Investment oppor tunities for Overseas Indians

Compendium on Policies, Incentives and

C ompendium on
Policies,
Incentives and
Investment
Opportunities
for Overseas
www.cyberart.co.in

Ministry of Overseas Indian Affairs

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

1ndia has transformed into a prosperous, dynamic and cosmopolitan

country. Technological advances have made India an attractive
investment destination. Manufacturing, backend operations and other
low-cost industries are being relocated to India. The country is boldly
opening itself up to foreign trade and investments, and liberalizing its
hitherto previously protected domestic market. India continues to be a
land of opportunity at the heart of a resurgent Asia. Our fundamentals
are an effective government that exercises fiscal prudence and formulates
sound fiscal policies and a strong society founded on the time-tested
principles of meritocracy, religious freedom and racial harmony.

This book is intended to provide a ready guide to the Overseas Indians.

Special attention has been given to the information likely to be sought
by Overseas Indians in their interface with their home country. An
attempt has been made to consolidate relevant provisions, rules and
regulations and present them subject wise in a simple way.

I hope this Compendium will help in guiding the Overseas Indians in

their efforts to establish business ties with India.

Vayalar Ravi
 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 Indias 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 Residential Status for Tax Purposes 2
H Chargeable Income 8
H Special Provisions Relating to Certain Income of NRIs 11
H Exemptions from Income Tax 12
H Exemptions from Wealth Tax 13
H Exemptions from Gift Tax 13
H Presumptive Tax Provisions 15
H Tax Incentives for Industries 17
H Authority for Advance Rulings 18
H Double Tax Avoidance Agreements (DTAA) 20

Foreign Exchange Management Act Relating to Non-Residents

H Important Concepts under Foreign Exchange Management Act, 1999 22
H Facilities Available to Returning Indians and Baggage Rules 39
H Bank Accounts of Non-Residents 58
H Foreign Direct Investment 74
H Portfolio Investment Scheme 107
H Immovable Properties 113
H Loans & Overdrafts 123
H Remittance facilities for NRIs/PIOs and Foreign Nationals 129

Other Important Matters

H Overseas Citizenship of India (OCI) 132
H PIO Card 143
H Non-Governmental Organisations (NGOs) 145
H Foreign Contributions 153
H Special Economic Zones 160
H List of Important Websites 167
H Contact Details 171
H Feedback Form
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 sub-
categories (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

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.
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.
Tax Incentives for Non-Residents
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
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 Income-
Tax 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.

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)]
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
Tax Incentives for Non-Residents
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.
j. A person may be resident of more than
one country for any Previous Year.
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.
H 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).
H Dates stamped on Passport are normally
considered as proof of dates of departure
from and arrival in India.
H It is advisable to keep several photocopies
of the relevant passport pages for present
and future use.
H Ensure that date stamped on the passport
is legible.
H 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
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.
H 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 non-
resident status.
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
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 non-
residents under the Income-Tax Act.
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.
 Tax Incentives for Non-Residents

TABLE
Sources of Income R & OR R & NOR NR

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

Sources of Income R & OR R & NOR NR

Foreign Income
Income accruing or arising Taxable in India Not Taxable in Not Taxable in
or deemed to accrue or India India
arise outside India and
received outside India,
during the current financial
year.
Income accruing or arising Taxable in India Taxable in India Not Taxable in
outside India from a India
Business/Profession
controlled in/from India
during the current financial
year.
Income accruing or arising Taxable in India Not Taxable in Not Taxable in
outside India from any India India
source other than Business
Profession controlled from
India.

9
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 persons
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, 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.
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
Tax Incentives for Non-Residents
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
b fixed at 10% the tax on short-term
capital gains arising from such shares and
or units.
11
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 Foreign Currency Non-resident
Account (FCNR)
b Units of Unit Trust of India and specified
mutual funds, other specific securities,

bonds and savings certificates (subject to
conditions prescribed under the Income-
tax 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.
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-
Tax Incentives for Non-Residents
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 from Gift
Tax
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 sons 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 sons 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
13
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.
H Similar receipts by any person (such as,
a Partnership Firm, a Company, and
AOP etc.), other than an Individual or

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.
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.
H The receipts should be in the form of
money. Accordingly, any gift in kind
would not be taxable.
H The receipts must be without
consideration, implying in the nature of
gift.
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.
Tax Incentives for Non-Residents
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 non-
residents for computing their income under
the head Business 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
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 non-
resident 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.
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 non-
residents. 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.
16
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.
Taxation of Non-Residents 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

for various permissible expenses and
allowances.
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 non-
residents 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
b The actual amount of head office
expenditure attributable to the business
in India, whichever is least.
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:
Tax Incentives for Non-Residents
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.
Capital Gains on Infrastructure
Funds
Income by way of dividend, interest or long-
term 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.
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
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
maintenance of ports, airports, roads,
highways, bridges etc.
b Generation, distribution and
transmission of power
c 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
f Derived from export of articles or
software by undertakings in FTZ, EHTP/
STP
g Derived from export of articles or
software by undertakings in SEZ
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
j Derived by undertakings engaged in the
business of developing and building
housing projects.
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
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

undertaken by a non-resident
applicant; or
ii a determination by the Authority in
relation to the tax liability of a non-
resident arising out of a transaction,
which has been undertaken or is
proposed to be undertaken by a
resident applicant with such non-
resident, and such determination
shall include the determination of
any question of law or of fact
specified in the application.
2. The Authority for Advance Rulings,
located in Delhi, shall consist of the
following Members, appointed by the
Central Government:
a A retired Judge of the Supreme
Court as Chairman.
b An officer of the Indian Revenue
Service who is qualified to be
member of the Central Board of
Direct Taxes.
c An officer of the Indian Legal
Service who is, or is qualified to be
Additional Secretary to the
Government of India.
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
Tax Incentives for Non-Residents
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 applicants
case before any incometax
authority, the Appellate Tribunal or
any Court;
b involves determination of fair
market value of any property;
c relates to a transaction or issue,
which is designed prima facie for
avoidance of income tax.
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
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/mis-
application, 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.
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
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.
 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.
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
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:-
 Important Concepts Under Foreign Exchange Management Act, 1999
Definition of Person
Section 2(u) Person includes
i an Individual,
ii a Hindu Undivided Family (HUF),
iii a Company,
iv a Firm,
v an Association of Persons (AOP) or a
Body of Individuals (BOI), whether
incorporated or not,
vi every artificial juridical person, not
falling within any of the preceding sub-
clauses, 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.
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
a for or on taking up employment
outside India, or
b for carrying on outside India a
business or vocation outside
India, or
c for any other purpose, in such
circumstances as would indicate
his intention to stay outside
India for an uncertain period;
B a person who has come to or stays in
India, in either case, otherwise than-
a for or on taking up employment
in India, or
b for carrying on in India a
business or vocation in India, or
c for any other purpose, in such
circumstances as would indicate
his intention to stay in India for
an uncertain period;
ii any person or body corporate registered
or incorporated in India,
iii an office, branch or agency in India
owned or controlled by a person resident
outside India,
iv an office, branch or agency outside India
owned or controlled by a person resident
in India;
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 persons 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 Income-
Tax 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 2004-
2005, 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 non-
resident, 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 non-
Indian 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. 2002-
2003. 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 Non-
Resident 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 non-
resident. 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 RBIs 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).
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.
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 non-
resident nor it defines the term Non-resident
Indian (NRI).
However, Notification No. 5/2000-RB
(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.
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, if-
i he at any time held Indian passport;
or
27
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
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 at any time held Indian passport; or
ii 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
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 Non-
Resident 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
 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 All Current Account transactions are
permitted unless otherwise prohibited:
and
H All Capital Account transactions are
prohibited unless otherwise permitted.
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
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
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 sub-
section (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 Current A/c Capital A/c

