Issues. Other relevant guidelines of Securities and Exchange Board of India (SEBI)/ and RBI, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, wherever applicable, would need to be followed. Further information could be obtained at Security and Exchange Board of India’s (SEBI) website: www.sebi.gov.in.

Issue of Shares Under Merger/ Amalgamation
Where a Scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company may issue shares to the shareholders of the transfer or company resident outside India, subject to ensuring that the percentage of shareholding of persons resident outside India in the transferor new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank of India. This entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. For this specific permission from RBI is necessary.

Issue of Shares Under ESOP Scheme
Under Employee Stock Option (ESOP) Scheme a company may issue shares to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust, subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company.

Issue of Rights/Bonus Shares
General permission of the RBI is available to Indian companies to issue right/bonus shares, subject to certain conditions.Entitlement of rights shares is not automatically available to investors who have been allotted such shares as Overseas Corporate Bodies (OCBs). Such issuing companies would have to seek specific permission from RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile OCBs.
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Transfer of Shares/Debentures
Transfer of shares in the following categories

Foreign Direct Investment

of cases is allowed under automatic route: a Transfer of shares from resident to nonresident (including transfer of subscribers’ shares to non-residents) other than in financial services sector provided the investment is covered under automatic route, does not attract the provisions of SEBI’s (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, falls within the sectoral cap and also complies with prescribed pricing guidelines. Conversion of ECB/Loan into equity provided the activity of the company is covered under automatic route, the foreign equity after such conversion falls within the sectoral cap and also complies with prescribed pricing guidelines. Cases of increase in foreign equity participation by fresh issue of shares as well as conversion of preference shares into equity capital provided such increase within the sectoral cap in the relevant sectors, are within the automatic route and also complies with prescribed pricing guidelines. c

outside India (including NRIs); provided transferee has obtained prior permission of SIA/FIPB, in terms of Press Note No.1 (2005 Series) to acquire the shares if he has an existing venture or tie-up in India in the same field in which the Indian company whose shares are being transferred is engaged. b NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another nonresident Indian; provided transferee has obtained prior permission of Central Government in terms of Press Note No.1 (2005 Series) to acquire the shares if he has an existing venture or tie-up in India in the same field in which the Indian company whose shares are being transferred, is engaged. The person resident outside India may transfer any security to a person resident in India by way of gift.

b

c

d A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker

General permission of the RBI has been granted to Non-Residents/NRIs for transfer of shares and convertible debentures of an Indian company as under : a A person resident outside India (Other than NRI and OCB) may transfer by way of sale or gift shares or convertible debentures to any person resident

American Depository Receipts (ADRs)/Global Depository Receipts (GDRs)
An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs by issuing its Rupee denominated shares to a person resident outside India being a depository for the
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

purpose of issuing GDRs and/ or ADRs, subject to the conditions that: a the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme,1993 and guidelines issued by the Central Government there under from time to time The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations.

Notification No. 20 deal with the issue of ADR/GDR by an Indian company. A company engaged in the manufacture of items covered under Automatic route, whose direct foreign investment after a proposed GDRs/ADRs/FCCBs issue is likely to exceed the equity limits under the automatic route, or which is implementing a project falling under Government approval route, would need to obtain prior Government clearance through FIPB before seeking final approval from the Ministry of Finance.

b

Foreign Currency Convertible Bonds (FCCBs)
FCCBs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, and subscribed by a nonresident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments. Eligibility The eligibility for issue of Convertible Bonds or Ordinary Shares of issuing company is as under: a An issuing company desirous of raising foreign funds by issuing Foreign Currency Convertible Bonds or ordinary shares for equity issues through Global Depositary Receipt

c

There is no limit up to which an Indian company can raise ADRs/GDRs. However, the Indian company has to be otherwise eligible to raise foreign equity under the extant FDI policy. There are no end-use restrictions on GDR/ ADR issue proceeds, except for an express ban on investment in real estate and stock markets. The FCCB issue proceeds need to conform to external commercial borrowing end use requirements. In addition, 25 per cent of the FCCB proceeds can be used for general corporate restructuring. Regulation 4 of Schedule-I of FEMA
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Foreign Direct Investment

i ii

Can issue FCCBs up to US$50 Million under the Automatic route, From US$50 –100 Million, the companies have to take RBI approval,

5. Dividend rate This should not exceed the limit prescribed by the Ministry of Finance

iii From US$100 Million and above, prior permission of the Department of Economic Affairs is required.

FDI in EOUs/SEZs/Industrial Park/ EHTP/STP/ Special Economic Zones (SEZs)
FDI up to 100% is permitted under the automatic route for setting up of Special Economic Zone (SEZ). Proposals not covered under the automatic route require approval by FIPB. How to Set Up Unit in SEZ Units in SEZ qualify for FDI approval through automatic route subject to sectoral norms. 1. For setting up a unit in an SEZ, three copies of the application in the form given in Appendix-14-I-A of Foreign Trade Policy may be submitted to the Development Commissioner (DC) of the SEZ concerned. 2. Proposals for setting up units in SEZ other than those requiring industrial License may be granted approval by the Development Commissioner. 3. Proposals for setting up units in SEZ requiring Industrial License may be granted approval by the Development Commissioner after clearance of the proposal by the SEZ Board of Approval. 4. Letter of Permission (LOP)/Letter of Intent(LOI) issued to SEZ units by the Development Commissioner would be
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Preference Shares
Foreign investment through preference shares is treated as Foreign Direct Investment. Issue of preference share should conform to guidelines prescribed by the SEBI and RBI and other statutory requirements. The policy in regard to preference shares is tabulated below: 1. Procedure Automatic or Government approval route depending upon the activity/sector of the company. 2. Whether considered as part of share capital? Yes, and fall outside the ECB as part of share guidelines/cap. 3. Whether considered while calculating equity cap, if any? Yes, provided they carry a conversion while calculating option.equity cap, if any? 4. Duration of conversion As per the maximum limit prescribed under the Company’s Act or as agreed to in shareholder’s agreement, whichever is less.

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

construed as a license for all purposes, including for procurement of raw material and consumables either directly or through canalizing agency. 5. The LOP/LOI shall specify the items of manufacture/service activity, annual capacity, projected annual export for the first years in dollar terms, Net Foreign Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required. Details about the type of activities permitted are available in the Foreign Trade Policy issued by Department of Commerce.

automatic route, subject to parameters. For proposals not covered under automatic route, the applicant should seek separate approval of the Government through the FIPB.

Software Technology Park (STP) Units
Proposals for FDI/NRI investment in STP Units are eligible for approval under automatic route subject to parameters. For proposals not covered under automatic route, the applicant should seek separate approval of the Government through the FIPB.

Capitalization of Import Payables
FDI inflows are required to be under the following mode : 1. By inward remittances through normal banking channels or 2. By debit to the NRE/FCNR account, of person concerned, maintained with an authorized dealer/authorized bank. Issue of equity to non-residents against other modes of FDI inflows or in kind is not permissible, except issue of equity shares against lump-sum fee and royalty payable for technology collaborations and external commercial borrowings (ECBs) in convertible foreign currency which are permitted under the automatic route subject to meeting all applicable tax liabilities and sector specific guidelines.

100% Export Oriented Units (EOUs)
FDI up to 100% is permitted under the automatic route for setting up 100% EOU, subject to sectoral policies. Proposals not covered under the automatic route would be considered and approved by FIPB.

Industrial Park
FDI up to 100% is permitted under automatic route for setting up of Industrial Park. Procedure for approval Electronic Hardware Technology Park (EHTP) Units Proposals for FDI/NRI investment in EHTP Units are eligible for approval under the
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Foreign Direct Investment

Industrial Licensing
Industrial Licensing Policy
Industrial Licenses are regulated under the Industries (Development & Regulation) Act, 1951. With progressive liberalization and deregulation of the economy, the requirement of industrial licensing have been substantially reduced. At present industrial license for manufacturing is required only for the following : 1. Industries retained under compulsory licensing, 2. Manufacture of items reserved for small scale sector by non-SSI units; and 3. When the proposed location attracts locational restriction

b. Phosgene and its derivatives c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate).

Small Scale Sector
An industrial undertaking is defined as a small-scale unit if the capital investment in plant and machinery does not exceed Rs 10 million. Small-scale units can get registered with the Directorate of Industries/District Industries Centre of the State Government. Such units can manufacture any item, and are also free from locational restrictions. The Government has reserved certain items for exclusive manufacture in the small-scale sector. (List available at www.dipp.gov.in)

Industries Requiring Compulsory Licensing
The following industries require compulsory industrial license : i. Distillation and brewing of alcoholic drinks.

Manufacture of Items Reserved for Small-scale Sector
Non small-scale units can manufacture items reserved for the small-scale sector only after obtaining an industrial license. In such cases, the non-small scale unit is required to undertake an obligation to export 50 per cent of the production of SSI reserved items.

ii. Cigars and cigarettes of tobacco and manufactured tobacco substitutes; iii. Electronic Aerospace and defence equipment: all types; iv. Industrial explosives, including detonating fuses, safety fuses,gun powder, nitrocellulose and matches; v. Hazardous chemicals; a. Hydrocyanic acid and its derivatives

FDI in SSI Units
A small-scale unit cannot have more than 24 per cent equity in its paid up capital from any industrial undertaking, either foreign or domestic. If the equity from another company (including foreign equity) exceeds
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

24 per cent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit looses its small-scale status and shall require an industrial license to manufacture items reserved for small-scale sector.

Locational Restrictions
Industrial undertakings are free to select the location of their projects. Industrial License is required if the proposed location is within 25 KM of the Standard Urban Area limits of 23 cities having population of 1 million as per 1991 census. List of such cities is at Annexure IX. Locational restriction does not apply: i If the unit were to be located in an area designated as an “industrial area’’ before the 25th July, 1991. In the case of Electronics, Computer Software and Printing and any other industry, which may be notified in future as “non polluting industry”.

to be submitted in the prescribed form. (Form FC-IL). This form is available in the Public Relation and Complaint Section (PR&C) of the SIA, all outlets dealing in Government Publications, Indian Embassies, and can be downloaded from the web site http:// www.dipp.gov.in. Application accompanied with a crossed demand draft of Rs. 2500/- (appr. US$ 55) may be submitted to the Public Relation and Complaint Section (PR&C) of Department of Industrial Policy & Promotion. Decisions are usually taken within 4-6 weeks of filing the application.

Policy for Industries Exempt from Licensing-Industrial Entrepreneurs Memorandum (IEM)
Industrial undertakings exempt from industrial license are only required to file an Industrial Entrepreneur Memorandum (IEM) in Part ‘A’, in the prescribed format, Procedure for IEM The form for filing an IEM is available at Public Relation and Complaint Section (PR&C), all outlets dealing in Government publications, Indian Embassies, and can also be downloaded from the web site www.dipp.gov.in The IEM can be filed with the PR&C section in SIA either in person or by post. The IEM should be submitted along with a crossed demand draft of Rs.1000/- (appr. US$ 22) for up to 10 items proposed to be manufactured.

ii

The location of industrial units is subject to applicable local zoning and land use regulations and environmental regulations.

Procedure for Obtaining Industrial License
Industrial License is granted by the Secretariat for Industrial Assistance (SIA) on the recommendation of the Licensing Committee. Application for industrial license is required
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Foreign Direct Investment

For more than 10 items, an additional fee of Rs. 250 (appr. US$ 6) for up to 10 additional items needs to be paid. On filing the IEM, an acknowledgement containing the SIA Registration Number, for future reference, is issued. In case IEM is sent by post, the acknowledgement is sent by post & no further approval is required. An IEM would stand cancelled if the proposal requires compulsory license. Upon commencement of commercial production, Industrial undertakings need to file information in Part ‘B’ of the IEM to PR&C Section in SIA. No fee is to be paid for filing Part B. All industrial undertakings whether or not exempt from compulsory industrial licensing, are statutorily required to submit monthly production return in the prescribed proforma every month. This should reach the Industrial Statistics Unit (ISU) of the Department positively by the 10th of the following month.

submitted in revised form “EE”, which can be downloaded from the web site www.dipp.gov.in along with a crossed demand draft of Rs. 2500/-(appr. US$ 55) However, on further expansion of its capacity beyond the capacity included in COB license, the unit would need to obtain an industrial license.

Payment of Prescribed Fee
The fee prescribed for various applications, licenses are to be paid through crossed demand draft drawn in favour of the Pay & Accounts Officer, Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, payable at New Delhi.

Environmental Clearances
Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment as may be necessary, for setting up an industrial project for 31 categories of industries in terms of Notification S.O. 60(E) dated 27.1.94 as amended from time to time, issued by the Ministry of Environment & Forests under The Environment (Protection) Act, 1986. This list includes petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper, etc. However, if investment in the project is less than Rs. 1 billion, such Environmental clearance is not necessary, except in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated
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Carry on Business (COB) License
Small- scale units by virtue of their natural growth may exceed the investment limit prescribed for small-scale units. In such cases these units need to obtain a Carry-onBusiness (COB) License based on the best production in the preceding three years. No export obligation is fixed on the capacity for which the COB license is granted. The application for COB licence should be

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries. Setting up industries in certain locations considered ecologically fragile (e.g. Aravalli Range, Coastal areas, Doon valley, Dahanu, etc.) are guided by separate guidelines issued by the Ministry of Environment and Forests. For further details please refer the website of Ministry of Environment and Forests (http://envfor.nic.in).

Payments for hiring of foreign technicians, deputation of Indian technicians abroad, and testing of indigenous raw material, products, indigenously developed technology in foreign countries are governed by separate RBI procedures and rules pertaining to current account transactions and are not covered by the foreign technology collaboration approval. For details please refer to the website of the RBI.

Automatic Route
Payment for foreign technology collaboration by Indian companies are allowed under the automatic route subject to the following limits: i ii the lump sum payments not exceeding US$2 million; royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports, without any restriction on the duration of the royalty payments. The royalty limits are net of taxes and are calculated according to standard conditions.

Foreign Agreements
General Policy

Technology

For promoting technological capability and competitiveness of the Indian industry, acquisition of foreign technology is encouraged through foreign technology collaboration agreements. Induction of know-how through such collaborations is permitted either through automatic route or with prior Government approval.

Scope of Technology Collaboration
The terms of payment under foreign technology collaboration, which are eligible for approval through the automatic route and by the Government approval route, includes technical know how fees, payment for design and drawing, payment for engineering service and royalty.
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The royalty will be calculated on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc.

Use of Trademarks and Brand Name
Payment of royalty up to 2% for exports and

Foreign Direct Investment

1% for domestic sales is allowed under automatic route for use of trademarks and brand name of the foreign collaborator without technology transfer. Royalty on brand name/trade mark shall be paid as a percentage of net sales, viz., gross sales less agents’/dealers’ commission, transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts and components imported from the foreign licensor or its subsidiary/affiliated company. In case of technology transfer, payment of royalty includes the payment of royalty for use of trademark and brand name of the foreign collaborator.

financial & technical collaboration are proposed): a b Sectors/activities which are not on the automatic route for FDI, or Proposals not meeting any of the parameters for automatic approval

Procedure for Government Approval Proposals for foreign technology collaboration not covered under the automatic route are considered by the Project Approval Board (PAB) in the Department of Industrial Policy and Promotion. Application in such cases should be submitted in Form FC-IL to the Secretariat for Industrial Assistance. Proposals where both financial & technical collaboration are proposed, application is to be submitted to FIPB. No fee is payable.

Procedure for Automatic Route
Authorised Dealers (ADs) appointed by the RBI allow remittances for royalty, payment of lump-sum fee and remittance for use of Trademark /Franchise in India within the limits prescribed under the automatic route. RBI’s prior approval is required for remittance towards purchase of trade mark/ franchise.

Entry Options for Foreign Investor
Entry Options
A foreign company planning to set up business operations in India has the following options: As an Incorporated Entity By incorporating a company under the Companies Act, 1956 through i ii Joint Ventures; or Wholly Owned Subsidiaries

Government Approval – Project Approval Board (PAB)
Royalty payment in the following cases requires prior Govt. approval (through PAB when only technical collaboration is proposed and through FIPB where both

Foreign Equity in such Indian Companies
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

can be up to 100% depending on the requirement of the investor, subject to any equity caps prescribed in respect of the area of activities under the Foreign Direct Investment (FDI) policy. As an Unincorporated Entity i As a foreign Company through i ii Liaison Office/Representative Office Project Office

between parent company and companies in India. Liaison office can not undertake any commercial activity directly or indirectly and can not, therefore, earn any income in India. Approval for establishing a liaison office in India is granted by Reserve Bark of India (RBI). Project Office Foreign companies planning to execute specific projects in India can set up a temporary project/site office in India . RBI has now granted a general permission to foreign entities to establish project offices subject to specified condition. Such offices can not undertake or carry on any activity other than activity relating and incidental to execution of the project. Project offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the following purposes: a. Export/Import of goods b. Rendering professional or consultancy services c. Carrying out research work, in which the parent company is engaged. d. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

iii Branch Office Such offices are undertaken activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000. Incorporation of Companies For registration and incorporation, an application has to be filled with the Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian Company, it is subject to Indian Laws and regulations as applicable to other domestic Indian companies. For details please visit the website of Ministry of Company Affairs at www.mca.gov.in Liaison Office/Representative Office The role of liaison office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration
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Foreign Direct Investment

e. Rendering services in Information Technology and development of software in India. f. Representing the parent company in India and acting as buying/selling agents in India.

d. In the event of winding up of business and for remittance of winding-up proceeds, the branch shall approach an authorized dealer in foreign exchange with the document required as per FEMA. Procedure for Liaison office/Project office/Branch office Application for setting up Liaison Office/ Project office / Branch Office may be submitted to Chief General Manager, Exchange Control Department (Foreign Investment Division), RBI Central Office, Mumbai-400 001, in the form FNC 1 (available at RBI website at www.rbi.org.in)

g. Rendering technical support to the products supplied by the parent/ group companies. h. Foreign airlines/shipping company Branch offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian Taxes and subject to RBI guidelines. Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Branch Office on “Stand Alone Basis” In SEZ

Such Branch Offices would be isolated and restricted to Special Economic Zone (SEZ) alone and no business activity/ transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch /unit in SEZs to undertake manufacturing and service activities subject to the following conditions: a. Such units are functioning in those sectors where 100% FDI is permitted. b. Such units comply with part XI of the Companies Act (section 592 to 602). c. Such units functions on a stand alone basis.