1 Import of Machinery If imported on If imported on Suppliers
COD basis Credit or funded out of
Foreign loans.
2 Import, Export of goods on Yes
Credit
3 Payment for Web hosting Yes
4 Payment for consultancy Yes
5 Remittance of
- Interest on loans/
Investments Yes
- Dividend Yes
- rental from immovable
property
- Capital Gains on
a) Movable Assets Yes
b) Immovable Property Yes
6 Loans/Borrowings other than
from banks(whether short term
or Long term)
7 Short Term Working Capital
from Bank Yes
8 Term Loan from Bank/F1 Yes
9 Living Expenses of Parents,
spouse & Children Yes
10 Expenses in connection with
foreign travel education and
medical care of parents,
spouse, children Yes
11 Investments in Securities
(whether in India by a non-
resident or outside India by a
resident) Yes
12 Investments in Immovable
Property(whether in India by a
non-resident or outside India by
a resident Yes

32
 Important Concepts Under Foreign Exchange
Foreign
Management
Direct Investment
Act, 1999

Annexure - I
Schedule - I

List of Current Account Transactions

and Other Restrictions

List of Current Account Transactions for 6. Payment of commission on exports under

which Drawal of Foreign Exchange is not
Permitted
1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding,
etc., or any other hobby.
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.

3. Remittance for purchase of lottery 8. Remittance of interest income on funds

tickets, banned/prescribed magazines, held in Non-Resident Special Rupee
football pools, sweepstakes, etc. Scheme A/c.

4. Payment of commission on exports made 9. Travel to Nepal and/or Bhutan

towards equity investment in Joint
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).
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.

33
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Schedule - II

List of Current Account Transactions for which

Prior Approval of the Government is Required

(No permission required if payment is made out of RFC or RFC (Domestic Account for all
types of payments listed in item nos. 1 to 10, whereas for payments out of EEFC Account, no
permission is required for transactions listed in item nos. 1 to 9)
Purpose of Remittance Ministry/Department of Govt. of India
whose Approval is Required

1. Cultural Tours Ministry of Human Resources Development

(Department of Education and Culture)
2. Advertisement in foreign print media Ministry of Finance (Department of Economic
abroad by any PSU/State and Central Affairs)
Government Department other than
promotion of tourism, foreign
investments and international bidding
(exceeding US$ 10,000)
3. Remittance of freight of vessel Charted Ministry of Shipping (Chartering Wing)
by a PSU
4. Payment of import by a Government Ministry of Shipping (Chartering Wing)
Department or a PSU in c.i.f. basis
(i.e. other than f.o.b. and f.a.s. basis)
5. Multi-modal transport operators making Registration Certificate from the Director
remittance of their agents abroad General of Shipping
6. Remittance of hiring charges of Ministry of Information & Broadcasting
transponders by Ministry of Communication & Information
- TV Channels Technology
- Internet Service Providers

7. Remittance of container detention Ministry of Shipping (Director General of

charges exceeding the rate prescribed Shipping)
by Director General of Shipping
8. Remittances under technical Ministry of Industry and Commerce
collaboration agreements where
payment of royalty exceeds 5% on local
sales and 8% on exports and lump-
sum payment exceeds US $ 2 million

34
 Important Concepts Under Foreign Exchange
Foreign
Management
Direct Investment
Act, 1999

9. Remittance of prize money/sponsorship Ministry of Human Resource Development

of sports activity abroad by a person (Department of Youth Affairs and Sports)
other than International/National/State
level sports bodies, if the amount
involved exceeds US$ 100,000

10. Remittance for membership of P&I Club Ministry of Finance (Insurance Division)
(remittances from other than RFC
account)

35
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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
Schedule III
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
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.
Foreign
Management
Direct Investment
Act, 1999
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
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;
38
Annexure II
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.
j. 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
ii by a person resident outside India.
 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 for or on taking up employment in
India, or
b for carrying on in India, a business or
vocation, or
c for any other purpose, in such
circumstances as would indicate his
intention to stay in India for an
uncertain period.
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.
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
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.
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 RBIs
power to regularise mistakes or give post-
facto 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
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 re-
investment 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 Jewellery
H Motor car
H Personal household effects
H Personal computers, Cell phones and
other gadgetry.
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.
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
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.
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.
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.
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.
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.
H 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.
H 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
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 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
travelers cheques) and US $ 5,000
(foreign currency notes) or its
equivalent.
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.
Tax Benefits
A returning Indian can opt to be governed
by provisions of Chapter XII-A of the Income
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.
Bank Accounts Abroad
Under the FERA, RBI had granted general
permission to returning Indians to maintain
and operate their foreign currency accounts
43
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.
Bank Accounts on Return to India
a Ordinary Non-Resident Accounts:
Ordinary Non-Resident Accounts have
to be converted to resident accounts by
44
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
 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.
ii 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).
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.
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 used personal effects, and
2 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.
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 9-
1-2004.
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)
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/-).
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
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.
2. Definitions
In these rules, unless the context otherwise
requires:-
i appendix means an Appendix to these
rules;
ii resident means a person holding a valid
passport issued under the Passports Act,
1967 (15 of 1967) and normally residing
in India;
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.
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
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.
49
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Appendix A

(See rule 3)

(1) Articles allowed free of duty

(2)

a All passengers of and above 10 years i Used personal effects, excluding

of age and returning after stay abroad jewellery, required for satisfying daily
of more than three days. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 25,000, if
these are carried on the person or in the
accompanied baggage of the passenger.

b All passengers of and above 10 years i Used personal effects, excluding

of age and returning after stay abroad jewellery, required for satisfying daily
of three days or less. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 12,000 if
these are carried on the person or in the
accompanied baggage of the passenger.

c All passengers up to 10 years of age i Used personal effects, excluding

and returning after stay abroad of more jewellery, required for satisfying daily
than three days. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 6,000, if
these are carried on the person or in the
accompanied baggage of the passenger.

d All passengers upto 10 years of age i Used personal effects, excluding

and returning after stay abroad of three jewellery, required for satisfying daily
days or less. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 3,000, if
these are carried on the person or in the
accompanied baggage of the passenger.
Explanation: The free allowance under this rule shall not be allowed to be pooled with the
free allowance of any other passenger.