Investment in a Firm or a Proprietary Concern by NRIs
A Non-Resident Indian or a Person of Indian Origin Resident Outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on a nonrepatriation basis provided, i Amount is invested by inward remittance or out of NRE/FCNR/NRO account maintained with AD The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business i.e. dealing in land and immovable property with a view to earning income there from.

ii

iii Amount invested shall not be eligible for repatriation outside India.
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

NRIs/PIO may invest in sole proprietorship concerns/ partnership firms with repatriation benefits with the approval of Department of Economic Affairs, Government of India/ RBI.

Companies Act with the Registrar of Companies, Ministry of Company Affairs and all Indian operations would be conducted through this company. Q.2 Ans: What proposals require an industrial license (IL) and how is it obtained? Under the New Industrial Policy, all industrial undertakings are exempt from licensing except for industries requiring compulsory industrial license. The project should not be located within 25 kilometers of a city with a population of more than one million as per 1991 Population Census. The Government has substantially liberalized the procedures for obtaining an Industrial License. The application in form IL-FC should be filed with the SIA. Approvals are normally granted within 4-6 weeks. Q.3 Ans: What is the procedure for a delicensed sector? An Industrial undertaking exempted from licensing needs only to file information in the Industrial Entrepreneurs Memorandum (IEM) with the SIA, which will issue an acknowledgement. No further approvals are required. What is the taxation policy in India? Foreign nationals working in India are generally taxed only on their Indian income. Income received

Investment in a Firm or a Proprietary Concern by other than NRIs
No person resident outside India other than NRIs/PIO shall make any investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The RBI may, on an application made to it, permit a person resident outside India to make such investment subject to such terms and conditions as may be considered necessary.

Frequently asked Questions
Q.1 What are the forms in which business can be conducted by a foreign company in India? Foreign companies can make investments or operate their business in a number of ways such as Liaison/ Representative Office, Branch Office, Project Office, 100% Wholly Owned Subsidiary, and Joint Venture company. The requisite approval can be granted by Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB). Any company set up with FDI has to be incorporated under the Indian

Ans:

Q.4 Ans:

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Foreign Direct Investment

from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options. Q.5 What is the situation regarding intellectual property rights protection in India? India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organisation (WTO) and its laws today are WTO compliant. The important regulations dealing with Intellectual Property Rights are:

H H H

The Patents Act The Trademarks Act The Geographical Indication of Goods Act The Designs Act

H

Q.6 Ans:

Is investment by non-resident Indians (NRIs) permitted? The Government attaches importance to investments by NRIs. Government has provided a liberalised policy framework for approval of NRI investments through both the Automatic and the Government route. NRIs are permitted to invest up to 100% equity in the Real Estate and Civil Aviation Sectors. Automatic Approval is given by the RBI to all NRI proposals with their investment up to 100% for all items/activities except a few exceptions mentioned in Press Note 2 (2000 series) read with sector specific guidelines. Government approval is required for all proposals not qualifying under automatic route. Can profits, dividends, royalty, know how payments be repatriated from India? All profits, dividends, royalty, know how payments that have been approved by the Government/RBI can be repatriated. Some sectors like investment in development of integrated township, NRI
89

Ans:

Q.7

Ans:

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Investment in real estates, etc. may attract a lock-in period. Q.8 What are the formalities a joint venture company has to complete to increase the foreign equity holding? The following formalities are required for the joint ventures that want to increase in their foreign equity holding by acquisition of shares or by any other means. a) If only the quantum of foreign equity increased without change in percentage then Press Note no. 7 (1999 series) may be followed. b) For increase in percentage of foreign equity by way of expansion of capital base, automatic route or FIPB / Government route would apply depending upon the nature of proposal in terms of Press Note No. 2 (2000 series) c) Cases involving increase in percentage in foreign equity by way of acquiring existing shares in an Indian company would necessarily require prior approval of FIPB/Government if the activity is in the financial sector or the provision of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 is attracted. d) In cases involving inclusion of an
90

additional foreign collaborator, guidelines laid down in Press Note No. 1 (2005 series) would have to be satisfied. Q.9 What is the policy of conversion of non-repatriable shares into repatriable shares? FIPB approval is required. Where original investment was made in foreign exchange, the change is allowed without any conditions; if not, the sale proceed will have to be repatriated to India by opening an NRO account.

Ans:

Ans:

Q.10 What is the mechanism for publicizing the changes in the FDI policies? Ans: Changes in FDI policies are brought out in the form of Press Notes by Department of Industrial Policy & Promotion (DIPP). Soon after releasing the Press Notes to the media, it is also loaded on the Departmental website http:// dipp.gov.in.

Q.11 What mechanism is available alternative dispute resolution (ICADR)? Ans: International Center for Alternative Dispute Resolution (ICADR) has been established as an autonomous organization under the aegis of Ministry of Law & Justice to promote settlement of domestic and international disputes by different

Foreign Direct Investment

modes of alternate dispute resolution. ICADR has its headquarters in New Delhi and has regional office in Lucknow and Hyderabad. More information on ICADR can be obtained from the website: http://www.icadr.org

4. While considering cases and making recommendations, FIPB should keep in mind the sectoral policies vis-à-vis the proposal(s). 5. FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment, technical collaboration/industrial license) for composite approval or otherwise. However, the FIPB’s recommendations would relate only to the approval for foreign financial and technical collaboration and the foreign investor will need to take other clearances separately. 6. The Board should examine the following while considering proposals submitted to it for consideration: i Whether the items of activity involve industrial license or not and if so the considerations for grant of industrial license must be into; Whether the proposal involves technical collaboration and if so the source and nature of technology sought to transferred;

Guidelines for Consideration of Foreign Direct Investment (FDI) Proposals by the Foreign Investment Promotion Board (FIPB)
These guidelines stand modified to the extent changes have been notified by secretariat for Industrial Assistance from time to time .the following guidelines are laid–down to enable the Foreign Investment Promotion Board (FIPB) to consider the proposals for Foreign Direct Investment (FDI) and formulate its recommendations; 1. All applications should be put up before the FIPB within 15 days and it should be ensured that comments of the Administrative Ministries are placed before the Board either prior to/or in the meeting of the Board. 2. Proposals should be considered by the Board keeping in view the time frame of 30 days for communicating Government decision (i.e. approval of FM/CCEA or rejection as the case may be). 3. In cases in which either the proposal is not cleared or further information is required, in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to.

ii

iii Whether proposal involves any mandatory requirement for exports and if so whether the applicant is prepared to undertake such obligation (this is for items covered for small scale sector as also for dividend balancing, and for 100% EOUs/EPZ units); iv Whether the proposal involves any
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

export projection and if so the items of export and the projected destinations; v Whether the proposals has concurrent commitment under other schemes such as EPCG Scheme etc;

7. While considering proposals following may be prioritized; a

the

Items/activities covered under Government route (i.e. those which do not qualify under automatic route). Items falling in infrastructure sector. Items which have an export potential Items which have a large scale employment potential and especially for rural people. Items which have a direct backward linkage with agro business/farm sector. Items which have greater social relevance such as hospitals, human resource development, life saving drugs and equipment. Proposals, which resulting introduction of technology or infusion of capital.

b c d

vi In the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition norms and the minimum turn over of exports are met or not; vii Whether the proposal involves relaxation of locational restrictions stipulated in the industrial licensing policy; viii Whether the proposal has any strategic or defence related considerations, and ix Whether the proposal has any existing joint venture or technology transfer/trademark agreement in the same field in India, and if so whether this agreement is sick or defunct; the investment by either party is less than 3% & Investment is by FVCI, the detailed circumstance in which it is considered necessary to set-up a new technology transfer (including trade mark),and proof that the new proposal would not in any way jeopardize the interest of the existing joint venture or technology/trade mark partner or other stock holders.
92

e

f

g

8. The following should be especially considered during the scrutiny and consideration of proposals; a The extent of foreign equity proposed to be held (keeping in view sectoral caps if any: – e.g.24% for SSI units, 49% for air taxi/airlines operators, 74% in basic/cellular/ paging in Telecom sector etc). Extent of equity with composition of foreign/NRI/resident Indians.

b

Foreign Direct Investment

c

Extent of equity from the point of view whether the proposed project would amount to a holding company/Wholly Owned Subsidiary/ a company with dominant foreign investment (i.e. 75% or more) Joint venture. Whether the proposed foreign equity is for setting up a new project (Joint Venture or otherwise) or whether it is for enlargement of foreign /NRI equity or whether it is for fresh induction of foreign equity/ NRI equity in an existing Indian company. In the case of fresh induction of foreign/NRI equity and/or cases of enlargement of foreign/NRI equity in existing Indian companies whether there is a resolution of Board of Directors supporting the said induction/enlargement of foreign/NRI equity and whether there is a shareholders agreement or not. In the case of induction of fresh equity in the existing Indian companies and/or enlargement of foreign equity in existing Indian companies, the reason why the proposal has been made and the modality for induction/ enhancement [i.e. whether by increase of paid up capital/ authorized capital, transfer of shares

(hostile or otherwise) whether by right issue, or by what modality]. Cases pertaining to FIPB approvals, which involve increase in the nonresident equity within the approved percentage of non-resident equity in a joint venture company and enhancement of paid up capital in a wholly owned subsidiary do not require FIPB approval provided the intent for increase in the amount of foreign equity is duly notified to SIA and formal documentation by way of intimation is made to SIA within 30, days of receipt of funds and allotment of shares (to non-resident shareholders). g h Issues/transfer/pricing of shares will be as per SEBI/RBI guidelines. Whether the activity is an industrial or a service activity or a combination of both. Whether the item of activity involves any restrictions by way of the small scale sector. Whether there are any sectoral restrictions on the activity (e.g. there is ban on foreign investment in real estate while it is not for NRI investment). Whether the item involves only trading activity and if so whether it involves export or both export and import, or also includes domestic
93

d

e

i

f

j

k

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

trading and if domestic trading whether it also includes retail trading. l Whether the proposal involves import of items, which are hazardous, banned or detrimental to environment (e.g. import of plastic scrap or recycled plastics).

would require prior approval of the Government; b Where proprietary technology is sought to be protected or sophisticated technology is proposed to be brought in; Where at least 50% of production is to be exported; Proposals for consultancy; and Proposals for industrial model towns/ industrial parks or estates.

c d e

9. In respect of activities to which equity caps apply, FIPB may consider recommending higher levels of foreign equity as compared to the prescribed caps, keeping in view the special requirements and merits of each case. 10. In respect of other Industries/activities the Board may consider recommending 51% Foreign Equity on examination of each individual proposal. For higher levels of equity up to 74% the Board may consider such proposals keeping in view considerations such as the extent of capital needed for projects, the nature and quality of technology, the requirements of marketing and management skills and the commitment for exports. 11. FIPB may consider recommending proposals for 100% Foreign owned holding/subsidiary companies based on the following criteria: a Where only “holding” operations is involved all subsequent/down stream investments to be carried out

12. In special cases, where the foreign investor is unable initially to identify an Indian joint venture partner the Board may consider and recommend proposals permitting 100% foreign equity on a temporary basis on the condition that the foreign investor would divest to Indian parties (either individual joint venture partners or general public or both) at least 26% of its equity with in a period of 3-5 years. 13. Similarly in the case of a joint venture, where the Indian partner is unable to raise resources for expansion/ technological up-gradation of the existing industrial activity the Board may consider and recommend increase in the proportion/percentage (up to one hundred percent) of foreign equity in the enterprise. 14. In respect of trading companies 100% foreign equity may be permitted in the case of activities involving the following:

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Foreign Direct Investment

a b c

exports; bulk imports with ex-ports/exbonded warehouse sales; sales of goods and services among the companies of the same group.cash and carry wholesale trading; other import of goods and services provided at least 75% is for procurement and

This would not prohibit changes in general policies and regulations applicable to industrial sector. 17. Where in case of a proposal (not being a 100% subsidiary) foreign direct investment has been approved up to a designated percentage of foreign equity in the joint venture company the percentage would not be reduced while permitting induction of additional capital subsequently. Also in case of approved activities if the foreign investor (s) concerned wished to bring in additional capital on later dates keeping the investment to such approved activities, FIPB would recommend such cases for approval on an automatic basis. 18. As regards proposals for private sector banks, the application would be considered only after “in principle” permission is obtained from the Reserve Bank of India (RBI). 19. The restrictions prescribed for proposals in various sectors as obtained should be kept in view while considering the proposals. ■■

d

15. In respect of companies in the infrastructure/services sector where there is a prescribed cap for foreign investment, only the direct investment should be considered for the prescribed cap and foreign investment in an investing company should not be set off against this cap provided the foreign direct investment in such investing company does not exceed 49% and the management of the investing company is with the Indian owners. 16. No condition specific to letter if approval issued to a foreign investor would be changed or additional condition imposed subsequent to issue of a letter of approval.

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Sector Specific Guidelines for Foreign Direct Investment
S. Sector/ No. Activity FDI Cap/ Equity Entry Route Other conditions Relevant Press Note issued by DIPP

1. a.

Airports Greenfield projects 100% Automatic Subject to sectoral Regulations notified by Ministry of Civil Aviation www.civilaviation.nic.in Subject to sectoral regulations notified by Ministry of Civil Aviation www.civilaviation.nic.in Subject to no direct or indirect participation by foreign airlines. Government of India Gazette Notification dated 2.11.2004 issued by Ministry of Civil Aviation www.civilaviation.nic.in PN 4/2006

b.

Existing projects

100%

FIPB Beyond 74%.

PN 4/2006

2.

Air Transport Services

49%- FDI; 100%- for NRI Investment

Automatic

PN 4/2006

3.

Alcohol Distillation & Brewing Asset Reconstruction Companies

100%

Automatic

Subject to license by appropriate authority

PN 4 / 2006

4.

49% (only FDI)

FIPB

Where any individual investment exceeds 10% of the equity, provisions of 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

Foreign Direct Investment

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

5.

Atomic Minerals

74%

FIPB

Subject to guidelines issued by Department of Atomic Energy vide Resolution No. 8/1 (1)/97PSU/1422 dated 6.10.98.

6.

Banking – Private sector

74% (FDI+FII)

Automatic Subject to guidelines for setting up branches/ subsidiaries of foreign banks issued by RBI. www.rbi.org.in

PN 2/2004

7. a.

Broadcasting FM Radio FDI+FII investments up to 20% 49% (FDI+FII) FIPB Subject to guidelines notified by Ministry of Information & Broadcasting. www.mib.nic.in Subject to Cable Television Network Rules (1994) Notified by Ministry of Information & Broadcasting. www.mib.nic.in Subject to guidelines issued by Ministry of Information & Broadcasting. www.mib.nic.in Subject to Up-linking Policy notified by Ministry of Information & Broadcasting PN 6/2005

b.

Cable network

FIPB

c.

Direct To Home

49% FIPB (FDI+FII). (within this limit, FDI component not to exceed 20%) 49% (FDI+FII) FIPB

d.

Setting up hardware facilities such as up-linking, HUB, etc Up-linking a News & Current Affairs TV Channel

PN 1/2006

e.

26% FDI+FII

FIPB

Subject to guidelines issued by Ministry of Information & Broadcasting www.mib.nic.in

PN 1/2006

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP PN 1/2006

f.

Up-linking a Non-News & Current Affairs TV Channel Cigars & CigarettesManufacture

100%

FIPB

Subject to guidelines issued by Ministry of Information & Broadcasting www.mib.nic.in Subject to industrial license under the Industries (Development & Regulation) Act, 1951

8.

100%

FIPB

PN 4/2006

9.

Coal & Lignite mining for captive consumption by power projects, and iron & steel, cement production and other eligible activities permitted under the Coal Mines (Nationalization) Act, 1973. Coffee & Rubber processing & warehousing Construction Development projects, including

100%

Automatic Subject to provisions of Coal Mines (Nationalization) Act,1973 www.coal.nic.in

PN 4/2006

10.

100%

Automatic

PN 4/2006

11.

100%

Automatic Subject to conditions conditions notified vide Press Note 2 (2005 Series) including:

PN 2 / 2005 & PN 2/2006

98

Foreign Direct Investment

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships.

a. minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for Joint venture. The Funds would have to be brought within six months of commencement of business of the Company. b. Minimum area to be developed under each 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.] 100% FIPB Subject to existing laws and PN 4/2001 exclusion of activity relating to distribution of letters, which is exclusively reserved for the State. www.indiapost.gov.in

12.

Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898.

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP PN 4/2001 & PN 2/2002

13.

Defence production

26%

FIPB

Subject to licensing under Industries (Development & Regulation) Act, 1951 and guidelines on FDI in production of arms & ammunition.

14.

Floriculture, 100% Horticulture, Development of Seeds, Animal Husbandry; Pisciculture, aqua-culture, cultivation of vegetables, mushrooms, under controlled conditions and services related to agro and allied sectors. Hazardous Chemicals, viz., hydrocyanic acid and its derivatives; phosgene and its derivatives; and isocyanates and diisocyantes of hydrocarbon. Industrial explosives Manufacture 100%

Automatic

PN 4/2006

15.

Automatic Subject to industrial license under the Industries (Development & Regulation) Act, 1951 and other sectoral regulations.

PN 4/2006

16.

100%

Automatic Subject to industrial license under Industries (Development & Regulation) Act, 1951 and regulations under Explosives Act, 1898

PN 4/2006

100

Foreign Direct Investment

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP PN 10/2000

17.

Insurance

26%

Automatic Subject to licensing by the Insurance Regulatory & Development Authority www.irda.nic.in. FIPB Foreign investment in an investing company will not be counted towards sectoral cap in infrastructure /services sector provided the investment is up to 49% and the management of the company is in Indian hands.

18.

Investing companies in infrastructure/ services sector (except telecom sector)

49%

PN 2/2000 & PN 5/2005

19.

Mining covering exploration and mining of diamonds & precious stones; gold, silver and minerals.

100%

Automatic Subject to Mines & Minerals (Development & Regulation) Act, 1957 www.mines.nlc.in Press Note 18 (1998) and Press Note 1 (2005) are not applicable for setting up 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.

PN 2/2000 PN 3/2005, & PN 4/2006

20.

Non Banking Finance Companies-approved activities i Merchant banking Underwriting Portfolio 100% Automatic Subject to: a. minimum capitalization norms for fund based NBFCs - US$ 0.5 PN 2/2000, PN 6/2000, & PN 2/2001

ii iii

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

Management Services iv Investment Advisory Services Financial Consultancy Stock Broking Asset Management

v vi

Million to be brought upfront for FDI up to 51%; US$ 5 million to be brought upfront for FDI above 51% and up to 75%; and US$ 50 million out of which US$ 7.5 Million to be brought upfront and the balance in 24 Months for FDI Beyond 75% and up To 100%. b. minimum capitalization norms for non-fund based NBFC activities- US$ 0.5 million. c. foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities subject to bringing in US$ 50 million without any restriction on number of operating subsidiaries without bringing additional capital.

vii

viii Venture Capital ix Custodial Services Factoring Credit Reference Agencies Credit Rating Agencies

x xi

xii

xiii Leasing & Finance xiv Housing Finance xv Forex Broking

xvi Credit Card Business

d. joint venture operating NBFC’s that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities subject to

102

Foreign Direct Investment

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

xvii Money changing Business xviii Micro credit xix Rural credit.

the subsidiaries also complying with the applicable minimum capital inflow. e. compliance with the guidelines of the RBI.

21. a.

Petroleum & Natural Gas sector Other than 100% Refining and including market study and formulation; investment financing; setting up infrastructure for marketing in Petroleum & Natural Gas sector. Refining Automatic Subject to sectoral PN 1/2004 regulations issued by Ministry & PN 4/2006 of Petroleum & Natural Gas; andin the case of actual trading and marketing of petroleum products, divestment of 26% equity in favour of Indian partner/public within 5 years. www.petroleum.nic.in PN 2/2000

b.

26% in case FIPB Subject to Sectoral policy of PSUs (in case of www.petroleum.nic.in PSUs) 100% case of Private companies Automatic (in case of private companies)

22. a.

Print Media Publishing of 26% newspaper and periodicals dealing with news and current affairs FIPB Subject to Guidelines notified by Ministry of Information & Broadcasting. www.mib.nic.in

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

b.

Publishing of scientific magazines/ specialty/ journals/ periodicls

100%

FIPB

Subject to guidelines issued PN 1/2004 by Ministry of Information & Broadcasting. www.mib.nic.in

23.

Power including 100% generation (except Atomic energy); transmission, distribution and Power Trading. Tea Sector. including tea plantation 100%

Automatic

Subject to provisions of the PN 2/1998, PN 7/2000, Electricity Act. 2003 & PN 4/2006 www.powermin.nic.in

24.

FIPB

Subject to divestment of 26% PN 6/2002 equity in favour of Indian partner/Indian public within 5 years and prior approval of State Government for change in land use.

25. a.

Telecommunication Basic and cellular, Unified Access Services, National International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added telecom Services 74% Automatic Subject to guidelines notified PN 5 / 2005 (Including Up to 49% in the PN 5 (2005 Series). FDI, FlI NRI,FCCBs, FIPB ADRs, GDRs, Beyond convertible 49% preference shares, and proportionate foreign equity in Indian promoters/ Investing Company)

104

Foreign Direct Investment

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP PN 4/2001

b.

ISP with gateways, 74% radio-paging, end-to-end bandwidth.

Automatic up to 49% FIPB Beyond 49%

Subject to licensing and security requirements notified by the Department of Te l e c o m m u n i c a t i o n s www.dotindia.com

c.

ISP Without 100% Gateway, Infrastructure provider providing dark fibre, electronic mail and voice mail

Automatic Subject to the condition that up to 49% such Companies shall divest 26% of their equity in favour FIPB of Indian Public in 5 years, if Beyond these companies are listed in 49% other parts of the world. Also subject to licensing and security requirements, where required. www.dotindia.com

PN 9/2000

d.

Manufacture of telecom equipments Trading Wholesale/cash & carry trading

100%

Automatic

Subject to sectoral requirements. www.dotindia.com

PN 2/2000

26. a.

100%

Automatic

Subject to guidelines for FDI in trading issued by Department of Industrial Policy & Promotion vide Press Note 3 (2006 Series).

PN 4/2006

b.

Trading for exports Trading of items sourced from small scale sector Test marketing of such Items

100%

Automatic

c.

100%

FIPB

d.

100%

FIPB

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ No. Activity

FDI Cap/ Equity

Entry Route

Other conditions

Relevant Press Note issued by DIPP

for which a company Has approval for manufacture e. Single Brand Product retailing Satellites Establishment and operation 51% FIPB

27.

74%

FIPB

Subject To Sectoral guidelines issued by Department of Space/ISRO www.isro.org

28.

Special Economic 100% Zones and Free Trade Warehousing Zones Covering setting up of these Zones and setting up units in the Zones

Automatic Subject To Special Economic PN 9/2000, Zones Act, 2005 and the PN 2/2006, Foreign Trade Policy. & PN 4I2006 www.sezindia.nic.in

106

Portfolio Investment Scheme Foreign Direct Investment

Portfolio Investment Scheme
Portfolio Investment Scheme for NRIs
Schedule 2 and 3 of the Notification No. FEMA 20/2000 RB contains provisions relating to Portfolio investment by NRIs. OCBs are not allowed to make fresh investments in India under the Portfolio Investment Scheme vide Notification No. FEMA 46 dated 29th November 2001. Further, in September 2003, RBI has banned OCBs from investing in any manner in India. In fact, the category of OCB has been abolished. However, they can continue to hold and sell shares purchased before 29th November 2001. Portfolio investment is covered by general permission subject to following condition/ provisions. i. Investment is permitted on repatriation as well as non-repatriation basis.
H

routed through that designated bank branch only. v. All transactions of sales and purchase must be delivery based. Speculative transactions are not allowed. vi. Mode of investment may be in any of the following ways: a. For investment on Repatriation basis
H

inward remittances through normal banking channels out of FCNR/NRE account.

H

b. For investment on non-repatriation basis Besides the above two, investment can be made out of NRO account. vii. Ceiling on Investment a. Per investor (Each NRI)
H

5% of the paid-up value of shares of an Indian Company on both repatriation and nonrepatriation basis. 5% of the value of each issue of convertible debenture of an Indian Company on both repatriation and nonrepatriation basis.

ii. Purchases, sale of shares (Preference and Equity) and/or convertible debentures are covered. iii. Purchase/sale is done through registered broker of a registered broker of a recognised stock exchange. iv. One bank branch must be designated by NRIs and all purchase/sale must be

b. Per investee Company (Total holding by all NRIs put together on both repatriable as well as non-repatriable basis.)
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

10% of paid-up value of shares of an Indian Company. 10% of paid-up value each series of convertible debenture. This ceiling of 10% could be increased to 24%, if the General Body of concerned Indian Company passes a special resolution to that effect. It is interesting to note that FIIs are allowed to increase their investments under portfolio investments scheme up to the sectoral cap. Whereas NRIs are allowed to increase the limit only up to 24%. viii.Repatriation of Sale/Maturity Proceeds a. Sales proceeds of Investment held on repatriation basis can be credited to NRE/FCNR/NRO account after payment of applicable taxes. b. If investment is on non-repatriation basis, credit of sale/maturity proceeds is permitted in NRO account. ix. Existing OCBs (i.e. prior to Sep 16, 2003) must intimate the designated bank branch immediately on the holding/ interest of NRIs in the OCB becoming less than 60%. x. NRIs are allowed to enter into forward contracts to hedge their investment made in India. xi. NRI is also permitted to invest in
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exchange traded derivatives contracts approved by SEBI from time to time out of his Rupee funds held in India on NonRepatriable basis subject to the limits described by SEBI. xii. NRIs can also invest without limit on repatriable basis in Government dated securities, treasury bills, units of domestic mutual funds, bonds issued by PSUs, shares in public sector enterprises which are being disinvested by Government. They can also invest without limit on non-repatriable basis. In Government dated securities, treasury bills, units of Domestic mutual funds, units of Money market mutual funds. However, NRIs are not permitted to make Investments in Small Savings Schemes including PPF.

Practical Issues
i. Can NRIs take their securities outside India? There is no express prohibition in FEMA. As such “demat” being in vogue, physical transfer of security assumes little or no significance. Under FERA, general permission was granted for taking securities outside India. ii Can NRIs invest under portfolio investment scheme out of funds borrowed in India? No NRIs cannot invest out of borrowed funds in India. iii. Can power of attorney holder manage portfolio on behalf of NRIs?

Portfolio Investment Scheme

Yes. A power of attorney holder can manage portfolio on behalf of NRIs. However, he cannot effect remittance outside India. With internet trading, life of NRIs has become easy for portfolio investments. iv. Can NRIs avail of loan against such securities? Yes. NRIs can borrow against shares or other securities. However, the loan should be utilized for meeting the borrower’s personal requirements or for his own business purposes. v. Is any approval required from anyone to begin Portfolio Investment? NRIs do not need any approval to undertake Portfolio Investment. They have to comply with the guidelines. FIIs need approval of SEBI and RBI. An application has to be filed with SEBI as the relevant rules. The application is forwarded to RBI. Both approvals are available simultaneously. One does not have to approach SEBI and RBI independently. In fact for FIIs, SEBI is the monitoring authority. Detailed rules are laid down under the SEBI law. vi. How can NRI Investment? begin portfolio

H

Purchase and sale is carried out through a registered broker on a recognized stock exchange. All transactions of purchase and sale must be delivery based. Speculative transactions are not allowed.

H

vii. Can income earned on Portfolio Investment be remitted abroad? Income such as interest and dividend earned by NRI from portfolio investments acquired whether on repatriation basis or on Non- repatriation basis, can be remitted abroad provided applicable taxes have been deducted/ paid. However capital gains can be repatriated only if investment is on repatriable basis. viii.Are NRIs required to file any reports to RBI? The NRI investor is not required to file any Return or Report with the RBI with regard to acquisition or sale of shares and/ or debentures in an Indian Company. Only the link office of the designated bank branch is required to furnish a report on daily basis on Portfolio Investment Scheme Transactions to RBI.

NRIs should comply with the following conditions:
H

The NRI designates a bank branch for routing all his purchase and sale transactions through that Bank branch only.

Portfolio Investment Scheme for Foreign Institutional Investors (FIIs)
Schedule 2 of the Regulation 5(2) of Notification No. 20/RB-2000 dated 3rd May,
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

2003 deals with the provisions relating to Portfolio Investment by FIIs. FIIs such as Pension Funds, Investment Trusts, Assets Management Companies, etc., who have obtained registration from SEBI, are permitted to invest on full repatriation basis in the Indian Primary and Secondary Stock Markets (including OTCEI) as well as in unlisted, dated Government securities, Treasuries Bills and Units of Domestic Mutual Funds without any lock-in-period. Brief provisions of the schemes are as follows: i. FII must be registered with SEBI. ii. FII shall not obtain prior permission of RBI for purchase the share/convertible debentures of an Indian Company. iii. Purchase is allowed through registered brokers on recognised stock exchange in India. iv. Manner of Investments FIIs are permitted to open a foreign currency account and/or a non-resident rupee account in India with a designated branch of an authorized dealer. The purchase and sale of permitted securities must be routed through this account only. v. Forex cover to hedge investment in India FIIs are permitted to hedge the market value of their entire investment in equity as on a particular date without any reference to a cut off date. vi. Limit on Investment a. Individual holding
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Holding by each FII (including SEBI approval sub-account of FII) shall not exceed ten percent (10%) of the total paid-up equity capital or (10%) of the paid-up value of each series of convertible debentures issued by an Indian Company. b. Total holding The total holding of all FIIs/subaccounts of FIIs put together shall not exceeds 24% of paid-up equity capital or paid up value of each series of convertible debentures. c. Holding in Government Securities In case of Investment in Government Securities (para (ix) given below); the ratio of investment between equity and debt should be atleast 70:30 (i.e. minimum 70% for equity). There is no limit on the amount of investment. If the FII wants to invest 100% in the debt fund, then it can form a debt fund and get the same registered with SEBI vii. Remittance of sale proceeds FII will be allowed to remit sale proceeds of shares/convertible debentures after payment of applicable taxes. viii.FIIs are also permitted to invest in exchange traded derivatives contracts approved by SEBI subject to the limit prescribed by SEBI. ix. FIIs can also invest in dated Government securities, treasure bills, non-convertible

Portfolio Investment Scheme

debenture/ bonds, and units of Domestic mutual funds. x. Procedure for FIIs to make portfolio Investment in India FIIs should comply with the following conditions:
H

The FII should designate a bank branch for routing all purchase and sale transactions through that bank branch only. Purchase and sale should be carried out through a registered broker on a recognised stock exchange. Of course, in case of private placement investment, there will be no broker. All transaction of purchase and sale must be delivery based. Speculative transactions are not allowed. FIIs can open a bank account in foreign currency and rupee (known as Special Non-resident Rupee Account). Free transfer of funds between the two accounts is permitted. All transactions should be routed through these accounts. The transaction can be done through Special Rupee Account. For derivative trading, a separate sub-account in Rupee should be opened. The funds can be freely transferred between the special rupee account and the sub-account. However, repatriation of funds abroad can be done only through the main Special Rupee Account.

xi. FIIs are required to submit a daily report of the transactions in a soft copy format to Chief General Manager, Exchange General Manager, Exchange Control Department, Reserve Bank of India, Foreign Investment Division, Central Office, Central Office Building, Mumbai 400 001. Details of exchange-traded derivatives are, however, not required to be submitted. This will facilitate RBI to keep tabs on limits of investment.

H

Investments by NRIs on Non-Repatriation Basis
Schedule –IV of notification No. 20/2000RB deals with provisions relating to such type of investments. Briefly the provisions are as follows:-

H

H

General Prohibition
Investments in shares or convertible debentures of an Indian Company engaged in following type of activities are not permitted.
H H H H H

Chit Fund or Nidhi Company Agricultural or Plantation activities Real Estate Business Construction of farm houses or Dealing in Transfer of Development Rights (TDRs).

H

General Permission
Subject to above, NRIs are free to invest without any limit on non-repatriation basis
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

in shares or convertible debentures of an Indian Company. However, only direct investment in the form of public issue, private placement or right issue is covered here. It follows that secondary investment, on private arrangement basis, would require prior RBI approval. NRI can also, without any limit, purchase on

non-repatriation basis dated Government Securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds. However, NRIs are not permitted to make Investments in Small Savings Schemes including PPF. ■■

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Portfolio Investment Scheme Immovable Properties

Immovable Properties
Prohibition on citizens of certain countries
Citizens of eight countries, (namely, Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan (whether resident in India or not) are prohibited from acquiring or transferring any Immovable Property (IP) in India without prior approval of the RBI. However, such a prohibition is not applicable to IP acquired on lease for a period not exceeding five years. concerned. Under FERA acquisition of IP in India was governed by citizenship criteria, whereas under FEMA the same is governed by “residential status” criteria. It means a foreign citizen who is resident in India (not being a citizen of any of the eight countries listed above) can purchase IP in India without any approval from RBI. He is also not required to file any declaration at the time of purchase of such IP .

General Prohibition
Investment in agricultural property, plantation and farmhouse is prohibited for all classes of persons resident outside India, be it NRIs/OCBs/ foreign citizens or other foreign entities.