50
 Facilities Available to Returning Indians
Foreignand
Direct
Baggage
Investment
Rules

Appendix B

(See rule 4)

(1) Articles allowed free of duty

(2)

i Passengers of and above 10 years of i Used personal effects, excluding

age and returning after stay abroad of jewellery, required for satisfying daily
more than three days. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 6,000, if
these are carried on the person or in the
accompanied baggage of the
passenger.

ii Passengers upto 10 years of age and i Used personal effects, excluding

returning after stay abroad of more than jewellery, required for satisfying daily
three days. necessities of life.
ii Articles other than those mentioned in
Annex. I upto a value of Rs. 1,500, if
these are carried on the person or in the
accompanied baggage of the
passenger.

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

51
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
(See rule 5)
(1)
a Indian passenger returning after at least
3 months.
b Indian passenger returning after atleast
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
52
Appendix C
Articles allowed free of duty
(2)
i Used household articles upto an
aggregate value of Rs. 12,000/-
ii Professional equipment upto a value of
Rs. 20,000.
i Used household articles up to an
aggregate value of Rs.12,000.
ii Professional equipment upto a value of
Rs. 40,000.
i 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.
 Facilities Available to Returning Indians
Foreignand
Direct
Baggage
Investment
Rules

Appendix D

(See rule 6)

(1) Articles allowed free of duty

(2)

a Indian passenger who has been residing i Jewellery upto an aggregate value of
abroad for over one year. Rs. 10,000 by a gentleman passenger, or

ii Upto aggregate value of Rs. 20,000 by a

lady passenger.

53
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
(See rule 7)
(1)
a Tourists of Indian origin other than those
coming from Pakistan by land route.
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.
c Tourists of Nepalese origin coming from
Nepal or of Bhutanese origin coming
from Bhutan.
d Tourists of Pakistani origin or foreign
tourists coming from Pakistan or tourists
of Indian origin coming from Pakistan by
land route.
54
Appendix E
Articles allowed free of duty
(2)
i used personal effects and travel
souvenirs, if-
a these goods are for personal use of the
tourist, and
b these goods, other than those consumed
during the stay in India, are re-exported
when the tourist leaves India for a foreign
destination.
ii articles as allowed to be cleared under
rule 3 or rule 4.
i used personal effects and travel
souvenirs, if-
a these goods are for personal use of the
tourist, and
i these goods, other than those consumed
during the stay in India, are re-exported
when the tourist leaves India for a foreign
destination.
ii articles up to a value of Rs.8,000 for
making gifts.
No free allowance.
i used personal effects and travel
souvenirs, if
a these goods are for personal use of the
tourist, and
b these goods, other than those consumed
during the stay in India, are re-exported
when the tourist leaves India for a foreign
destination.
ii articles upto a value of Rs.6,000 for
making gifts.

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.
Jewellery taken out
earlier by the passenger or
by a member of his family
from India.
Facilities Available to Returning Indians
Foreignand
Direct
Baggage
Investment
Rules
Appendix F
(See rule 8)
Conditions Relaxation that maybe
considered
1 Minimum stay of two 1. For condition (1) Shortfall
years abroad, of upto 2 months in stay
immediately preceding abroad can be condoned
the date of his arrival by Assistant Commissioner
on TR,(2) total stay of Customs or Deputy
in India on short visit Commissioner of Customs
during the 2 preceding if the early return is on
years should not account of:
exceed 6 months, i terminal leave or vacation
and(3) passenger has being availed of by the
not availed this passenger; or(ii) any other
concession in the special circumstances. b
preceding three years. For condition (2)
Commissioner of Customs
may condone short visits in
excess of 6 months in
deserving cases. c For
condition (3) No relaxation
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. 4. Alcoholic liquor and wines in excess of

2. Cartridges of fire arms exceeding 50. two litres.
3. Cigarettes exceeding 200 or cigars 5. Gold or silver, in any form, other than
exceeding 50 or tobacco exceeding 250 ornaments.
gms.

Annexure II

1. Colour Television or Monochrome a Television Receiver;

Television. b Sound recording or reproducing
2. Digital Video Disc Player. apparatus;
3. Video Home Theatre System. c Video reproducing apparatus.
4. Dish Washer. 11. Word Processing Machine.
5. Music System. 12. Fax Machine.
6. Air -Conditioner. 13. Portable Photocopying Machine.
7. Domestic refrigerators of capacity above 14. Vessel.
300 litres or its equivalent. 15. Aircraft.
8. Deep Freezer. 16. Cinematographic films of 35 mm and
9. Microwave Oven. above.
10. Video camera or the combination of any 17. Gold or Silver, in any form, other than
such video camera with one or more of ornaments
the following goods, namely:

56
 Facilities Available to Returning Indians
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 (Notebook
Computer)
6. Domestic Refrigerators of capacity up to
300 litres or its equivalent.
Foreignand
Direct
Baggage
Investment
Rules
Annexure III
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/2002-
Customs (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 Repatriation facility, and
H 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 Non Resident External Rupee Account
(NRE) maintained in Indian rupees
b Foreign Currency Non-Resident
Account (FCNR) maintained in foreign
currencies
c Resident Foreign Currency Account
58
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

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 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.
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
Bank Accounts of Non-Residents
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
i. 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.
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
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
NRI/PIO may remit sale proceeds of
60
immovable property purchased by him as a
resident or out of rupee funds as NRI/PIO.
Other financial assets
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 has retired from an employment in India,
or
ii has inherited assets from a person who
was resident in India, or
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.

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
(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
Bank Accounts of Non-Residents
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
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

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
Bank Accounts of Non-Residents
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 By proceeds of foreign exchange
remittances from abroad through
banking channels in an approved
manner.
H By proceeds of foreign currency notes
and traveller cheques brought into India
by non-resident while on a temporary
visit to India.
H By transfer from an existing Non-
Resident (External) FCNR account of
the same person.
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 Proceeds of remittances to India in any
permitted currency.
H Transfer from FCNR accounts of the
same account holder.
H Interest accruing on balances in Non-
resident (External) or FCNR accounts of
the account holder.
64
Transactions where Form A4 is to be
completed.
H Proceeds of foreign exchange
remittances, drafts, personal cheques,
etc., in the name of the account holder.
H 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 non-
resident 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.
H 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.
Notes:
H Purchases of travellers, cheques/currency
notes/ bank notes made in terms of (ii)

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.
H Form A4 is to be completed only for
transactions of Rs. 1,00,000 or above.
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 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.
H Current Income like rent/dividend,
Bank Accounts of Non-Residents
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 All local payments except for purposes of
investment.
H Transfer to any other NR(E) or FCNR
account of the same person.
H Transfer to NR(E) accounts of persons
other than the account holder for bona
fide personal purposes.,
Transactions where Form A4 is required to
be completed.,
H Payments for permissible investments by
the account holder.
H Payments towards purchase price of
immovable property by account holder.
H Any other transaction if covered under
general or special permission granted by
Reserve Bank.
65
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 Remittances abroad.
H 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
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 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

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
Bank Accounts of Non-Residents
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
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
68
b The maturity proceeds of NRNR
deposits credited to NRE Account
can also be subsequently transferred
to FCNR(B) Account.
c 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.
Maturity proceeds of deposit
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.