Policy Shift
There is a major policy shift as far as regulation concerning IP situated in India is

Table: Transaction of Immovable Property
Indian Citizen Resident Outside India May
NRI Purchase Property From Sell Property To Receive Gift From Give Gift To Agricultural Property Purchase Property From Sell Property To Receive Gift From Give Gift To No No No No No No No No No Yes No Yes Yes Yes Yes Yes PIO Yes Yes Yes Yes Resident Yes Yes Yes Yes Note

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Person of Indian Origin Resident Outside India May
NRI Purchase Property From Sell Property To Receive Gift From Give Gift To Agricultural Property Purchase Property From Sell Property To Receive Gift From Give Gift To No No No No No No No No No Yes No Yes Citizen of India Citizen of India Yes No Yes Yes PIO Yes No Yes Yes Resident Note Yes Yes Yes Yes Forex or NRI Bank Accounts

If these provisions are examined carefully it will be noticed that the right to repatriate is acquired by a person who was an NRI/PIO at the time of acquisition and who is an NRI/ PIO at the time of the sale. The residential status between these two transactions is inconsequential and immaterial. All situations not falling in the category of the general permissions, including requests for acquisition of agricultural land by any ROI may be made to The Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai 400 001(India). No application form has been prescribed.

Generals have been permitted to purchase/ sale of IP in India other than agricultural land/plantation property/farm house subject to the following conditions:i. Clearance is required from Government of India, Ministry of Affairs for purchase/ sale of IP;

ii. IP is acquired out of inward remittance from funds outside India through banking channels.

Repatriation Proceeds

of

Sale

Acquisition and Transfer of IP in India by Foreign Embassies/Diplomats/ Consulate Generals
Foreign Embassies/Diplomats/Consulate
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The provisions for repatriation discussed herein below are applicable only in respect of immovable property IP other than agricultural land/plantation/farm house.

Repatriation of IP in India belonging to NRI/PIO before the change of the residential status or acquired through inheritance
Ordinarily, NRI/PIO were required to obtain

Immovable Properties

prior approval of RBI for remittance of sale proceeds of any immovable property owned by him when he was a resident in India or inherited from a person who was resident in India. NRIs/PIOs are now allowed to repatriate funds held in their Non-Resident Ordinary Rupee (NRO) account up to US $ One Million per year representing sale proceeds of immovable property held by them for a period of not less than 10 years subject to payment of applicable taxes and on production of an undertaking by the remitter and a certificate by a Chartered Accountant in the formats prescribed by the CBDT and also documentary evidence in support of the acquisition of the asset.

the property was purchased from funds held in NRE Account. iv. The amount sought to be repatriated abroad should not exceed the amount paid for acquisition of the immovable property in the foreign exchange received through normal banking channels or out of funds held in FCNR or NRE Account. In case of investment out of NRE Account the amount to be calculated as foreign currency is equivalent value as on the date of payment for acquisition of the said property.

Repatriation of Sale Proceeds of Residential Accommodation in India purchased by NRIs/PIOs acquired by way of loans
RBI has permitted Authorised dealers or Housing Finance Institutions in India approved by National Housing Bank to provide housing loan to NRIs/PIOs for acquisition of residential accommodation in India subject to conditions stipulated in Regulation 8 of Notification No. 4/2000-RB dated 3rd May 2000. Vide Circular No.1 01 dated May 5, 2003, RBI has decided that the loan amount raised for purchase of residential accommodation which is subsequently repaid by NRIs/ PIOs by remitting funds from abroad or by debit to their NRE/FCNR accounts such repayments in foreign exchange of rupee loans obtained for acquiring residential accommodation may be treated as equivalent to foreign exchange
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General Rules for Repatriation
i. Acquisition of IP by the seller must be in accordance with the provisions of the foreign exchange laws in force at the time of acquisition of such property.

ii. NRIs/PIOs can effect remittance of sale proceeds of immovable property in India irrespective of the period for which the property was held. The sale proceeds allowed to be repatriated should, however, not exceed the foreign exchange brought in to acquire the said property. iii. In case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties, if

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

as stated in clause (iv). Authorised dealers have been permitted to allow repatriation of sale proceeds of residential accommodation purchased by NRIs/PIOs out of funds raised by them by way of loans from the authorised dealers/housing finance institutions to the extent of such loan/s repaid by them out of foreign inward remittances received through normal banking channel or by debit to their NRE/FCNR accounts.

property, whether purchase through application of forex or otherwise, without seeking any permission from the RBI. The rental income being a Current Account transaction is repatriable outside India, only if proper tax is paid or provided for. Where the house is purchased through housing finance and if the house is rented out, the entire rental income, even if it more than the prescribed installment, should be adjusted towards repayment of the loan. If the rental income is less then the prescribed installment, the borrower should remit the amount of the extent of the shortfall from abroad or pay it out of his NRE, FCNR or NRO account in India.

Refund of Purchase consideration on account of non­allotment of flats/ plots/cancellation of booking/deals in respect of immovable property purchased by NRIs/PIOs in India
Authorised Dealers are permitted to credit refund of application/earnest money/ purchase consideration made by the housing building agencies/seller on account of nonallotment of flat/plot cancellation of bookings/deals for purchases of residential, commercial property, together with interest, if any (net of income tax payable thereon), to NRE/FCNR account, of Non-­Resident Indian/Persons of Indian Origin provided, the original payment was made out of NRE/ FCNR account of the account holder or remittance from outside India through normal banking channels and the authorised dealer is satisfied about the genuineness of the transactions.

Questions and Answers
Q. 1 Ans. Can NRIs/PIOs rent out his immovable property in India? Yes, the NRIs/PIOs can freely rent out their immovable property in India without seeking any permission from RBI. The rental income being a Current Account transaction is freely repatriable outside India, subject to payment of applicable taxes. In this connection, it may be noted that even a person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan can acquire or transfer property in India on lease not

Remittance of Rent
NRI/PIOs can freely rent out their immovable
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Immovable Properties

exceeding 5 years, without prior permission from RBI. Q.2 Can an NRI rent his property in India? Can he repatriate the rentals if the concerned property is held on non-repatriation basis? Ans. NRI may give his property on rent. Rental income, being current account transaction, can be repatriated abroad or be credited to repatriable non-resident accounts after payments of applicable taxes. Q.3 Whether any interest or share in a Co-operative Housing Society or Apartment Owners Association (also known as Condominium abroad) is an immovable property for the purposes of these Regulations? Ans. FEMA does not define the expression “immovable property” though the same has been used in various Sections of the Act and the Regulations framed thereunder. Further, even the definition of “immovable property” given in the Transfer of Property Act, 1982, the General Clauses Act, the Sale of Goods not Act and what the Indian Registration Act, taken together, do clarify “immovable property” IP They only suggest what . is either included or not included in

“immovable property”. Indeed, in the said definitions, shares in the cooperative society are not so included that is to say expressly. However, the situation appears to be clear in view of the Supreme Court’s decision in Hanuman Vitamin Foods Pvt. Ltd. v/s State of Maharashtra (2000) 6 see 345, confirming the Bombay High Court decision in Hanuman Vitamin Foods Pvt. Ltd. & Ors v/s. State of Maharashtra & Superintendent of Stamps, Bombay (Writ Petition Number 1820 of 1986, dated 17th February, 1989), wherein the question posed before the Court was whether the instrument of transfer of shares in a co-operative society was an instrument for transfer of an immovable property, for purposes of levy of stamp duty thereon. The Supreme Court held, by referring to another decision in Veena Hasmukh Jain v/s. State of Maharashtra (1999) 5 SCC 725, that the agreement to sell shares in a Cooperative Society is, in effect, the agreement property. Accordingly, any interest or share in a Co-operative Housing Society or Apartment Owners Association
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to

sell

immovable

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

(also known as Condominium abroad) is an immovable property for the purposes of these Regulations. Q. 4 Whether Section 6(3)(i) of FEMA read with the aforesaid Regulations is applicable to Companies, firms etc.? Ans. In view of the definition of “person” given in Section 2(u) which covers various classes of non-individuals and the definition of “person resident in India” given in Section 2(v) and particular reference to clauses (ii), (iii), (iv) thereof, it is clear that the Ans. Q. 5

restrictions u/s. 6(3)(i) and the Regulations are also applicable to non-individual persons who are resident outside India. Who is required to obtain prior permission of RBI to acquire or transfer immovable property in India and under what circumstances such permission is required? The following categories of persons are required to obtain prior permission of RBI to acquire or transfer immovable property in India:

Sr. No.

Person who is required to obtain RBI’s Permission

Nature of Transactions/ Property which requires RBIs Permission

Reference/ Remarks

1. Citizen of India residing outside India (i.e. NRI) 2. Citizen of India residing outside India (i.e. NRI)

To acquire Agricultural or Plantation property or a Farm House in India

Reg. 3(a)

To transfer Agricultural or Plantation Reg. 3(c) property or a Farm House in India to another NRI or PIO To transfer any immovable property Reg.3(b) & (c) in India to a person resident outside India of non-Indian Origin (i.e. other than to another NRI or PIO) To acquire any immovable property Reg. 4(a) 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

3. Citizen of India residing outside India (i.e. NRI)

4. A person of Indian Origin Resident outside India (PIO)

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Immovable Properties

Sr. No.

Person who is required to obtain RBI’s Permission

Nature of Transactions/ Property which requires RBIs Permission To acquire Agricultural or Plantation Property or a Farm House in India by way of purchase or gift (other than by way of inheritance) To acquire any immovable property 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) To transfer Agricultural or Plantation 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) To transfer any immovable property in India by way of a sale to a person resident outside India To transfer any Residential or Commercial Property in India by way of Gift to a person Resident outside India (other than another NRI or PIO) To transfer any property in India (other than by way of mortgage to an Authorised Dealer as a security for any borrowing).

Reference/ Remarks

5. A person of Indian Origin Resident outside India (PIO)

Reg. 4(a) & (b)

6. A person of Indian Origin Resident outside India (PIO)

Reg. 4(b)

7. A person of Indian Origin Resident outside India (PIO)

Reg. 4(e)

8. A person of Indian Origin Resident outside India (PIO) 9. A person of Indian Origin Resident outside India (PIO)

Reg. 4(d)

Reg. 4(f)

10. A Person Resident outside India who has been permitted to establish a branch, office or any other place of business in India (excluding a liaison office) 11. Foreign Embassy, Consulate General Diplomat,

Reg. 5 (b)

To obtain prior approval of Govt. of India, Ministry of External Affairs for purchase & sale of IP To acquire or transfer any immovable property in India (other than lease not exceeding 5 years)

Reg. 5A

12. A foreign national being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or

Reg. 7

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Sr. No.

Person who is required to obtain RBI’s Permission

Nature of Transactions/ Property which requires RBIs Permission

Reference/ Remarks

Bhutan (whether resident in India or not) 13. Any person resident outside India (other than an NRI or a PIO) i.e. any foreign national resident outside India. (Note: The regulations do not grant any general permission to such a person to acquire animmovable property in India. Therefore, such a person would also require RBI’s permission to acquire an immovable property in India). To acquire or transfer an immovable property in India (other than a lease not exceeding 5 years). Reg. 8

14. Any Non-Individual Person (i.e. a company or a firm etc.) resident outside India.

Sec. 6(3)(i)

It will be thus apparent from the above that all transactions involving acquisition or transfer of immovable property in India by a person residing outside India (as well as by certain persons who are citizens of certain neighbouring countries) require prior permission from RBI unless general permission had already been secured granted for such a transaction in terms of regulations 3, 4 or 5 of the said Regulations. Whom to apply for permission Q. 6 If any permission from RBI is required to acquire or transfer agricultural land/plantation property/farm house by a person resident outside India or a foreign
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national, to whom should the application be made? Is there any prescribed form for the application? Ans. All requests for acquisition or transfer of agricultural land/ plantation property/farm house by any person resident outside India or foreign national may be made to the Chief General Manager, Reserve Bank of India, Central Office, Exchange Control Department, Foreign Investment Division (III), Mumbai - 400 001 (India). No application form has been prescribed. Whether NRIs needs any permission for purchase or sale of an immovable property in India?

Q. 7

Immovable Properties

Ans.

General permission has been granted to NRIs (Non-Resident Indian Citizens or Persons of Indian Origin) for purchase and sale of immovable property in India other than agricultural land/farm house/ plantation property. Can NRIs purchase immovable properties out of NRO accounts? Yes. NRIs can purchase immovable properties out of NRO accounts. NRIs can repatriate sale proceeds of inmovale property upto USD 1 million out of NRO account per calender year. Is there any restriction on number of residential properties that may be purchased by an NRI? Is there any restriction on period of holding for such properties? There are no restrictions on the number of residential properties that may be bought by an NRI. However, repatriation is allowed only in respect of two such properties and that, too, after three years from the date of acquisition of such property or from the date of payment of final instalment, whichever is later.

account and partial on capital account. Remittance of sale proceed is limited to the cost of the property only, and the amount of gain on sale of property, cannot be repatriated. Q.11 Can an NRI take loan against the security of immovable property in India? Are there any restrictions on the use of loan amount? Ans. An NRI can borrow against the security of immovable property from Authorised Dealer subject to following conditions: i. the loan should be used for meeting the personal requirements or for borrower’s own business purposes; and

Q. 8 Ans.

Q. 9

ii. loan should not be used for prohibited activities, namely; a. business of chit fund, or b. Nidhi Company, or c. agriculture or plantation activities or in real estate business, or construction of farm houses, or d. trading in Transferable Development Rights (TDRs), iii. the loan amount cannot be remitted outside India, iv. repayment of loan shall be made from out of remittances from abroad or by debit to NRE/
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Ans.

Q. 10 Can NRI repatriate the full consideration upon the sale of his property? Ans. India is fully convertible on current

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

FCNR/NRO account or out of the sale proceeds of shares or securities or immovable property

against which such loan was granted. ■■

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Immovable Overdrafts Loans & Properties

Loans & Overdrafts
Borrowing in Foreign Exchange by Residents
General permission to borrow up to US$ 250,000 or its equivalent in foreign exchange on a repatriable basis by an individual Resident from his close relatives (as defined in sec. 6 of the Companies Act) resident outside India subject to–
H H

investment in shares, securities or immovable property. The rate of interest shall not exceed 2% over the bank rate prevailing on the date of availing of loan.

Loan in Rupees against Shares/Immovable Property
Authorised Dealers(AD) may grant loan in rupees to NRIs against the security of shares or immovable property in India for personal or business purposes and housing loans against the security of houses/flats to be acquired for Residential accommodation in India. Restriction has been removed on the use of loan and allows it to be applied for any purpose other than the basic embargoes on chit funds, Nidhi companies, agricultural and or plantation activities, etc. It cannot also be applied for a. Trading in Transferable Development Rights (TDRs) or b. Investment in capital market including margin trading and derivatives. The loan of course is non-repatriable. Hence the loan amount cannot be credited to the NRIs NRE/FCNR accounts. The repayment of the loans should be from
123

The loan is free of interest The minimum maturity period of the loan is 1 year. The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender.

H

Non-Repatriable Borrowing in Rupees by Residents
A resident, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from an NRI or PIO subject to: The term of the loan shall not exceed 3 years. The loan has to be utilised for meeting the borrower’s personal requirement or for his business purposes and under no circumstances be used for relending or for

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

direct remittance from abroad or by way of debit to the NRE / FCNR account or by way of sale of shares and immovable property.

Loan against NRE, FCNR & NRO
Since the account holder can withdraw from NRE saving deposits at any time, banks should not mark any type of lien, direct or indirect, against these deposits. ADs may grant loans to the account holder against the security of term deposits. The repayments of the loan may be made either by adjusting the deposit against the loan or by fresh remittances from abroad. Repayment may be made by using the NRO account also; in which case, interest has to be charged at full commercial rate in force. Loan can be given to account holder for the acquisition of flat / house in India against NRE or FCNR fixed deposits on repatriable basis, provided the amount to be repatriated is governed by Foreign Exchange Management Regulation (Acquisition and Transfer of Immovable Property in India). The loan should be granted by the bank against the NRE fixed deposit issued by the same bank (irrespective of its branch) and not by any other bank. The branch giving the loan should hold the original deposit receipt against which the loan is granted and the branch, which has issued the receipt, should be advised of the lien. A branch outside India of an Authoried
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Dealers may grant loan against the security of NRE/FCNR deposit. Authorised Dealers may grant forex loans in India against security FCNR to the account holder only and not to 3rd parties, with approval of board of bank, subject to– a. the document should be executed by the deposit holder himself and not by his Power of Attorney ( POA) holder. b. the maturity period of the loan shall not exceed the maturity of the deposit. c. the loan shall not be used for investment in India. The repayment of the loan may be made either by adjusting the deposit against the loan or by fresh remittances from abroad. Repayment may be made by using the NRO account also. However in that case, interest has to be charged at full commercial rate in force.

Loan to Third Parties in India
Authorised Dealers may grant loans to Residents against the collateral of NRE deposits subject to the following conditions:H

There should be no direct or indirect foreign exchange consideration to the NRI depositor for agreeing to pledge his deposits. The period of loan should not exceed the unexpired period of maturity of the NRE deposit accepted as security. The loan has to be used for personal

H

H

Loans & Overdrafts

purposes of Resident or for carrying on business activities other than agricultural or plantation activities. In the cases, where a rupee loan is granted against the guarantee provided by a nonresident, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The non-resident guarantor may discharge the liability by i. payment out of rupee accounts held in India or

overdraft granted to a Resident who subsequently becomes Resident Outside India, subject to: a. The non-resident has informed the bank, details of his date of departure, foreign address, probable duration of his stay outside India and the reason for continuation of the loan. b. The Authorised Dealer is satisfied, according to its commercial judgment , about the reasons to continue the loan or overdraft; c. The period of loan or overdraft shall not exceed the period originally fixed at the time of granting the loan or overdraft; d. As long as the borrower continues to remain an Resident Outside India, the repayment shall be made either by inward remittance from outside India through normal banking channels or from the funds held in the Non- Resident related accounts of the borrower.

ii. by remitting the funds to India or iii. by debit to his FCNR /NRE account maintained with an AD in India. Subsequently, he may enforce his claim against the resident borrower. If the liability is discharged by payment out of rupee balances, the amount recovered may becomes non-repatriable and can be credited only to the NRO account of the guarantor. General permission is given to the resident, being a principle debtor to make payment to a person resident outside India, who has met the liability under a guarantee. The amount remitted / credited shall not exceed the rupee equivalent of the amount paid by nonresident guarantor against the invoked guarantee.

Temporary Overdrawings
Authorised Dealers may allow overdrawings in NRE savings bank accounts, up to a limit of Rs 50,000. Such overdrawings together with the interest should be cleared within 2 weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts. Overdrafts in NRO accounts of the account holders may be allowed without any ceiling.
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Change in the Residential Status of Borrower
An AD may allow continuance of loan/

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Change in the Residential Status of the Lender
In case a rupee loan was granted by a Resident to another Resident and the lender subsequently become a non-resident, the repayment of the loan by resident borrower should be made by credit to the NRO account of the lender.

is given to the Indian companies in India to grant loans in foreign currency to the employees of their branches outside India for personal purposes in accordance with the lender’s Staff Welfare Scheme/Loan Rules and other terms and conditions as applicable to its staff resident in India and abroad.

Housing Finance
An Authiorised Dealer(AD) or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a NRI or PIO, for acquisition of a residential accommodation in India. Housing Loan may be given for repairs, renovation and improvement of residential accommodation owned by them in India. The loan is subject to­
H

Loans to Employees
It has been decided to grant general permission to Indian companies, viz., a body corporate registered or incorporated in India, to grant rupee loans to its employees who are NRIs or PIOs, subject to the certain conditions.

Loans to Foreign National Employees
Ceiling on loans granted to foreign nationals, not permanently resident in India, have been raised for personal purposes such as purchase of household articles, etc., to Rs. 5 lakhs from Rs. 1 1akh. The same ceiling is applicable to liaisons offices of the companies.

The quantum of loans, margin money and the period of repayment shall be at par with those applicable to resident borrowers. The loan shall be fully secured by equitable mortgage of the property proposed to be acquired, and if necessary, also by lien on the borrower’s other assets in India. The loan amount should not be credited to the borrower’s NRE or FCNR account. The instalment of loan, interest and other charges, if any, shall be paid by the borrower through normal channels or out of his bank accounts in India or out

H

Loans to Employees of Branches outside India
Employees of branches outside India are to be treated as persons resident outside India though loans by a resident to a non-resident require RBI permission. General permission
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Loans & Overdrafts

of rental income derived from renting out the property acquired by utilisation of the loan.
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proprietorship concern or firm in India which has accepted deposits (non-repatriable). Deposits by NRIs with persons other than ADs out of inward remittances from overseas or by debit to NRE/FCNR accounts are prohibited. However, such deposits by debit to NRO accounts may continue as hitherto provided as long as these do not represent inward remittances or transfer from NRE/ FCNR into the NRO account. Similarly, the existing deposits may continue to be held and renewed on repatriation or non-repatriation basis. The interest, being current income, can be repatriated after the due tax, if any, is paid thereon. Such deposits are subject to the following conditions:
H

The rate of interest on the loan shall conform to the directives issued by RBI or NHB.

ADs and certain FIs like HDFC, LIC Housing Finance, etc., may grant housing loans to NRIs without reference to RBI where the NRI is a principal borrower with Resident close relative as a co­obligant/ guarantor or the land is owned jointly by NRI borrower with a resident close relative. In such cases the payment of margin money and repayment of the loan installments should be made by the NRI borrower. The loans can also be given to Residents with NRI as a coobligant. Close relatives (as defined u/s 6 of the Companies Act) of the borrower are allowed in India to repay the installment of such loans, interest and other charges, through their bank account directly to the borrower’s loan account.

Deposits are received under a public deposit scheme. Amount of deposits so collected shall not be utilised by the company for relending (not applicable to an NBFC). If the deposit accepting company is an NBFC, it should be registered with the RBI and should have obtained the required credit rating. The rate of interest payable on deposits shall be in conformity with the RBI guidelines for such companies. In other cases the rate of interest payable on deposits shall not exceed the ceiling rate prescribed from time to time under the Companies (Acceptance of Deposit) Rules, 1975.
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Company Deposits
Persons other than ADs were permitted to accept deposits from NRIs. This included a company registered under Companies Act (including NBFC registered with RBI) or a body corporate created under an Act of Parliament or state Legislature who has accepted deposits (repatriable) or a company,

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 exceed 3 years. The amount of aggregate deposits

accepted by the company shall not exceed 35% of its net owned funds. ■■

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Remittance facilities for NRIs/PIOs and Foreign Nationals

Remittance facilities for NRIs/PIOs and Foreign Nationals
Remittance of assets by a foreign national of nonIndian origin
A foreign national of non-Indian origin who has retired from an employment in India or who has inherited assets from a person resident in India or who is a widow of an Indian citizen resident in India may remit an amount not exceeding USD one million, per calendar year, on production of documentary evidence in support of acquisition/ inheritance of assets.

Remittance of sale proceeds of residential property purchased by NRIs/PIOs out of foreign exchange
There is no lock-in period for sale of residential property purchased by NRI/PIO out of foreign exchange. However, remittance of sale proceeds of residential property purchased by NRI/PIO out of foreign exchange is restricted to not more than two such properties. Remittance representing refund of application/earnest money on account of non allotment is permitted together with interest if the original payment was made out of NRE/FCNR account of the account holder or the remittance was from outside India through normal banking channels.

Remittance of assets by NRI/PIO
An NRI/PIO may remit upto $1,000,000 per year out of the balances in his Non Resident (ordinary) account/sale proceeds of assets (inclusive of inheritance/settlement). NRI/PIO may remit sale proceeds of immovable property sold by him out of rupee funds. Regarding remittance of sale proceeds of assets acquired by way of inheritance or legacy for which there is no lock-in period, documentary evidence must be submitted.

Remittance of current income
Remittance of current income like rent, dividend, pension, interest etc. of NRIs/PIOs who do not maintain NRO Account is freely allowed. NRIs/PIOs have the option to credit the current income to their Non-Resident (External) Rupee account.
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Facilities for Students
Students going abroad for studies are treated as Non-Resident Indians (NRIs). They are eligible to receive remittances from close relatives from India upto $ 100,000 for maintenance and upto $1,000,000 out of sale proceeds of assets/balances in their account maintained with an authorized dealer in India.

by the authorized dealers on production of an undertaking by the remitter and a Certificate from a Chartered Accountant.

International Credit Cards
Banks may issue international credit cards to NRIs/PIOs without prior approval off the RBI. ■■

Income- tax clearance
The remittances will be allowed to be made

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Overseas Citizenship of India (OCI)

O

ther Important Matters

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Overseas Citizenship of India (OCI)
OCI Scheme is Operational from 2.12.2005
The Constitution of India does not allow holding Indian citizenship and citizenship of a foreign country simultaneously. Based on the recommendation of the High Level committee on Indian Diaspora, the Government of India decided to grant Overseas Citizenship of India (OCI) commonly known as ‘Dual Citizenship’ Persons of Indian Origin ( PIOs) of certain category as has been specified in the Brochure who migrated from India and acquired citizenship of a foreign country other than Pakistan and Bangladesh, are eligible for grant of OCI. 1. Persons registered as OCI have not been given any voting rights, election to Lok Sabha/Rajya Sabha/Legislative Assembly /Council, holding Constitutional posts such as President, Vice President, Judge of Supreme Court/High Court etc. Registered OCIs shall be entitled to following benefits: i. Multiple entry, multi-purpose life long visa to visit India; iii. Parity with NRIs in financial, economic and educational fields except in the acquisition of agricultural or plantation properties. 2. Any further benefits to OCIs will be notified by the Ministry of Overseas Indian affairs(MOIA) under section 7B(1) of the citizenship Act, 1955. 3. A person registered as OCI is eligible to apply for grant of Indian citizenship under section 5(1)(g) of the Citizenship Act, 1955 if he/she is registered as OCI for five years and has been residing in India for one year out of the five years before making the application.

Brochure on Overseas Citizenship of India (OCI)
Eligibility Criteria
A foreign national, who was eligible to become citizen of India on 26.01.1950 or was a citizen of India on or at anytime after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 and his/her children and grand children, is eligible for registration as Overseas Citizenship of India( OCI ). Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.

ii. Exemption from reporting to Police authorities for any length of stay in India; and
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Application form and procedure:
A family consisting of spouses and upto two minor children can apply in the same form i.e. Form XIX. The form can be filed online or downloaded from our website www.mha.nic.in. The following documents shall be enclosed for each application: Proof of present citizenship. Evidence of self or parents or grand parents, a. being eligible to become a citizen of India at the time of commencement of the Constitution; or b. belonging to a territory that became part of India after 15th August, 1947; or c. being citizen of India on or after 26 January,1950 These could be: i. Copy of the passport: or ii. Copy of the domicile certificate issued by the Competent authority; or iii. Any other proof. Evidence of relationship as parent / grand parent, if their Indian origin is claimed as basis for grant of OCI. Application fee by way of Demand Draft (US $ 275 for each applicant or equivalent in local currency ; US $ 25 or equivalent in local currency for each PIO card holder) PIO card holders must also submit a copy of their PIO card. The application form completed in all
th

respects along with enclosures should be submitted in duplicate to the Indian Mission / Post of the country of applicant’s citizenship or where he/she is not in the country of citizenship to the Indian Mission/Post of the country in which he/she is ordinarily resident. If the applicant is in India, he/she can apply to the Foreigners Regional Registration Officer (FRRO) at Delhi, Mumbai, Kolkata or Amritsar or Chief Immigration Officer (CHIO) Chennai or to the Under Secretary, OCI Cell, Citizenship Section, Foreigners Division, Ministry of Home Affairs ( MHA), Jaisalmer House, 26 Mansingh Road, New Delhi – 110011.

Procedure for granting registration:
After Preliminary scrutiny, if there is no adverse information available against the applicant, the Indian Mission / Post shall register a person as OCI within 30 days of application and the case shall be referred to MHA for post verification of the antecedents of the applicant. If during the post verification, any adverse information comes to the knowledge of the MHA, the registration as OCI already granted by the Indian Mission / Post shall be cancelled by an order under section 7D of the Citizenship Act, 1955. After preliminary scrutiny, if there is any adverse information against the applicant, prior approval of MHA, shall be required before grant of registration. MHA may approve or reject the grant of registration
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within 120 days from the date of the receipt of the application. If the grant of registration as OCI is approved by MHA, the Indian Mission / Post shall register the person as OCI. If the application is filed in India, registration shall be granted by MHA by following the above procedure. After grant of registration, a registration certificate in the form of booklet will be issued and a multiple entry, multi–purpose life long OCI ‘U’ visa sticker will be pasted on the foreign passport of the applicant.

an OCI was obtained by means of fraud, false representation or concealment of any material fact or the registered OCI has shown disaffection towards the Constitution of India or comes under any of the provisions of section 7D of the Citizenship Act, the registration of such person will not only be cancelled forthwith but he / she will also be blacklisted for visiting India.

Benefits to OCI:
Following benefits will accrue to OCI: i. A Multiple entry, multi – purpose life long visa for visiting India.

OCI for PIO card holders:
PIO card holders who are otherwise eligible for registration as OCI may apply in the same Form i.e. Form XIX and they will be considered for grant of registration in the same manner as other applicants. PIO card holders have to pay a fee of US $ 25 or equivalent in local currency instead of US $ 275 for normal applicant. PIO cardholders will have to surrender his/her PIO card after knowledge of acceptance of application.

ii. Exemption from registration with local police authority for any length of stay in India. iii. Parity with Non – resident Indians (NRIs) in respect of economic, financial and educational fields except in relation to acquisition of agricultural or plantation properties. Any other benefits to OCIs will be notified by the Ministry of Overseas Indian Affairs (MOIA) under Section 7B(1) of the Citizenship Act, 1955.

OCI for persons who have applied on the earlier prescribed application form
All such applications will be considered for grant of OCI on the same line as in 3 above without seeking fresh application and fees.

Benefits to which OCI is not entitled to:
The OCI is not entitled to vote, be a member of Legislative Assembly or Legislative Council or Parliament, cannot hold constitutional posts such as President, Vice President, Judge of Supreme Court or High

Cancellation of OCI registration
If it has been found that the registration as
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Overseas Citizenship of India (OCI)

Court etc. and he / she cannot normally hold employment in the Government.

Help Desk
For any clarification/query on the scheme, please visit our website www.mha.nic.in. or visit the website of the local Indian Mission / Post or contact the Indian Mission / Post or OCI Cell,Citizenship Section, Foreigners Division, Ministry of Home Affairs, Jaisalmer House, 26 Mansingh Road, New Delhi – 110011.

part of India after 15.08.1947 and his/her children and grand children, is eligible for registration as Overseas citizen of India(OCI). Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI. Q 2. Who was eligible to become Citizen of India on 26.01.1950? Any person who or either of whose parents or any of whose grandparents was born in India as defined in the Government of India Act, 1935( as originally enacted ), and who was ordinarily residing in any country outside India was eligible to become citizen of India on 26.01.1950. Q 3. Which territories became part of India after 15.08.1947 and from what date? The territories which became part of India after 15.08.1947 are: i. Sikkim from ii. Pondicherry From iii. Dadra & Nagar Haveli from 26.04.1975 16.08.1962 11.08.1961

Application Fees
For application to be filled in India, an amount of Rs. 12,650 has to be paid for each applicant by demand Draft in Favour of “Pay and Account Officer (Secretariat), Ministry of Home Affairs” payable at New Delhi. In case of PIO Card holder, an amount of Rs 1,150 has to be paid. In case of application to be filled outside India , for the amount of fee to be paid in local currency, please visit the web site of the respective Indian Mission/Post.

Frequently Asked Question
Q.1 Who is eligible to apply? A foreign national, who was eligible to become citizen of India on 26.01.1950 or was a citizen of India on or at any time after 26.01.1950 or belonged to a territory that become

iv. Goa, Daman and Diu from 20.12.1961 Q. 4 Can the spouse of the eligible person apply for OCI? Yes, if he/she is eligible in his /her own capacity.
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Q. 5

Can children of parents, wherein one of the parents is eligible for OCI, can apply for OCI? Yes. In what form should a person apply for OCI and where are they available? A family consisting of spouses and upto two minor children can apply in the same form i.e. Form XIX, which can be filed online or downloaded from our we our website www.mha.nic.in.

b. belonging to a territory that became part of India after 15th August, 1947; or c. being citizen of India on after 26th January, 1950 These could be: i. Copy of the passport : or

Q. 6

ii. Copy of the domicile certificate issued by the Competent authority; or iii. Any other proof. 3. Evidence of relationship as parent / grand parent, if their Indian origin is claimed as basis for grant of OCI. 4. Application fee by way of Demand Draft ( US $ 275 for each applicant or equivalent in local currency ; US $ 25 or equivalent in local currency for each PIO card holder) 5. PIO card holders must also submit a copy of their PIO card. Q. 9 What documents would qualify for “ Any other proof” for evidence of self or parents or grand parents being eligible for grant of OCI? Any documentary evidence by which the officer equivalent to Under Secretary to the Government of India in the Indian Mission/Post can deligently arrive at the decision.

Q. 7

Can application form be filled and submitted on line? Yes. Part A of the application form can be filed online. Part B can be downloaded and printed on computer or by hand in Block letters. Printed Part A and Part B of the application form has to be submitted to the Indian Mission/Post/Office.

Q. 8

What documents have to be attached with the application? The following documents shall be enclosed for each applicant: 1. Proof of present citizenship 2. Evidence of self or parents or grand parents, a. being eligible to become a citizen of India at the time of commencement of the Constitution; or

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Overseas Citizenship of India (OCI)

Q. 10 How many copies of application have to be submitted? Application has to be submitted in duplicate for each applicant. Q.11 Whether applicant(s) have to go in person to submit the application(s)? No. Application(s) can be sent by post. Q. 12 Whether the applicant(s) have to take oath before the Counsel of the Indian Mission/Post? No. Earlier provision in this regard has been done away with. Q. 13 Where to submit the application? To the Indian Mission / Post of the country of applicant’s citizenship of the applicant. If the applicant is not in the country of citizenship, to the Indian Mission / Post of the country where he is ordinarily residing. If the applicant is in India, to the FRRO Delhi, Mumbai, Kolkata or Amritsar or to the Under Secretary, OCI Cell, Citizenship Section, Foreigners Division, Ministry of Home Affairs (MHA), Jaisalmer House, 26, Mansingh Road, New Delhi – 110011. Q.14 Can a person apply in the country where he is ordinarily residing? Yes. Q.15 What are the consequences of furnishing wrong information or suppressing material information?