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.
Bank Accounts of Non-Residents
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.
H The account can be held singly or jointly,
though nomination facility is available.
H RFCs can be maintained in the form of
current or savings or tern deposits.
H No loans or overdrafts will be permitted
in these accounts.
69
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
Permissible Credits
H FE balances repatriated from abroad.
H Incomes or sale proceeds from FE assets
held abroad.
H Sale proceeds of FE Assets held in India
sold.
H Pension, superannuation or other
monetary benefits from ex-employer
outside India.
H Transfer from NRE and FCNR balances.
H Proceeds of foreign currency notes and
foreign travelers cheques brought in by
the account holder.
H Transfers from other RFC accounts of the
account holder.
H Interest earned on RFC accounts.
H Recredit of unspent FE surrendered by
the account holder on his return to India,
provided that unspent
H exchange had in fact been released for
travel, etc., and it is surrendered within
the stipulated period.
H Gifts or inheritance received from
abroad.
Permissible Debits
H Remittance abroad for any bona fide
purpose of the account holder or for his
dependents. This may
H include Purchase of a foreign security.
H Transfers to other RFC accounts of the
account holder.
H All local disbursements and bank
charges.
70
The scheme of importing gold and silver is
extended to RFC and EEFC account holders.
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.
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

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
Bank Accounts of Non-Residents
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?
Ans. 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.
Q.2 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?
Ans. 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
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
be an NRI for purposes of his bank
accounts in India.
Q.3 Can Non-residents open these
accounts from abroad?
Ans. Yes. Many banks in India provide on-
line account opening facility.
Q.4 Can NRO/NRE account holders
obtain loans/overdrafts against their
fixed deposits?
Ans. 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.
Q.5 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?
Ans. 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.
Q.6 Is transfer of funds between NRE
accounts maintained by two different
account holders permitted?
Ans. 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.
72
Q.7 Is there a limit on the number of
accounts which an NRI can open?
Ans. No. An NRI can open as many NRO,
NRE or FCNR accounts as he
desires.
Q.8 Can a foreign shipping or airline
company open a foreign currency
account in India?
Ans. 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.
Q.9 What kinds of credits are permitted
in the foreign currency accounts of a
foreign shipping or airline company
or its agent in India?
Ans. 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.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

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
Bank Accounts of Non-Residents
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.
73
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 require an
Industrial license
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 Financial Service Sector and
H Where Securities & Exchange Board
of India (Substantial Acquisition of
Shares and Takeovers) regulation,
1997 is attracted;
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),
74
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.
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 Non-
Resident Indian (NRI) investments and

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.
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)
Foreign Direct Investment
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.
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
b The average of the weekly high and low
of the closing prices of related shares
75
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
Indias (SEBI) website: www.sebi.gov.in.
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.
76
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.
Transfer of Shares/Debentures
Transfer of shares in the following categories

of cases is allowed under automatic route:
a Transfer of shares from resident to non-
resident (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 SEBIs (Substantial
Acquisition of Shares and Takeovers)
Regulations, 1997, falls within the
sectoral cap and also complies with
prescribed pricing guidelines.
b 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.
c 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.
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
Foreign Direct Investment
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.
c The person resident outside India may
transfer any security to a person resident
in India by way of gift.
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
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
77
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
b 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
c Is not otherwise ineligible to issue shares
to persons resident outside India in terms
of these Regulations.
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
78
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.
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 non-
resident 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

i Can issue FCCBs up to US$50
Million under the Automatic route,
ii From US$50 100 Million, the
companies have to take RBI
approval,
iii From US$100 Million and above,
prior permission of the Department
of Economic Affairs is required.
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 Companys Act or as agreed to
in shareholders agreement, whichever is
less.
Foreign Direct Investment
5. Dividend rate
This should not exceed the limit
prescribed by the Ministry of Finance
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
79
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.
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
80
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.

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
Industries Requiring Compulsory
Licensing
The following industries require compulsory
industrial license :
i. Distillation and brewing of alcoholic
drinks.
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
Foreign Direct Investment
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)
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.
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
81
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.
ii In the case of Electronics, Computer
Software and Printing and any other
industry, which may be notified in future
as non polluting industry.
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
82
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.

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.
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-on-
Business (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
Foreign Direct Investment
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
83
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).
Foreign Technology
Agreements
General Policy
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.
84
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 the lump sum payments not exceeding
US$2 million;
ii 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.
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

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.
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.
RBIs prior approval is required for
remittance towards purchase of trade mark/
franchise.
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 Direct Investment
financial & technical collaboration are
proposed):
a Sectors/activities which are not on the
automatic route for FDI, or
b 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.
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 Joint Ventures; or
ii Wholly Owned Subsidiaries
Foreign Equity in such Indian Companies
85
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 Liaison Office/Representative Office
ii Project Office
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
86
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.

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.
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.
Foreign Direct Investment
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)
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 non-
repatriation basis provided,
i Amount is invested by inward
remittance or out of NRE/FCNR/NRO
account maintained with AD
ii 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.
iii Amount invested shall not be eligible for
repatriation outside India.
87
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.
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?
Ans: 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
88
Companies Act with the Registrar of
Companies, Ministry of Company
Affairs and all Indian operations
would be conducted through this
company.
Q.2 What proposals require an industrial
license (IL) and how is it obtained?
Ans: 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 What is the procedure for a
delicensed sector?
Ans: 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.
Q.4 What is the taxation policy in India?
Ans: Foreign nationals working in India
are generally taxed only on their
Indian income. Income received

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?
Ans: 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:
Foreign Direct Investment
H The Patents Act
H The Trademarks Act
H The Geographical Indication of
Goods Act
H The Designs Act
Q.6 Is investment by non-resident
Indians (NRIs) permitted?
Ans: 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.
Q.7 Can profits, dividends, royalty, know
how payments be repatriated from
India?
Ans: 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
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?
Ans: 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?
Ans: 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.
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

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
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
laiddown 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.
Foreign Direct Investment
4. While considering cases and making
recommendations, FIPB should keep in
mind the sectoral policies vis--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 FIPBs 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;
ii Whether the proposal involves
technical collaboration and if so the
source and nature of technology
sought to transferred;
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
91
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;
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
7. While considering proposals the
following may be prioritized;
a Items/activities covered under
Government route (i.e. those which
do not qualify under automatic
route).
b Items falling in infrastructure sector.
c Items which have an export
potential
d Items which have a large scale
employment potential and especially
for rural people.
e Items which have a direct backward
linkage with agro business/farm
sector.
f Items which have greater social
relevance such as hospitals, human
resource development, life saving
drugs and equipment.
g Proposals, which resulting
introduction of technology or
infusion of capital.
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).
b Extent of equity with composition of
foreign/NRI/resident Indians.