All the applications will be subject to pre or post enquiry depending on whether any adverse information is available or not. If the Government comes to the knowledge that any false information was furnished or material information was suppressed, the registration as OCI already granted shall be cancelled by an order under section 7D of the Citizenship Act, 1955. The persons will also be blacklisted banning his/her entry into India. Q.16 What is the fee for application for registration as OCI? US $ 275 or equivalent in local currency for each applicant. In case of PIO card holder, US $ 25 or equivalent in local currency for each applicant. Q.17 What is the time taken for registration as OCI? Within 30 days of the application, if there is no adverse information available against the applicant. If any adverse information is available against the applicant, the decision to grant or otherwise is taken within 120 days. Q.18 If the registration as OCI is not granted, what amount will be refunded? An amount of US $ 250 or
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equivalent in local currency shall be refunded, if registration is refused. US $ 25 is the processing fees, which is non- refundable. Q.19 Can a PIO cardholder apply? Yes, provided he/she is otherwise eligible for grant of OCI like any other applicant. Q.20 Will the PIO Cardholder be granted OCI registration gratis? No. He/she has to make a payment of US $ 25 equivalent in local currency along with the application. Q.21 Will the PIO Card be honored till the time they are valid even after acquisition of OCI? No PIO Card will have surrendered to Indian Mission / Post/MHA for grant of OCI registration certificate and OCI ‘U’ visa sticker. Q.22 What will be issued after registration as OCI? A registration certificate in the form of a booklet will be issued and a multiple entry, multi-purpose OCI ‘U’ visa sticker will be pasted on the foreign passport of the applicant. For this purpose, the applicant has to send the original passport to the Indian Mission / Post after receipt of the acceptance letter/ verifying the status of the application online. Q.23 Will a separate OCI passport be issued? No.
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Q.24 Will a duplicate certificate of registration as OCI will be issued? Yes. For this purpose, an application has to be made to the Indian Mission /Post with evidence for loss of certificate. In case of mutilated/ damaged certificate an application has to be made enclosing the same. The applications in both the cases have to be made to the same Indian Mission/Post which issued the certificate alongwith with payment of fee of US $ 25 or equivalent in local currency. Q.25 Will a new OCI visa sticker be issued on the new foreign passport after the expiry of the old passport? Yes. On payment of requisite fee, a new OCI ‘U’ visa sticker will be issued. However, the application can continue to carry the old passport for visiting India without seeking a new visa, as the visa is for lifelong. Q.26 Will the applicant lose his citizenship after registering as OCI? No. Q.27 Can a person holding OCI travel to protected area/restricted area without permission? No. He/she will be required to seek PAP/RAP for such visits. Q.28 Would the Indian civil/criminal laws

Overseas Citizenship of India (OCI)

be applicable to persons registered as OCI? Yes. For the period OCI is living in India. Q.29 Can a person registered as OCI be granted Indian citizenship? Yes. As per the provisions of section 5(1)(g) of the citizenship Act, 1955, a person who is registered as OCI for 5 years and residing in India for 1 Year out of the above 5 Years, is eligible to apply for Indian citizenship. Q.30 Will OCI be granted gratis to certain categories of people? No. Q.31 Can OCI be granted to foreign nationals who ate not eligible for OCI, but married to persons who are eligible for OCI? No. Q.32 Will foreign-born children of PIOs be eligible to become OCI? Yes, provided one of the parent is eligible to become OCI. Q.33 What are the benefits of OCI? Following benefits will be allowed to OCI: a. Multi-purpose, multiple entry, lifelong visa for visiting India. b. Exemption from NRIs with local police authority for any length of stay in India.

c. Parity with NRIs in respect of economic, financial and educational fields except in matters relating to acquisition of agricultural/ plantation properties. Q.34 Will any other benefit be granted to OCI? Any other benefits to OCI will be notified by the ministry of Overseas Indian Affairs (MOIA) under Section 7B(1) of the Citizenship Act, 1955. Q.35 Whether the OCI is entitled to voting rights? No. Q.36 Whether the OCI is entitled to hold Constitutional post in India? No. Q.37 Whether the OCI is entitled to hold Government post in India? No, except for the posts specified by an order by the Central Government. Q.38 If a person is already holding more than one nationality, can he/she apply for OCI? Yes. Q.39 What are the advantages of OCI when compared to PIO cardholders? a. OCI is entitled to life long visa free travel to India whereas for PIO cardholder, it is for 15 years.
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b. PIO cardholder is required to register with the local police authority for stay exceeding 180 days in India on any single visit whereas OCI is exempted from registration with police authority for any length of stay in India. Q.40 Whether an OCI be entitled to apply for and obtain a normal Indian passport, which is given to a citizen of India? No. Indian Passport is given only to Indian citizen. Q.41 Whether national of commonwealth countries are eligible for OCI? Yes, if they fulfill the eligibility criteria. Q.42 Can a person renounce OCI? Yes. He/she has to declare intention of renunciation in Form XXII to the Indian Mission /Post where OCI registration was granted. After receipt of the declaration, the Indian Mission/Post shall issue an acknowledgement in Form XXII A. Q.43 Do the applicants who have applied on the earlier prescribed application form have to apply again in the new form? No. All such application will be considered for registration as OCI without seeking fresh application and fee.
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Press Information Bureau Government of India
Press Note Scope of Overseas Citizenship of India Scheme Extended
1. In Pravasi Bhartiya Diwas, 2005, the Prime Minister made a statement on the Overseas Citizenship of India (OCI) Scheme to the effect that it has been decided to extend this facility to all overseas Indians who migrated from India after 26th January,1950, as long as their home country allows dual citizenship under the local laws. He also added that the Government would simplify the application form and format of certificate of registration of OCI and spell out the benefits being given to them. 2. In pursuance of the Prime Minister’s statement, Citizenship Act, 1955 has been amended to extend the scope of OCI to Persons of Indian Origin (PIOs) of all nationalities other than Pakistan and Bangladesh. Citizenship Rules, 1956 has been amended to simplify the procedure and application form for grant of OCI registration. Necessary amendments have also been carried out in the Passport (Entry into India) Act, 1920 and Registration of Foreigners Act, 1939 to spell out the following benefits to registered OCIs:

Overseas Citizenship of India (OCI)

H

Multi-purpose, multiple entry, lifelong visa for visiting India. Exemption from registration with Foreigners Regional Registration Officer/ Foreigners Registration Officer for any length of stay in India. Parity with NRIs in respect of all facilities to the latter in economic, financial and educational fields except in matters relating to the acquisition of agricultural/plantation properties.

H

H

3. Such registered OCIs shall not be entitled to the rights conferred on a citizen of India under article 16 of Constitution with regard to equality of opportunity in matters of public employment. Election to Constitutional offices like President/Vice President/ Judges of Supreme Court or High Courts/ Members of Parliament or Legislative Assembly/Council or right to vote under Representation of the People Act, 1950. 4. Every registered OCI will be issued a registration certificate, which is printed like an Indian passport in different colour and an OCI visa sticker will be pasted in the person’s foreign passport. These two documents will have the photograph of the individual and all necessary security features. 5. Applications for grant of OCI will be received by all Indian Missions/Posts outside India and by FRROs/CHIO and

OCI Cell in Foreigners Division of MHA in India. An eligible person may apply in the Indian Mission/Post of the country of his/her nationality or in the Indian Mission/Post of any other country if he/ she is ordinarily residing in that country. He/she will have to submit proof for his/ her parents/grand parents having migrated from India after 26th January, 1950 or having been eligible to be granted Indian citizenship on that date or having been resident of such territories like Goa, Pondicherry, Sikkim which have been merged with the Indian Union after 15th August, 1947. If he/she is claiming his/her eligibility based on the Indian citizenship of his/her parents/ grand parents, he/she will also submit a proof his/her relationship with a demand draft of US$ 275 or equivalent in the local currency as application fees. If the application is rejected, US$ 250 or equivalent in the local currency will be returned to the applicant after deducting US$ 25 as processing fees. 6. Such persons, who have been registered as PIOs by Government of India and are otherwise eligible for grant of OCI may submit their applications for OCI. The application fees for such persons will only be US$ 25 or equivalent in the local currency. 7. Arrangements have been made for online submission of applications for grant of OCI. This application form is
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available on the MHA’s website: www.mha.nic.in The application has two parts, part A & B. An applicant can apply directly online or may download the application form and submit in handwritten format. A maximum of four persons including spouses and at most two minor children can make a joint application while applying online or otherwise. A bar code and a reference number will be generated automatically by the computer as an acknowledgement on submission of online application in Part A. The Part B of the form can be typed after down-loading or handwritten and be submitted along with online submitted Part A and all necessary enclosures to the concerned Mission/ Post/Office. After checking all relevant details, the concerned office will issue an acknowledgement and the number mention thereon (file number) or reference number can be used for enquiring status in future. Arrangements have been made for online status enquiry on MHA’s website. 8. It has been organized such that an application where there is no reporting of criminal case against the individual(s) will be granted OCI within a period of one month whereas in cases where there is/are a report(s) of criminal action, it may take four months. Every case

whether granted within one month or four months will be inquired into by the security agencies of the Central Government so that an OCI certificate acquired on the basis of concealed information or misrepresentation, could be cancelled under the provisions of the Act. Such persons will be blacklisted for entry into India. 9. Application form, procedure, brochure and FAQs for acquiring OCI have been hosted on MHA’s website: www.mha.nic.in. This Scheme is being operationalized from 2 nd December 2005 when the facility for online application or downloading the application form will be made available from MHA’s website. 10. It has been decided that formal launching of scheme will be done by Prime Minister at Pravasi Bhartiya Divas on January 7, 2006 at Hyderabad by symbolically handing over the first OCI Certificate to a person of Indian origin. 11. It is anticipated that a large number of Indian Diaspora will be benefited by this Scheme for a hassle free travel to their motherland. They will bring economic value and benefits to Indian economy and contribute to the development process. Ministry of Home Affairs ■■

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Overseas Citizenship of India Card PIO (OCI)

PIO Card
The PIO Card and Scheme
In a significant step towards granting dual citizenship to overseas Indians, the Government approved the person of Indian origin (PIO) card scheme to permit all such individuals visa-free entry into the country. Persons of Indian origin upto the fourth generation (great grand parents) settled anywhere in the world, except for a few specified countries , would be eligible.

Procedure for Application for PIO Card
The card would be issued to eligible applicants through the concerned Indian Embassies/High Commission/Consulates, and for those staying in India on a long term visa, the concerned Foreigners Regional Registration Officer (Delhi, Mumbai, Calcutta, Chennai) would do the same and also from the ministry of Home Affairs, Foreigners Division, Lok Nayak Bhawan, Khan Market, New Delhi-110003. Detail of obtaining Persons of Indian Origin (PIO) Card 1. The card would be issued to the eligible applicants through the concerned Indian Embassies / High Commissions / Consulates. 2. The fees for the card , which will have a validity of 15 years would be Rs. 15,000/- and for the minor, the fees is Rs 7,500/-.

Definition of Person of Indian Origin (PIO)
“Person of Indian Origin” means a foreign citizen [not being a citizen of Pakistan, Bangladesh and other countries as may be specified by the central government from time to time] if” 1. He/she at any time held an Indian passport; 2. He/she or either of his/her parents or grand parents or great grand parents was born in and permanently resident in India as defined in the Government of India Act ,1935 and other territories that become part of India thereafter provided neither was at any time a citizen of any of the aforesaid countries [as referred to in 2(b) above]; or 3. He/she is a spouse of a citizen of India or a person of Indian origin covered under (I) or (ii) above.

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Benefits of Person of Indian Origin (PIO) Card Schemes
Besides making their journey back to their roots simpler, easier and smoother, this scheme entitles the PIOs to a wide range of economic, financial, educational and cultural benefits. The benefits envisaged under the scheme include:i. No requirement of visa to visit India; ii. No separate “student Visa” or “Employment Visa” required for admission in colleges/institution or for taking up employment respectively; iii. No requirement to register with the Foreigners Registration officer if continuous stay does not exceeds 180 days, then registration is required to be done within a period of 30 days after expiry of 180 days; iv. Parity with Non-Resident Indians in respect of facilities available to the latter in economic, financial, educational fields, etc. These facilities will include: a. Acquisition , holding, transfer and disposal of immovable properties in India except for agricultural/ plantation properties; b. Admission of children in educational institution in India under the general category quota c.

for NRIs—including medical/ engineering colleges, IITs, IIMs etc.; Various housing schemes of Life Insurance Corporation of India, State Government and other Government agencies;

d. Special counters at the immigration check post for speedy clearance. v. All future benefits that would be extended to NRIs would also be made to PIO Card holders vi. They however cannot enjoy political rights in India.

Issue of Gratis PIO Card
Gratis PIO Card may be issued to an exceptionally eminent person of Indian Origin, who plays an important role in building bridges between India and the country of his/her adoption, if he/she expresses a desire to obtain the PIO Card.

Duplicate PIO Card
Duplicate PIO Card can be obtained in case of loss, etc., on a request supported by FIR and other documents. A duplicate PIO Card shall be issued on depositing a fee of US $ 100. Duplicate PIO Cards will be issued by the same office that issued the original one. ■■

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Non-Governmental Organisations (NGOs)

Non-Governmental Organisations (NGOs)
Any organisation working for a social, cultural, economic, educational or religious cause is termed as an NGO. NGOs have made favourable indents to needy sections of Indian society at par with a constantly changing socio-economic climate. NGOs have reached out to all sections of society including women, children, pavement dwellers, unorganised workers, youth, slumdwellers and landless labourers. NGOs are viewed as vehicles of legitimization of civil society. An NGO can be formed under various legal identities: i. Society registered under Societies Registration Act, 1860.

Formation of Society
1. Seven persons enjoin for a common purpose The first step in forming a society requires the coming together of seven (or more) person who have agreed to pursue a common objective. Please note that the seven members or more may be comprised of one or all foreigners, a limited company, a partnership firm or another registered society. 2. Society’s Objective to be literary, scientific or charitable Section 20 enumerates the purposes for which a society may be registered under the Act. 3. Naming the society The members can arrive a suitable name which gives a clue as to the character of the society, which does not amount to an improper use of any name, emblem, official seal specified in the Emblems and Names (Prevention of Misuse) Act, 1950, does not offend or mislead people, which is not the name of a society already existing. The registrar will object to names containing words like government, ministry, bank, suggesting involvement with the government, which is not allowed. The name of a
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ii. Trust (Formed under the Trust deed and registered with Income Tax Authority.) iii. Limited company incorporated under section 25 of the Companies Act, 1956

Society
The most common form of non-profit organisations in India is a Society. A Society is formed when people come together to do something with some common purpose, which is legal and useful for others. A society should generally not get into profit making activities.

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

society can also end with the word “Trust”. 4. Drafting the Memorandum of Association and enrolment of members The Memorandum of Association (“MOA”) is perhaps the most important document of a registered Society since it contains the conditions of association of the members and its Objects Clause dictates what can and cannot be done by the members of the Society. As a Charter of the Society it should ideally include name, objects, details of Governing Body and signatures of subscribers. 5. Registration of Society The registration of a society is important to give the society a legitimate identity and a legal status and particularly more so when viewed from the consequences and benefits which flow from such fulfilling the legal formality of registration of society.

general public. For the purposes of forming an NGO enuring public benefit a public trust can be formed. There are two statutes relevant to functioning of Trusts in India: The Indian Trusts Act, 1882; and, Charitable and Religious Trusts Act, 1920. Public trusts are however governed by general law, though the principles forming the basis of the Indian Trusts Act can be applied in the case.

Features of a Trust
A Trust is created when a donor attaches a legal obligation to the ownership of certain property based on his confidence placed in and accepted by the donee or trustee, for the benefit of another. The persons who intends to create the trust with regard to certain property for a specified beneficiary and who places his confidence in another for this arrangement is called the Author of the Trust; the person who accepts the confidence is called the Trustee; the person whose benefit the confidence is accepted is called the Beneficiary; the subject matter of the trust is called Trust Property. Charity is a matter for State control, so different States of India have their own legislation in the form of Trusts or Endowment Acts to govern and regulate public charitable NGOs. Endowment is the dedication of property by gift or devise to religious or charitable uses and in a generalized context trusts include

Trust
The three parties (settlor, trustee and beneficiary of trust) are linked by a trust deed which documents the relationship inter se and vis-a-vis the trust property. Trusts are commonly classified as private/family and public trusts. The main difference between a private and public trust is that while the beneficiary of a private trust is one or a few individual (mostly family members of the donor), the beneficiary of a public trust is the
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Non-Governmental Organisations (NGOs)

endowments also. A religious endowment or trust is one that has for its object the establishment, maintenance or worship, of an idol or deity, or any object or purpose subservient to religion. The Trustees control the trust’s assets and decide how the income (and capital) of the trust is to be distributed, and ensure that it is in line with the charitable purposes of the trust. A trust must be created for a lawful purpose. The author of the trust must indicate with reasonable certainty the following:
H H H H

any similar terms as these words are practically interchangeable in a legal sense.

Non-Profit Company
A Non-Profit Company can be formed for any non-profit activity. It is identical to an ordinary company in all respects except that it is not established for profit and commercial gain. It is also called a Section 25 Company and is a voluntary association of people, registered under the Indian Companies Act, 1956. The accountability aspect of a nonprofit company because of statutory disclosure requirements is a relevant advantage of a company’s operational transparency and ability to invoke and maintain public faith.

Intention to create trust Purpose of the trust Beneficiaries of the trust, and The trust property

A public trust is of permanent and indefinite character. A public trust benefits the public at large or at least a section of the community. The property forming subject matter of the trust must be capable of being transferable to the beneficiary - thus property that is inalienable by virtue of public policy or statute does not form valid subject matter for a trust. In terms of section 8 of the Indian Trusts Act, there cannot be as a trust of a beneficial interest under a trust i.e. there cannot be a trust upon a trust.