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.
d 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.
e 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.
f 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
Foreign Direct Investment
(hostile or otherwise) whether by
right issue, or by what modality].
Cases pertaining to FIPB approvals,
which involve increase in the non-
resident 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 Issues/transfer/pricing of shares will
be as per SEBI/RBI guidelines.
h Whether the activity is an industrial
or a service activity or a combination
of both.
i Whether the item of activity
involves any restrictions by way of
the small scale sector.
j 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).
k Whether the item involves only
trading activity and if so whether it
involves export or both export and
import, or also includes domestic
93
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).
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
94
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;
c Where at least 50% of production is
to be exported;
d Proposals for consultancy; and
e Proposals for industrial model towns/
industrial parks or estates.
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:

a exports;
b bulk imports with ex-ports/ex-
bonded warehouse sales;
c sales of goods and services among
the companies of the same
group.cash and carry wholesale
trading;
d other import of goods and services
provided at least 75% is for
procurement and
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.
Foreign Direct Investment
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.
95
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Sector Specific Guidelines for Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP

1. Airports
a. Greenfield 100% Automatic Subject to sectoral PN 4/2006
projects Regulations notified by
Ministry of Civil Aviation
www.civilaviation.nic.in
b. Existing 100% FIPB Subject to sectoral PN 4/2006
projects Beyond regulations notified by
74%. Ministry of Civil Aviation
www.civilaviation.nic.in

2. Air 49%- FDI; Automatic Subject to no direct or

PN 4/2006
Transport 100%- for indirect participation by
Services NRI foreign airlines.
Investment Government of India
Gazette Notification dated
2.11.2004 issued by
Ministry of Civil Aviation
www.civilaviation.nic.in

3. Alcohol 100% Automatic Subject to license by PN 4 / 2006

Distillation appropriate authority
& Brewing

4. Asset 49% (only FIPB Where any individual

Reconstru- FDI) investment exceeds 10%
ction of the equity, provisions of
Companies Section 3(3)(f) of
Securitization and
Reconstruction of
Financial Assets and
Enforcement of Security
Interest Act, 2002 should
be complied with.
www.finmin.nic.in

96
 Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
5. Atomic 74% FIPB Subject to guidelines
Minerals issued by Department of
Atomic Energy vide
Resolution No. 8/1 (1)/97-
PSU/1422 dated 6.10.98.

6. Banking 74% Automatic Subject to guidelines for PN 2/2004

Private (FDI+FII) setting up branches/
sector subsidiaries of foreign
banks issued by RBI.
www.rbi.org.in

7. Broadcasting
a. FM Radio FDI+FII FIPB Subject to guidelines PN 6/2005
investments notified by Ministry of
up to 20% Information & Broadcasting.
www.mib.nic.in

b. Cable 49% FIPB Subject to Cable Television

network (FDI+FII) Network Rules (1994)
Notified by Ministry of
Information & Broadcasting.
www.mib.nic.in

c. Direct To 49% FIPB Subject to guidelines issued

Home (FDI+FII). by Ministry of Information &
(within this limit, Broadcasting.
FDI component not www.mib.nic.in
to exceed 20%)
d. Setting up 49% FIPB Subject to Up-linking Policy PN 1/2006
hardware (FDI+FII) notified by Ministry of
facilities Information & Broadcasting
such as
up-linking,
HUB, etc
e. Up-linking 26% FIPB Subject to guidelines PN 1/2006
a News & FDI+FII issued by Ministry of
Current Affairs Information & Broadcasting
TV Channel www.mib.nic.in

97
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
f. Up-linking a 100% FIPB Subject to guidelines issued PN 1/2006
Non-News by Ministry of Information &
& Current Broadcasting
Affairs TV www.mib.nic.in
Channel

8. Cigars & 100% FIPB Subject to industrial license PN 4/2006

Cigarettes- under the Industries
Manufacture (Development & Regulation)
Act, 1951

9. Coal & 100% Automatic Subject to provisions of Coal PN 4/2006

Lignite Mines (Nationalization)
mining for Act,1973
captive www.coal.nic.in
consumption
by power
projects,
and iron &
steel, cement
production
and other
eligible
activities
permitted
under the
Coal Mines
(Nationaliza-
tion)
Act, 1973.

10. Coffee & 100% Automatic PN 4/2006

Rubber
processing &
warehousing

11. Construction 100% Automatic Subject to conditions PN 2 / 2005

Development conditions notified vide & PN 2/2006
projects, Press Note 2 (2005 Series)
including including:

98
 Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
housing, a. minimum capitalization of
commercial US$ 10 million for wholly
premises, owned subsidiaries and
resorts, US$ 5 million for Joint
educational venture. The Funds would
institutions, have to be brought within
recreational six months of
facilities, city commencement of
and regional business of the Company.
level b. Minimum area to be
infrastructure, developed under each
townships. project- 10 hectares in case
of development of serviced
housing plots; and built-up
area of 50,000 sq. mts. in
case of construction
development project; and
any of the above in case of
a combination project.
[Note:For investment by
NRIs, the conditions
mentioned in Press Note
2 I 2005 are not
applicable.]

12. Courier 100% FIPB Subject to existing laws and PN 4/2001

services for exclusion of activity relating
carrying to distribution of letters,
packages, which is exclusively
parcels and reserved for the State.
other items www.indiapost.gov.in
which do not
come within
the ambit of
the Indian
Post Office
Act, 1898.

99
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
13. Defence 26% FIPB Subject to licensing under PN 4/2001
production Industries (Development & & PN 2/2002
Regulation) Act, 1951 and
guidelines on FDI in
production of arms &
ammunition.

14. Floriculture, 100% Automatic PN 4/2006

Horticulture,
Development
of Seeds, Animal
Husbandry;
Pisciculture,
aqua-culture,
cultivation of
vegetables,
mushrooms,
under controlled
conditions
and services
related to agro
and allied sectors.

15. Hazardous 100% Automatic Subject to industrial license PN 4/2006

Chemicals, under the Industries
viz., hydrocyanic (Development & Regulation)
acid and its Act, 1951 and other sectoral
derivatives; regulations.
phosgene and its
derivatives; and
isocyanates and
diisocyantes of
hydrocarbon.

16. Industrial 100% Automatic Subject to industrial license PN 4/2006

explosives under Industries
Manufacture (Development & Regulation)
Act, 1951 and regulations
under Explosives Act, 1898

100
 Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
17. Insurance 26% Automatic Subject to licensing by the PN 10/2000
Insurance Regulatory &
Development Authority
www.irda.nic.in.

18. Investing 49% FIPB Foreign investment in an PN 2/2000

companies in investing company will not be & PN 5/2005
infrastructure/ counted towards sectoral cap
services sector in infrastructure /services
(except telecom sector provided the
sector) investment is up to 49% and
the management of the
company is in Indian hands.

19. Mining covering 100% Automatic Subject to Mines & Minerals PN 2/2000
exploration and (Development & Regulation) PN 3/2005,
mining of Act, 1957 www.mines.nlc.in & PN 4/2006
diamonds & Press Note 18 (1998) and
precious stones; Press Note 1 (2005) are not
gold, silver and applicable for setting up
minerals. 100% owned subsidiaries in
so far as the mining sector is
concerned, subject to a
declaration from the applicant
that he has no existing joint
venture for the same area
and/or the particular mineral.

20. Non Banking Finance Companies-approved activities

i Merchant 100% Automatic Subject to: PN 2/2000,

banking PN 6/2000, &
a. minimum capitalization
ii Underwriting norms for fund based PN 2/2001
NBFCs - US$ 0.5
iii Portfolio

101
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
Management Million to be brought
Services upfront for FDI up to 51%;
US$ 5 million to be brought
iv Investment
Advisory upfront for FDI above 51%
Services and up to 75%; and US$
50 million out of which US$
v Financial 7.5 Million to be brought
Consultancy
upfront and the balance in
vi Stock
24 Months for FDI Beyond
Broking
75% and up To 100%.
vii Asset
Management b. minimum capitalization
norms for non-fund based
viii Venture
NBFC activities- US$ 0.5
Capital
million.
ix Custodial
Services c. foreign investors can set
up 100% operating
x Factoring
subsidiaries without the
xi Credit condition to disinvest a
Reference minimum of 25% of its
Agencies equity to Indian entities
subject to bringing in US$
xii Credit
50 million without any
Rating
Agencies restriction on number of
operating subsidiaries
xiii Leasing without bringing additional
& Finance capital.
xiv Housing
d. joint venture operating
Finance
NBFCs that have 75% or
xv Forex less than 75% foreign
Broking investment will also be
xvi Credit allowed to set up
Card subsidiaries for
Business undertaking other NBFC
activities subject to

102
 Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
xvii Money the subsidiaries also
changing complying with the
Business applicable minimum
capital inflow.
xviii Micro credit

xix Rural credit. e. compliance with the

guidelines of the RBI.

21. Petroleum & Natural Gas sector

a. Other than 100% Automatic Subject to sectoral PN 1/2004

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

b. Refining 26% in case FIPB Subject to Sectoral policy PN 2/2000

of PSUs (in case of www.petroleum.nic.in
PSUs)
100% case Automatic
of Private (in case of
companies private
companies)

22. Print Media

a. Publishing of 26% FIPB Subject to Guidelines notified

newspaper and by Ministry of Information &
periodicals Broadcasting.
dealing with news www.mib.nic.in
and current affairs

103
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
b. Publishing of 100% FIPB Subject to guidelines issued PN 1/2004
scientific by Ministry of Information &
magazines/ Broadcasting.
specialty/ www.mib.nic.in
journals/
periodicls

23. Power including 100% Automatic Subject to provisions of the PN 2/1998,

generation (except Electricity Act. 2003 PN 7/2000,
Atomic energy); www.powermin.nic.in & PN 4/2006
transmission,
distribution and
Power Trading.

24. Tea Sector. 100% FIPB Subject to divestment of 26% PN 6/2002

including tea equity in favour of Indian
plantation partner/Indian public within 5
years and prior approval of
State Government for change
in land use.

25. Telecommunication

a. Basic and cellular, 74% Automatic Subject to guidelines notified PN 5 / 2005

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

104
 Foreign Direct Investment

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
b. ISP with gateways, 74% Automatic Subject to licensing and PN 4/2001
radio-paging, up to 49% security requirements
end-to-end FIPB notified by the Department of
bandwidth. Beyond Te l e c o m m u n i c a t i o n s
49% www.dotindia.com
c. ISP Without 100% Automatic Subject to the condition that PN 9/2000
Gateway, up to 49% such Companies shall divest
Infrastructure 26% of their equity in favour
provider providing FIPB of Indian Public in 5 years, if
dark fibre, Beyond these companies are listed in
electronic mail 49% other parts of the world. Also
and voice mail subject to licensing and
security requirements,
where required.
www.dotindia.com

d. Manufacture 100% Automatic Subject to sectoral PN 2/2000

of telecom requirements.
equipments www.dotindia.com

26. Trading

a. Wholesale/cash 100% Automatic Subject to guidelines for FDI PN 4/2006

& carry trading in trading issued by
Department of Industrial
Policy & Promotion vide
Press Note 3 (2006 Series).

b. Trading for 100% Automatic

exports

c. Trading of items 100% FIPB

sourced from
small scale
sector

d. Test marketing 100% FIPB

of such Items

105
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

S. Sector/ FDI Cap/ Entry Other conditions Relevant

No. Activity Equity Route Press Note
issued by
DIPP
for which a
company Has
approval for
manufacture

e. Single Brand 51% FIPB

Product retailing

27. Satellites 74% FIPB Subject To Sectoral

Establishment guidelines issued by
and operation Department of Space/ISRO
www.isro.org

28. Special Economic 100% Automatic Subject To Special Economic PN 9/2000,

Zones and Free Zones Act, 2005 and the PN 2/2006,
Trade Foreign Trade Policy. & PN 4I2006
Warehousing www.sezindia.nic.in
Zones Covering
setting up of
these Zones and
setting up units
in the Zones

106

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.
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
Portfolio
ForeignInvestment
Direct Investment
Scheme
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
H out of FCNR/NRE account.
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 non-
repatriation basis.
H 5% of the value of each issue of
convertible debenture of an
Indian Company on both
repatriation and non-
repatriation basis.
b. Per investee Company
(Total holding by all NRIs put
together on both repatriable as well
as non-repatriable basis.)
107
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
108
exchange traded derivatives contracts
approved by SEBI from time to time out
of his Rupee funds held in India on Non-
Repatriable 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?

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
borrowers 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 begin portfolio
Investment?
NRIs should comply with the following
conditions:
The NRI designates a bank branch
H
for routing all his purchase and sale
transactions through that Bank
branch only.
Portfolio Investment Scheme
H Purchase and sale is carried out
through a registered broker on a
recognized stock exchange.
H All transactions of purchase and sale
must be delivery based. Speculative
transactions are not allowed.
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.
Portfolio Investment
Scheme for Foreign
Institutional Investors (FIIs)
Schedule 2 of the Regulation 5(2) of
Notification No. 20/RB-2000 dated 3rd May,
109
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
110
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/sub-
accounts 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

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.
H 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.
H All transaction of purchase and sale
must be delivery based. Speculative
transactions are not allowed.
H 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.
H 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.
Portfolio Investment Scheme
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.
Investments by NRIs on
Non-Repatriation Basis
Schedule IV of notification No. 20/2000-
RB deals with provisions relating to such type
of investments. Briefly the provisions are as
follows:-
General Prohibition
Investments in shares or convertible
debentures of an Indian Company engaged
in following type of activities are not
permitted.
H Chit Fund or Nidhi Company
H Agricultural or Plantation activities
H Real Estate Business
H Construction of farm houses or
H Dealing in Transfer of Development
Rights (TDRs).
General Permission
Subject to above, NRIs are free to invest
without any limit on non-repatriation basis
111
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

in shares or convertible debentures of an non-repatriation basis dated Government

Indian Company. However, only direct
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
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.