Objectives of a Non-profit company
Objectives of a non-profit company can be including promotion of commerce, art, science, religion, charity or any other useful object. Profits are applied for promoting only the objects of the company and no dividend is paid to its members. (Section 25 (1) (a) and (b) of the Companies Act, 1956). A nonprofit company may be Public or Private. If the non-profit company is a private company a minimum of only two members are required to form it. However, if the non-profit from is for a public purpose, then a minimum of seven are needed. A ‘Section 25 company’ is eligible for certain exemption from provisions of law and concessional rate of fees etc.
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Flexibility in naming Trust
Trust can be named as family name, or name of an honorable person. The organisation can also be called a “foundation” or “charity” or

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Steps for establishing a section 25 Company
Application for a name Applying for availability of name to the Registrar of Companies is the first step towards registration of the non-profit company. Four names are to be suggested to the Registrar in prescribed Form. Memorandum and Articles Memorandum and Articles of the non-profit company are required to be approved by the Regional Director and the ROC. The documents required for submission of application are: i. Three printed copies of the memorandum and articles of association of the applicant company, signed by all the promoters with full name, address and occupation (No stamp duty is payable on the Memorandum and Articles of Association)

company are directors or hold positions, description of the positions held by them (three copies) iv. A statement of assets and liabilities v. Source of income of the Applicant Company and estimate of annual expenditure;

vi. A statement giving a brief description of the work, if any, already done by the association and of the work proposed to be done by it after registration in pursuance of section 25; vii. A statement on grounds on which the application is made under section 25 of the Companies Act, 1956; viii. A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged solvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act, 1956 for appointment as director. License under section 25 An application for the license under section 25 for the company is to be submitted to the Regional Director (Department of Company Affairs). The license essentially permits the word ‘Limited’ or ‘Private Limited’ to be deleted from name of the company. It could take upto 12 weeks after application to receive the license under section 25 of the Companies Act 1956. Pursuant to

ii. A declaration by an advocate or a chartered accountant that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made there under have been duly complied with, in respect of registration; iii. List of the names, addresses and occupation of the promoters, members of board of directors, name of companies, associations and other institutions in which promoters of the applicant
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Non-Governmental Organisations (NGOs)

application to the Regional Director (within seven days thereafter), the applicant company has to publish a notice in a newspaper where the registered office is situate and certified copy of the notice to filed with the Regional director. Registration with ROC Registration certificate is normally granted within one month after filing section 25 license;

Converting existing company to section 25 company
The Companies Act, 1956 also facilitates the conversion of an existing company to a nonprofit company.

If a foreign donor agency opens a branch office in India, the Indian office needs FCRA registration or prior permission. Further, the second, third, fourth, fifth and all the subsequent receivers of foreign funds need FCRA registration or prior-permission. It is said that the colour of money never changes and in this regard it is interesting to note that the foreign funds remain ‘foreign’ in the hands of NGO at all time, its foreign origin does not change with transfer – only when it is spent or given to individual beneficiaries, the funds become Indian. An NGO would need prior permission in the following four situations:
H

The NGO does not have permanent FCRA registration; The FCRA number has been cancelled by the Government; The NGO has been asked to get priorpermission under section 10(b). The FCRA number is ‘frozen’ due to change in Governing Body.

Foreign Director
There is no bar under Indian law for a foreigner to be a Director in a section 25 company, (relevant permissions prescribed under the Foreign Exchange Management Act.)

H

H

H

Foreign Contribution
Prior Permission always
The Foreign Contribution (Regulation) Act, 1976 (FCRA) requires all Indian NGOs that receive foreign contributions to receive clearance from the Ministry of Home Affairs, in the form of either permanent FCRA registration or prior permission on a case-tocase basis.

FCRA conditions for accepting foreign funds: An NGO seeking to receive foreign funds is statutorily required to do the following: a. Register with the Central Government; b. Intimate the Central Government of (i) the amount of each foreign contribution received by it; (ii) source; (iii) manner in which foreign contribution is to be received; and (iv) purposes for which and
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

the manner in which such foreign contribution is to be utilised by it. Those NGOs, which are not registered, with the Central Government can accept foreign contribution only after obtaining the prior permission from the Central

Government and should also give intimation to the Central Government as the registered association does. The procedure for obtaining prior permission from the FCRA is as 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 One party can apply for prior permission more then once if needed – considering that projects are varied and or are under different agencies. Appeal against rejection

Applying again You can reapply after ascertaining and rectifying objections on your file. You can also file an appeal in the High Court within 60 days of the date of letter. a. Salary, wages or other remuneration either to individual or payment for business purposes. b. Payment for international trade or for business transacted by him outside India.

When FCRA permission is not needed:
Prior permission from the FCRA is not required for receiving amounts in the following forms:150

Non-Governmental Organisations (NGOs)

c. By way of a gift or presentation received as member of any Indian delegation. d. Gift not exceeding Rs. 8,000/- per annum. Profit-oriented organisations are not covered by FCRA.

accepted foreign contribution and is under an obligation to intimate the Central Government. If the NGO does not have requisite FCRA registration or prior permission it cannot accept the sponsorship in the first place. Remember H If the foreign funds are already laying on your account, do not spend the money till you receive permission.
H

Bank Account for foreign funds
An NGO is required to open and use bank account exclusively for foreign funds under FCRA.

Income Tax Benefits on foreign funds
1. Benefits for the NGO Income receive by any religious or charitable trust or institution registered with the income tax authorities, is not taxable as long as this income is applied for the objects of the organisation.
H

Form FC-3 is to be filed at the end of each financial year (by 31st July). Filing required to be done annually till such time the FCRA funds are exhausted. Always make two complete sets of documents – one for filings with the FCRA, the other for the NGO records. Wherever documents have been delivered by hand, to obtain written acknowledgment with date, stamp and signatures (when documents are sent by registered post – to retain proof of posting and acknowledgment card (when received back) carefully. Documents to attach with Form FC 8 – Attach one copy of each of the following documents

2. Benefits to Donors The donors are also entitled to get an exemption on their donation which exemption can be 50% or 100% depending on category of organisations.

H

Illustrative example of NGOs handling foreign money/materials
Sponsorships by foreign parties:An occasion can arise where a moneyed foreign person agrees to kindly sponsor an NGOs annual charity festival and the foreign funds are forwarded directly to the printers for printing of catalogues for this festival by them, the NGO accepting the catalogues has

1. Certificate from concern District Collector/Department of State Government/Ministry or Department of Central Government; 2. Activity report for past three years; 3. Audited Statements of Account for past three years; 4. List of state or districts of focus of work;
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

5. Note on socio-economic background of the beneficiaries and of the region to be covered; 6. Where NGO is a society, then also attach certified copy of Registration Certificate issued by the Registrar of Societies; 7. Certified copy of registered Trust Deed (if NGO is a Trust); 8. Certified copies of (a) Memorandum and Articles of Association, (b) registration

certificate issued by the Registrar of Companies, (c) section 25 license issued by the Regional Director, Department of Company Affairs (if NGO is a non-profit company); 9. FCRA does not allow mixing up of Indian funds and FCRA funds. This means both funds are to be maintained separately. ■■

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Non-Governmental Organisations (NGOs) Foreign Contributions

Foreign Contributions
Foreign Contribution (Regulation) Act, 1976
Objective
An Act to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain persons or associations, with a view to ensuring that Parliamentary institutions, political associations and academic and other voluntary organisations as well as individuals working in important areas of national life may function in a manner consistent with the values of a sovereign democratic republic and for matters connected therewith or incidental thereto. kind. It also includes any foreign security as defined under FERA (Now, FEMA), as well as any currency, be it Indian or foreign. However, it does not include personal gifts whose market value in India on date of such gifts is Rs. 1,000/- or less. It is further clarified that a donation, delivery or transfer of any article, currency or foreign security shall be deemed to be foreign contribution when received by any person from any foreign source, whether directly or indirectly, through one or more persons. e.g. A Christian Missionary under whose umbrella a number of other missionaries are functioning. If such head missionary receives any donation and who in turn transfers the amount to its sister missionary, then in such a circumstances, the transfer received by the sister missionary will be treated as foreign contribution and the FCRA shall apply accordingly. Foreign Source The definition is an inclusive one. It includes: i. Government of any foreign country or territory and agency of such Government,

Applicability
Like FEMA, the FCRA has extra-territorial jurisdiction. It extends to the whole of India, as well as to: a. citizens of India outside India; and b. associates, branches or subsidiaries, outside India of companies or bodies corporate registered or incorporated in India.

Important Definitions
Foreign contribution Essentially, it refers to donations in cash or

ii. any international agency not being the United Nations or any of its specialised
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

agencies, the World Bank, International Monetary Fund or such other agency as Central Government may by notification in Official Gazette specify in this behalf, iii. a foreign company within the meaning of section 591 of the Companies Act, 1956 and also includes a. a company which is a subsidiary of a foreign company, and b. a multi-national corporation within the meaning of this Act, iv. a corporation not being a foreign company, incorporated in foreign country or territory, v. a multi national corporation within the meaning of this Act, vi. a company within the meaning of the Companies Act, 1956 if more than one half of the nominal value of its share capital is held, either singly or in the aggregate by one or more of the following, namely:­ a. Government of foreign country or territory, b. citizens of a foreign country or territory, c. corporations incorporated in a foreign country or territory, d. trusts, societies or other associations of individuals (whether incorporated or not) formed or registered in a foreign country or territory, vii. a trade union in any foreign country or
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territory, whether or not registered in such foreign country or territory, viii.a foreign trust by whatever name called or a foreign foundation which is either in the nature of trust or is mainly financed by a foreign country or territory, ix. a society, club or other association of individuals formed or registered outside India, x. a citizen of foreign country, but does not include any foreign institution which has been permitted by Central Government, by notification in Official Gazette, to carry on its activities in India. Contribution given by Non-Resident Foreign Citizen of Indian Origin but of funds held in NRI and FCNR account maintained in India would also attract FCRA regulation and would be treated as “foreign source”. Thus, we find that the definition of “foreign source” is very exhaustive. It not only includes foreign company per se (i.e. a company incorporated outside India having a place of business in India) but also covers subsidiary of such company (may be Indian subsidiary, too). It includes multi-national corporations as well. However, the United Nations, the World Bank, IMF, etc., are not covered by this definition. E.g: Donation from Hindustan Lever by an association would be a foreign contribution. Even a donation made by a liaison/project office or a branch of a foreign company would be termed as a foreign contribution.

Foreign Contributions

NRI who is an Indian citizen is not considered as a foreign source and hence donation received from NRI is not a foreign contribution even if it is in convertible foreign exchange. However, if he is a foreign citizen then the NRI will be considered as a foreign source. Multi –National Corporations(MNC) MNC has been defined to mean a corporation incorporated in a foreign country or territory if such corporation a. has a subsidiary or a branch or a place of business in two or more countries or territories b. carries on business, or otherwise operates, in two or more countries or territories.

i.

Salary, wages or other remuneration from any foreign source or payment in the ordinary course of business transacted in India by such foreign source; or

ii. Payment in the ordinary course of business or in the course of international trade or commerce; or iii. Working in the capacity of an agent of a foreign source in relation to any transaction made by such foreign source with Government; or iv. Acceptance of gift or presentation as a member of any Indian delegation subject to the provisions of the Foreign Contribution (Acceptance or Retention of Gifts or Presentations) Regulations, 1978; v. Receipt of contribution from Relative: Prior approval of the Central Government is not required if the amount of contribution does not exceed, in value, Rupees eight thousand per annum and an intimation is given to the Central Government about the amount received, purpose and the manner in which the same is utilized. ‘Relative’ has the same meaning as it is assigned in the Companies Act, 1956. vi. Remittance received in the ordinary course of business, through any official channel, post office, or any authorised dealer in foreign exchange. Note:- Central Government has reserved power to prohibit any person including exempted category as mentioned above from accepting foreign contribution if it finds reasonable causes to do so.
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General Prohibition
Following categories of persons are prohibited from accepting any foreign contribution a. Candidate for election, b. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper, c. Judge, Government servant or employee of any Government corporation/ undertaking, d. Member of any Legislature, e. Political party or office-bearer thereof. Exemptions from General Prohibition In following situations, persons specified supra may accept foreign contribution.­

Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Permissible Foreign Contribution
Besides the exempted situations as discussed in paragraph supra above, certain other categories of persons are permitted to accept foreign contribution upon fulfillment of certain conditions/procedures and/or with prior approval of Central Government. An application for seeking prior permission to accept foreign contribution is to be made in Form FC-IA and for grant of registration in Form FC-8 respectively. An application (one copy only) for seeking prior permission or registration is to be sent by registered post to The Secretary, Ministry of Home Affairs, Foreigners Division, Lok Nayak Bhavan, Khan Market, New Delhi – 110003.

contribution upon following conditions:

fulfillment

of

a. such an association should register itself with Central Government in accordance with rules made under this Act; and b. such an association agrees to receive such foreign contributions only through designated branch of a bank as it may specify in its application for registration; and Intimation has to be given to Central Government with following details ­ c. the amount of foreign contribution, d. the source of foreign contribution, and e. the manner of utilization.

Organisations of Political Nature
Organisation of political nature, not being a political party may accept any foreign contribution with prior permission of Central Government. Organisation of political nature not being a political party is defined to mean “organisation” notified as such by the Central Government in the Official Gazette, having regard to the activities the organisation or the ideology propagated by the organisation or the programme of the organisation or the association of the organisation with the activities of any political party.

Consequences of Default
In case of failure to comply with any of the conditions mentioned above, the Central Government may issue notification in the Official Gazette that the defaulting association would require its prior approval before accepting any further foreign contribution.

Unregistered Association
An association, which is not so registered, may accept any foreign contribution after obtaining prior permission of the Central Government and shall also give an intimation to the CG about the amount, the source, the purpose and the manner of utilization of such foreign contribution.

Certain Association and Persons
i. Association having a definite cultural, economic, educational, religious or social programme can accept foreign
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Foreign Contributions

Designated Bank Account
An association granted prior permission or registration under the Act can receive the foreign contribution and subsequently utilize it using a single designated bank account, as intimated in the application form. Do not deposit any local funds in this bank account.

the balance sheet and statement of receipt and payment, duly certified by a Chartered Accountant, also in duplicate.

Time Limit for Intimation
The time limit for intimation to Central Government of receipt of foreign contribution is four months after the closure of the year in case of both registered as well as unregistered association. The intimation should be in form FC-3 in duplicate and shall be sent to Secretary to the Government of India, Ministry of Home Affairs, New Delhi by registered post.

Time Limit Applications

for

Disposal

of

An application for registration is normally disposed within six months. An application seeking prior permission is disposed within 90/120 days. It is advisable to obtain a certificate, in the format incorporated at the end of the application form, from any of the competent authority mentioned therein viz., Any concerned - Collector of District; Department of the State Government; Ministry/ Department of the Government of India.

Recipients of Scholarships, Stipend, etc.
Every citizen of India (whether in India or abroad) who is in receipt of any scholarships, stipend or any similar payment from any foreign source shall give intimation thereof to Central Government.

Filing of Returns
An association permitted to accept foreign contribution is required to submit an annual return, duly certified by a Chartered Accountant, giving details of the receipt and purpose­ wise utilization of the foreign contribution. The return is to be filed for every year (1st April to 31st March) within a period of four months from the closure of the year, i.e. by 31st July of each year. The return is to be submitted, in duplicate, in Form FC-3. It is to be accompanied with

Intimation
Rule 4(c) provides that such intimation should be submitted in form FC-5 within 30 days of receipt of such scholarships, stipend or payment of like nature. However, if such citizen is residing outside India, then time limit for intimation is sixty days. However, if any recurring payments are being received as discussed above, it shall be sufficient if the intimation referred above includes precise information as to the intervals at which, and the purpose of which, such recurring payments will be received.
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Exemption from Intimation
Rule 5 provides exemption from such intimation in case the value of such scholarship, stipend or other payment does not exceed thirty six thousand rupees, in an academic year. In calculating the value, a. the amount received by citizen for purchase of books, clothing and equipment and for sight-seeing in a foreign country or territory shall be taken into account; but b. the amount spent in travel by air in economy class from India to a foreign country or territory and back to India from such foreign country or territory, and the amount spent by the foreign source in respect of such citizen towards tuition and other fees, shall not be taken into account.

Affairs, New Delhi, within four months after the closure of the year (i.e. on or before 31st July, 2001).

Checklist
Checklist for ensuring proper submission of applications, under the provisions of the Foreign Contribution (Regulation) Act, 1976, for acceptance of foreign contribution 1. Eligible category An association with a definite cultural, economic, educational, religious or social programme.