112
 Portfolio
Immovable
Investment
Properties
Scheme

Immovable Properties

Prohibition on citizens of concerned. Under FERA acquisition of IP in

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

Table: Transaction of Immovable Property

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

113
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Person of Indian Origin Resident Outside India May

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

If these provisions are examined carefully it
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.
Acquisition and Transfer of
IP in India by Foreign
Embassies/Diplomats/
Consulate Generals
Foreign Embassies/Diplomats/Consulate
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 of Sale
Proceeds
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

114

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.
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
Immovable Properties
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
115
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.
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 non-
allotment 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.
Remittance of Rent
NRI/PIOs can freely rent out their immovable
116
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.
Questions and Answers
Q. 1 Can NRIs/PIOs rent out his
immovable property in India?
Ans. 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

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 Act and the Indian
Registration Act, taken together, do
not clarify what immovable
property IP. They only suggest what
is either included or not included in
Immovable Properties
immovable property. Indeed, in the
said definitions, shares in the co-
operative society are not so included
that is to say expressly.
However, the situation appears to be
clear in view of the Supreme Courts
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 Co-
operative Society is, in effect, the
agreement to sell immovable
property.
Accordingly, any interest or share in
a Co-operative Housing Society or
Apartment Owners Association
117
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
Sr. Person who is required to
No. obtain RBIs Permission Property which requires
1. Citizen of India residing outside India
(i.e. NRI)
2. Citizen of India residing outside India
(i.e. NRI)
3. Citizen of India residing outside India
(i.e. NRI)
4. A person of Indian Origin Resident
outside India (PIO)
118
restrictions u/s. 6(3)(i) and the
Regulations are also applicable to
non-individual persons who are
resident outside India.
Q. 5 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?
Ans. The following categories of persons
are required to obtain prior
permission of RBI to acquire or
transfer immovable property in
India:
Nature of Transactions/ Reference/
Remarks
RBIs Permission
To acquire Agricultural or Plantation Reg. 3(a)
property or a Farm House in India
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

Sr. Person who is required to
No. obtain RBIs Permission
5. A person of Indian Origin Resident
outside India (PIO)
6. A person of Indian Origin Resident
outside India (PIO)
7. A person of Indian Origin Resident
outside India (PIO)
8. A person of Indian Origin Resident
outside India (PIO)
9. A person of Indian Origin Resident
outside India (PIO)
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, Diplomat,
Consulate General
12. A foreign national being a citizen of
Pakistan, Bangladesh, Sri Lanka,
Afghanistan, China, Iran, Nepal or
Immovable Properties
Nature of Transactions/ Reference/
Property which requires Remarks
RBIs Permission
To acquire Agricultural or Plantation Reg. 4(a) & (b)
Property or a Farm House in India
by way of purchase or gift (other
than by way of inheritance)
To acquire any immovable property Reg. 4(b)
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 Reg. 4(e)
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 Reg. 4(d)
in India by way of a sale to a person
resident outside India
To transfer any Residential or Reg. 4(f)
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 Reg. 5 (b)
(other than by way of mortgage
to an Authorised Dealer as a
security for any borrowing).
To obtain prior approval of Govt. of Reg. 5A
India, Ministry of External Affairs for
purchase & sale of IP
To acquire or transfer any Reg. 7
immovable property in India (other
than lease not exceeding 5 years)
119
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
Sr. Person who is required to
No. obtain RBIs Permission Property which requires
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.
14. Any Non-Individual Person (i.e. a
company or a firm etc.) resident
outside India.
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
120
Nature of Transactions/ Reference/
Remarks
RBIs Permission
(Note: The regulations do not grant Reg. 8
any general permission to such a
person to acquire animmovable
property in India. Therefore, such
a person would also require RBIs
permission to acquire an
immovable property in India).
To acquire or transfer an Sec. 6(3)(i)
immovable property in India (other
than a lease not exceeding 5
years).
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.
Q. 7 Whether NRIs needs any permission
for purchase or sale of an immovable
property in India?

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.
Q. 8 Can NRIs purchase immovable
properties out of NRO accounts?
Ans. 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.
Q. 9 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?
Ans. 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.
Q. 10 Can NRI repatriate the full
consideration upon the sale of his
property?
Ans. India is fully convertible on current
Immovable Properties
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 borrowers
own business purposes; and
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/
121
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

FCNR/NRO account or out of against which such loan was

the sale proceeds of shares or granted.
securities or immovable property

122

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 The loan is free of interest
H The minimum maturity period of the
loan is 1 year.
H 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.
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
borrowers personal requirement or for his
business purposes and under no
circumstances be used for relending or for
Immovable
Loans & Overdrafts
Properties
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
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
124
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.
H The period of loan should not exceed the
unexpired period of maturity of the NRE
deposit accepted as security.
H The loan has to be used for personal

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 non-
resident, 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
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 non-
resident guarantor against the invoked
guarantee.
Change in the Residential
Status of Borrower
An AD may allow continuance of loan/
Loans & Overdrafts
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.
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.
125
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.
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.
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
126
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
lenders 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 The quantum of loans, margin money
and the period of repayment shall be at
par with those applicable to resident
borrowers.
H The loan shall be fully secured by
equitable mortgage of the property
proposed to be acquired, and if necessary,
also by lien on the borrowers other assets
in India.
H The loan amount should not be credited
to the borrowers NRE or FCNR
account.
H 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

of rental income derived from renting out
the property acquired by utilisation of the
loan.
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 co-
obligant.
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 borrowers
loan account.
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,
Loans & Overdrafts
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 Deposits are received under a public
deposit scheme.
H Amount of deposits so collected shall not
be utilised by the company for relending
(not applicable to an NBFC).
H 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.
127
Compendium on Policies,
Compendium Policies,Incentives
Incentives
andand
Investment
Investment
Opportunities
Opportunities
for Overseas
for Overseas
Indians Indians

H The maturity period of deposits shall not accepted by the company shall not
exceed 3 years. exceed 35% of its net owned funds.
H The amount of aggregate deposits

128
 Remittance facilities for NRIs/PIOs and Foreign Nationals
Remittance facilities for NRIs/PIOs
and Foreign Nationals
Remittance of assets by a
foreign national of non-
Indian 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 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 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 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.
129
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

Facilities for Students by the authorized dealers on production of an

undertaking by the remitter and a Certificate
Students going abroad for studies are treated from a Chartered Accountant.
as Non-Resident Indians (NRIs).