2. Types of permission i. Registration under Section 6(1)(a); and, ii. Prior permission under Section 6 (I A). 3. Application form i. For grant of registration in form FC-8; and, ii. For grant of prior permission in form FC-IA. 4. Essential requirements
A. Bank Account

Maintenance of Accounts
Rule 8 of the Foreign Contribution (Regulation) Rules, 1976, provides that a separate set of accounts and records shall be maintained exclusively for foreign contribution received and utilized. Such accounts shall be maintained on an yearly basis from April to March. A certificate from a Chartered Accountant in Form FC-3 along with a balance sheet and statement of receipt and payment shall be submitted, in duplicate, to the Secretary to Government of India, Ministry of Home
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Open a separate bank account for the receipt and utilisation of foreign contribution in a bank of your choice and furnish particulars of the same at the appropriate place. Note: Do not deposit any local funds, other than the essential initial deposit specified by

Foreign Contributions

the bank for opening an account, in this account.
B. Documents

Remember to enclose copies of the following documents with your application:i. Certified copy of registration certificate or Trust deed, as the case may be;

5. Miscellaneous Furnish information exactly in the manner asked for in the form, especially the names and addresses of the members of the Executive Committee/Governing Council, etc. The forms can be downloaded from Ministry of Home Affairs Web Site at http://mha.nic.in/fcra/intro/forms.html 6. Chartered Accountants/Banks Chartered Accountants, before certifying the accounts of an association in form FC-3, must ensure that they have been prepared in accordance with the provisions of the Foreign Contribution (Regulation) Act, 1976 and the Rules framed there under. No bank should credit any foreign contribution to the account of an association/organisation unless it produces documentary proof of having obtained registration/prior permission from the Central Government for the same. Crediting of foreign contribution by a bank to the account of an association/organisation that has not obtained registration or prior permission from the Central Government constitutes a violation and will render the defaulting bank liable for action by the Reserve Bank of India. ■■

ii. Details of activities during the last three years; iii. Copies of audited statement of accounts for the past three years (Asset and Liabilities, Receipt and Payment, Income and Expenditure); iv. Commitment letter from foreign donor specifying the amount of foreign contribution (only with prior permission application); v. Copy of project for which foreign contribution was solicited/is being offered (only with prior permission application);

vi. If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Press Registrar that the publication is not a newspaper in terms of section 1 (1) of the said Act.

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Special Economic Zones A
policy for setting up of SEZs in the country with a view to provide an internationally competitive and hassle free environment for exports was introduced on April 1, 2000. Units may be set up in SEZ for manufacture of goods and/or rendering of Services. All the import/export operation of the SEZ units will be on self-certification basis. The units in the Zone have to be a net foreign exchange earner but they shall not be subject to any predetermined value addition or minimum export performance requirements. Sales in the Domestic Tariff area by SEZ units shall be subject to payment of full custom duty and import policy in force. Further offshore banking unit may be set up in the SEZs. Special Economic Zone Act has been introduced in the year 2005. It is an act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. The policy provides for setting of SEZ’s in the public, private joint sector or by State Govts. It was also envisaged that some of the existing Export Processing Zones would be converted into SEZs. Accordingly, the Government has converted the Export Processing Zones located at Kandla and
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Surat (Gujrat), Coachin (Kerala), Santa Cruz ( Mumbai-Maharashtra), Falta ( West Bengal), Madras (Tamil Nadu), Vishakhapatnam (Andhra Pradesh) and Noida (Uttar Pradesh) into a Special Economic Zones. In addition, 3 new additional SEZs approved for establishment at Indore (Madhya Pradesh) , ManikanchanSalt Lake (Kolkata) and Jaipur have since commended operations. In addition, approval has been given for setting up of 42 SEZs in various parts of the country in private/joint sectors or by the State Govt.

Distinguishing Features
Indian SEZ Act has following distinguishing features: 1. The zones are proposed to setup by private sector or by State Govt. in association with private sector. Private sector is also invited to develop infrastructure facility in the existing SEZs. 2. State Govt. has a lead role in the setting up of SEZ. 3. A framework is being developed by creating special by creating special Windows under existing rules and

Special Economic Zones

regulations of the central Govt. and state Govt. for SEZ

Performance
As on 31st March 2005, there are 811 units in operation in the 8 functional SEZs. Investment by the units in these Zones are of the order of Rs 18309 million. The SEZ

units provide employment to about 100650 persons out of which 32185 are females.

Exports
Export performance of the SEZ are as given below:-

Exports from Special Economic Zones are given below;Zone 2003-2004 (Rs in crores) 1018.82 7832.81 1534.17 1037.96 298.91 825.34 435.67 869.90 – – – 13853.58 2004-2005 (Rs in Crores) 1060.14 8298.59 4266.00 1376.91 462.99 569.15 579.27 1539.72 95.54 5.27 55.02 18308.60

Kandala SEZs Seepz SEZ Noida SEZ Madras SEZ Coachin SEZ Falta SEZ Vishakhapatnam SEZ Surat SEZ Manikchand SEZ Jaipur SEZ Indore SEZ Total

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Setting Up of SEZ by Developer
Setting up of SEZ in the Public, Private, Joint Sector or by the State Govt.
With a view to augmenting infrastructure facilities for export production it has been decided to permit the setting up of Special Economic Zones (SEZs) in the public, private, joint sector or by the State Govt. The minimum size of the Special Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not be applicable to product specific and port/airport based SEZ. This measure is expected to promote self-contained areas supported by world-class infrastructure oriented towards export production. Any private /public/joint sector or State Govt. or its agencies can set up Special Economic Zone (SEZ)

ii. The SEZ and units therein shall abide by local laws, rules , regulations or bye-laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labour laws and such other laws / rules and regulations as may be locally applicable. iii. Such SEZ shall make adequate arrangements to fulfill all the requirements of laws, rules and procedures applicable to such SEZ. iv. Only units approved under the SEZ schemes would be permitted to be located in these SEZ. v. At least 25% area of the SEZ shall be used for developing industrial area for setting up such units.

How to apply
Applications (15 copies) indicating the name and address of the applicant, status of the promoter (whether individual/ private company/ State Govt. /NRIs etc.) along with a project report covering the following particulars shall be submitted to the Chief Secretary of the State: i. Location of the proposed zone with details of the existing and proposed infrastructure,

Criteria for approval
Proposals for setting up SEZ in the Public/ Private/Joint/State sector are required to meet the following conditions: i. Minimum size of the SEZ shall not be less than 1000 hectares. This would however, not apply to existing EPZs converting into SEZs as such or for notifying additional area as a part of such SEZ or to product specific port/airport based SEZs.
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ii. Area of the proposed SEZ and its area distance from the nearest Sea Port/ Airport/ Rail/ Road head etc. iii. Financial details including investment

Special Economic Zones

proposed, mode of financing the project and viability of the project. iv. Details of foreign equity and repatriation of dividend etc., if any. v. Whether the zone will allow only certain specific industries or will be a multinational zone or it is a port /airport based zone. The State Govt. shall, forward it along with their commitment to the following, to the Department of Commerce , Govt. of India. The area incorporated in the proposed Special Economic Zone is free from environmental prohibition; Water and Electricity and other services would be provided as required; Full exemption in electricity duty and tax on sale of electricity for self generated and purchase power; To allow generation, transmission and distribution of power within SEZ. vi. Exemption from State Sales Tax, Octroi, Mandi tax, Turnover tax and taxes, duty, cess, levies on supply of goods from Domestic Tariff Area to SEZ units; vii. For units inside the Zone, the power under the Industrial Dispute Act and other related Act would be delegated to the Development Commissioner. viii.The Zone will be declared as a Public Utility Service under Industrial Dispute Act. ix. Single point clearances system would be
H

provided to the units in the Zone under State Laws/ Rules. The proposal incorporating the commitments of the State Govt. shall be considered by the Board of Approval (BOA) as notified vide notification No 14/ 1 / 2001-EPZ dated 7.8.2001. On acceptance of the proposal by the BOA , the Department of Commerce will issue a Letter of Permission to the applicant;

Facilities and Incentives for Developers
H

Developers of SEZ may import / procure goods without payment of duty for the development, operation and maintenance of SEZ. Income tax exemption for a block period of 10 year in 15 years at the option of developer as per Section 80IAB of the Income Tax Act. Full freedom in allocation of developed plots to approved SEZ units on a purely commercial basis. Full authority to provide service like water, electricity, security , restaurants, recreation centers etc. on commercial lines. Foreign investment permitted to develop township within the SEZ with residential area , market, play grounds, clubs, recreation centers etc. Develop Standard Design Factory (SDF) building in existing SEZ.
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

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Income Tax Exemption to investor’s in SEZ’s under Section 10(23G) of Income Tax Act. Exemption from Service Tax Investment made by individuals etc. in SEZ company also eligible for exemption u/s 88 of the Income Tax Act. Development promoted to transfer infrastructure facility for operation and maintenance u/s 80-IA of the Income Tax Act. Generation, Distribution and Transmission of Power in SEZs allowed.

H

H H

Exemption from Central Excise duty on procurement of Capital goods, raw materials, consumables spares etc. from the domestic market. Supplies from DTA to SEZ units treated as deemed exports. Reimbursement of Central Sales Tax paid on Domestic purchases. 100% income tax exemption for a block period of 5 years, 50% tax exemption for next five years u/s 10AA of the Income Tax Act. Carry forwarded of losses. 100% income tax exemption for 5 consecutive years & 50% for 5 years under section 80LA of the Income Tax Act for off shore banking units Reimbursement of duty paid on furnace oil, procured from domestic oil companies to SEZ units as per the rate of drawback notified by the Directorate General of Foreign Trade. SEZ units may be for manufacturing, trading or service activity. SEZ unit to be positive net foreign net exchange earner within three years. Performance of the unit to be monitored by a committee headed by Development Commissioner and consisting of Customs. 100% foreign direct investment in Manufacturing, sector allowed through automatic route barring a few sectors.

H

H

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Setting up Enterprise

of

SEZ

Facilities in Special Economic Zone
A new Special Economic Zone (SEZ) scheme has been introduced in the Export and Import policy from 1st April 2000, with a view to provide an internationally competitive & hassle free environment for export production.

H

H

Indian SEZ – Salient Features and Facilities
H

H

A designated duty free enclave and to be treated as foreign territory for trade operations and duties and tariffs. No License required for import. Exemption from custom duty on import of capital goods, raw materials, consumable spares etc.
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H

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H

Special Economic Zones

H

Facility to retain 100% foreign exchange receipts in EEFC a/c Facility to realize and repatriate export proceeds within 12 months Re-export imported goods found defective, goods imported from foreign supplier on loan basis etc. without G.R. Waiver under intimation to the Development Commissioner “Write off “of unrealized export bills up to 5% Commodity hedging by SEZ units permitted Capitalisation of import payables. No Cap on foreign investment for SSI reserved items Exemption from industrial licensing requirement for items reserved for SSI sectors Profits allowed to be repatriated freely without any dividend balancing requirement

H

H

Proposals for setting up units in the SEZ requiring Industrial Licence may be granted approval by the Development Commissioner after clearance of the proposal by the SEZ Board of Approval and Department of Industrial Policy and Promotion within 45 Days. Letter of permission (LOP) / Letter of Intent (LOI) issued to SEZ units by the Development Commissioner would be construed as a licence for all purposes, including for procurement of raw material and consumables either directly or through canalizing agency. The LOP/LOI shall specify the items of manufacture/service activity, annual capacity, projected annual export for the first years in dollar terms, Net Foreign Exchange Earning (NFE), limitations, if any, regarding sale of finished goods, by products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required.

H

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How to apply
For setting up a unit in an SEZ, three copies of the application in the specified form may be submitted to the Development Commissioner (DC) of the SEZ Concerned. Proposals for setting up units in the SEZ other than those requiring industrial Licence may be granted approval by Development Commissioner within 15 Days.

Terms and Conditions
SEZ units have to be a Positive Net Foreign Exchange Earner. Performance of the unit will be monitored by a committee consisting of Development Commissioner of the Zone and Customs. Units shall maintain proper accounts and furnish details regarding value of import, export etc. to Development Commissioner on a quarterly basis.
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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Criteria to be Adopted for Automatic Approval of Units under EOU/SEZ Schemes
Approval of New Units Proposals for setting up units under EOU/ SEZ scheme under automatic route shall be considered by the Unit Approval Committee taking into account the following :i. Residence proof in respect of individual/ partnership firms of all Directors/ Partners. (Passport/ ration card/ driving licence /voter identity card or any other proof to the satisfaction of Development Commissioner;

The Unit Approval Committee shall meet on Monday, every week. In case of the absence of the Development Commissioner, the meeting will be held by the next senior officer in the Zone. The unit shall intimate the problems being faced by them in advance. In the meetings, apart from the promoters, the other concerned agency with which difficulties are being faced by the unit may also be called. Recycling of ferrous and non-ferrous metal proposal will be considered only if the unit has Ignots making facility and proposes to achieve value addition. Sensitive Sectors Care shall be taken by the Development Commissioner while approving projects in sensitive sectors such as yarn texturising unit, textile processing, pharmaceuticals/ drugs formulations/ recycling of ferrous and nonferrous metal scraps etc. Projects for setting up units in sensitive sectors under EOU schemes shall be approved by the Development Commissioner after personal verification of the Directors and inspection of the factory site before signing LUT. Verification could also be carried out through General Manager, District Industries Centre or jurisdictional DY/ Assistant Commissioner of Excise/Customs. ■■

ii. Income Tax return of all the promoters for the last three years; iii. Experience of the promoters; iv. Marketing tie-ups v. In case of EOUs, inspection of the project site by an officer vi. A report from other DCs as to whether any case under SEZ/EOU Schemes in regard to diversion of goods etc. is pending. Whether necessary, the above may be verified through personal interview with the promoters of the project. In the event of the promoters being a well-established entity, the procedure of personal interview may be dispensed with.

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List of Important Websites

List of Important Websites
Website addresses of Important Ministries/Departments
Ministry of Overseas Indian Affairs Ministry of Biotechnology Bureau of Indian Standards Ministry of Chemicals & Petrochemicals Ministry of Civil Aviation Department of Commerce Ministry of Coal Ministry of Company Affairs Department of Education Ministry of Environment and Forests Department of Explosives Ministry of External Affairs Ministry of Finance Ministry of Home Affairs Directorate General of Foreign Trade Department of Heavy Industries Department of Industrial Policy & Promotion Ministry of Information and Broadcasting Department of Information Technology Ministry of Labour Department of Mines Ministry of Non-Conventional Energy Sources Office of The Controller General Of Patents Ministry of Petroleum And Natural Gas http://www.moia.gov.in http://dbtindia.nic.in http://www.bis.org.in http://chemicals.nic.in http://civilaviation.nic.in http://commerce.nic.in http://coal.nic.in http://www.mca.gov.in/ http://education.nic.in http://envfor.nic.in http://explosives.nic.in http://www.meanindia.nic.in http://finmin.nic.in http://mha.nic.in http://dgft.delhi.nic.in http://dhi.nic.in http://dipp.nic.in http://mib.nic.in http://www.mit.gov.in http://labour.nic.in http://mines.nic.in http://mnes.nic.in http://patentoffice.nic.in http://petroleum.nic.in

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Compendium on Policies, Incentives and Opportunities for Overseas Indians

Ministry of Overseas Indian Affairs Ministry of Power Ministry of Railways Reserve Bank of India Ministry of Road Transport & Highways Department of Shipping Ministry of Small Scale Industries & Agro and Rural Industries Department of Telecommunication Ministry of Textile Ministry of Tourism Ministry of Urban Development Ministry of Water Resource

http://www.moia.gov.in http://powermin.nic.in http://www.indianrailways.gov.in http://www.rbi.org.in http://morth.nic.in http://shipping.nic.in http://ssi.nic.in http://www.dotindia.com http://texmin.nic.in http://tourismofindia.com http://urbanindia.nic.in http://wrmin.nic.in

Ministry of Statistics and Programme Implementation http://mospi.nic.in

Website Addresses of States/Union Territories
Andaman & Nicobar (UT) Andhra Pradesh Arunachal Pardesh Assam Bihar Chandigarh(UT) Chhattisgarh Dadra & Nagar Haveli Daman & Diu Delhi Goa Gujarat Haryana Himachal Pradesh http://andaman.nic.in http://www.andhrapradesh.com http://arunachalpradesh.nic.in http://assamgovt.nic.in http://bihar.nic.in http://chandigarh.nic.in http://chattisgarh.nic.in http://oidc.nic.in http://daman.nic.in http://delhigovt.nic.in http://goagovt.nic.in http://www.gujaratindia.com http://haryana.nic.in http://himachal.nic.in

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List of Important Websites

Ministry of Overseas Indian Affairs Jammu & Kashmir Jharkhand Karnataka Kerala Lakshdweep(UT) Madhya Prdesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Pondicherry(UT) Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttranchal West Bengal

http://www.moia.gov.in http://jammukashmir.nic.in http://jharkhand.nic.in http://www.karnataka.nic.in http://www.kerala.gov.in http://lakshadweep.nic.in http://www.mp.nic.in http://maharashtra.gov.in http://manipur.nic.in http://meghalaya.nic.in http://mizoram.nic.in http://nagaland.nic.in http://orissagov.nic.in http://pondicherry.nic.in http://punjabgovt.nic.in http://www.rajasthan.gov.in http://sikkimgov.nic.in http://www.tn.gov.in http://tripura.nic.in http://upgov.nic.in http://gov.ua.nic.in http://www.wbgov.com

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Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

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Bank Accounts ofContact Details Non-Residents

Contact Details
9
th

Floor, Akbar Bhawan, Chanakya Puri, New Delhi - 110 021 Tel: +91-11-2419 7900 Fax: +91-11-2467 4140

Ministry of Overseas Indian Affairs

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
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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 Director Ministry of Overseas Indian Affairs 9th Floor, Akbar Bhawan Chanakya Puri New Delhi Tel: +91 11 2419 7918, 2687 4231 E-Mail: dirss@moia.nic.in Ms. Anupma Aggarwal Partner Peeyush Aggarwal & Co. Chartered Accountants B-132 Anand Vihar Delhi-110092 Tel: +91 11 2216 4800, 2216 4700 Fax: +91 11 22164800 Mobile: +9312276731 E-Mail: anupma@indialiaison.com Website: www. indialiaison.com

Ministry of Overseas Indian Affairs Akbar Bhawan, Chanakya Puri, New Delhi 110 021

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