They are eligible to receive remittances from International Credit Cards

close relatives from India upto $ 100,000 for
Banks may issue international credit cards to
maintenance and upto $1,000,000 out of sale
proceeds of assets/balances in their account NRIs/PIOs without prior approval off the RBI.
maintained with an authorized dealer in India.

Income- tax clearance

The remittances will be allowed to be made

130
 Overseas Citizenship of India (OCI)

O ther
Important
Matters

131
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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;
ii. Exemption from reporting to Police
authorities for any length of stay in
India; and
132
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.

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 th
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
Overseas Citizenship of India (OCI)
respects along with enclosures should be
submitted in duplicate to the Indian Mission
/ Post of the country of applicants 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
133
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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, multipurpose
life long OCI U visa sticker will be pasted
on the foreign passport of the applicant.
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.
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.
Cancellation of OCI registration
If it has been found that the registration as
134
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.
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.
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

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.
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
Overseas Citizenship of India (OCI)
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 grand-
parents 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 26.04.1975
ii. Pondicherry From 16.08.1962
iii. Dadra & Nagar Haveli
from 11.08.1961
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.
135
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
Q. 5 Can children of parents, wherein one
of the parents is eligible for OCI, can
apply for OCI?
Yes.
Q. 6 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.
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
136
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
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. 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 applicants 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?
Overseas Citizenship of India (OCI)
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
137
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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.
138
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

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.
Overseas Citizenship of India (OCI)
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.
139
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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.
140
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 Ministers
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:

H Multi-purpose, multiple entry,
lifelong visa for visiting India.
H Exemption from registration with
Foreigners Regional Registration
Officer/ Foreigners Registration
Officer for any length of stay in
India.
H 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.
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 persons 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
Overseas Citizenship of India (OCI)
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
141
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
available on the MHAs 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 hand-
written 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 hand-
written 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 MHAs 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
142
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 MHAs 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 MHAs 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

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.
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.
Overseas Citizenship of India
PIO Card
(OCI)
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/-.
143
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
144
for NRIsincluding medical/
engineering colleges, IITs, IIMs
etc.;
c. 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.

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, slum-
dwellers 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.
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.
Non-Governmental Organisations (NGOs)
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. Societys 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
145
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.
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
146
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

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 trusts 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 Intention to create trust
H Purpose of the trust
H Beneficiaries of the trust, and
H 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.
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 of law and concessional rate of fees etc.
Non-Governmental Organisations (NGOs)
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 non-
profit company because of statutory
disclosure requirements is a relevant
advantage of a companys operational
transparency and ability to invoke and
maintain public faith.
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 non-
profit 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
147
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)
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
148
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

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 non-
profit company.
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.)
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-to-
case basis.
Non-Governmental Organisations (NGOs)
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;
H The FCRA number has been cancelled
by the Government;
H The NGO has been asked to get prior-
permission under section 10(b).
H The FCRA number is frozen due to
change in Governing Body.
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
149
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 Applying again

One party can apply for prior permission You can reapply after ascertaining and
more then once if needed considering rectifying objections on your file. You
that projects are varied and or are under can also file an appeal in the High
different agencies. Appeal against rejection Court within 60 days of the date of letter.

When FCRA permission is not a. Salary, wages or other remuneration

needed:
Prior permission from the FCRA is not
required for receiving amounts in the
following forms:-
either to individual or payment for
business purposes.
b. Payment for international trade or for
business transacted by him outside India.

150

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.
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.
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.
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
Non-Governmental Organisations (NGOs)
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 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.
H 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.
H Documents to attach with Form FC 8
Attach one copy of each of the
following documents
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;
151
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
152
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.

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.
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
Non-Governmental Organisations (NGOs)
Foreign Contributions
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,
ii. any international agency not being the
United Nations or any of its specialised
153
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
154
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.

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.
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.
Foreign Contributions
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.
155
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.
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.
Certain Association and Persons
i. Association having a definite cultural,
economic, educational, religious or social
programme can accept foreign
156
contribution upon fulfillment of
following conditions:
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.
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.

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.
Time Limit for Disposal of
Applications
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.
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
Foreign Contributions
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.
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.
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.
157
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.
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
158
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
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

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;
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.
Foreign Contributions
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.
159
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
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 SEZs 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
160
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) , Manikanchan-
Salt 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 units provide employment to about
Govt. for SEZ 100650 persons out of which 32185 are
females.
Performance
As on 31st March 2005, there are 811 units Exports
in operation in the 8 functional SEZs. Export performance of the SEZ are as given
Investment by the units in these Zones are below:-
of the order of Rs 18309 million. The SEZ

Exports from Special Economic Zones are given below;-

Zone 2003-2004 2004-2005

(Rs in crores) (Rs in Crores)

Kandala SEZs 1018.82 1060.14

Seepz SEZ 7832.81 8298.59

Noida SEZ 1534.17 4266.00

Madras SEZ 1037.96 1376.91

Coachin SEZ 298.91 462.99

Falta SEZ 825.34 569.15

Vishakhapatnam SEZ 435.67 579.27

Surat SEZ 869.90 1539.72

Manikchand SEZ 95.54

Jaipur SEZ 5.27

Indore SEZ 55.02

Total 13853.58 18308.60

161
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)
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.
162
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,
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

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
Special Economic Zones
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.
H 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.
H Full freedom in allocation of developed
plots to approved SEZ units on a purely
commercial basis.
H Full authority to provide service like
water, electricity, security , restaurants,
recreation centers etc. on commercial
lines.
H Foreign investment permitted to develop
township within the SEZ with residential
area , market, play grounds, clubs,
recreation centers etc.
H Develop Standard Design Factory (SDF)
building in existing SEZ.
163
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians
H Income Tax Exemption to investors in
SEZs under Section 10(23G) of Income
Tax Act.
H Exemption from Service Tax
H Investment made by individuals etc. in
SEZ company also eligible for exemption
u/s 88 of the Income Tax Act.
H Development promoted to transfer
infrastructure facility for operation and
maintenance u/s 80-IA of the Income
Tax Act.
H Generation, Distribution and
Transmission of Power in SEZs allowed.
Setting up of SEZ
Enterprise
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.
Indian SEZ Salient Features and
Facilities
H A designated duty free enclave and to be
treated as foreign territory for trade
operations and duties and tariffs.
H No License required for import.
H Exemption from custom duty on import
of capital goods, raw materials,
consumable spares etc.
164
H Exemption from Central Excise duty on
procurement of Capital goods, raw
materials, consumables spares etc. from
the domestic market.
H Supplies from DTA to SEZ units treated
as deemed exports.
H Reimbursement of Central Sales Tax paid
on Domestic purchases.
H 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.
H Carry forwarded of losses.
H 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
H 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.
H SEZ units may be for manufacturing,
trading or service activity.
H SEZ unit to be positive net foreign net
exchange earner within three years.
H Performance of the unit to be monitored
by a committee headed by Development
Commissioner and consisting of
Customs.
H 100% foreign direct investment in
Manufacturing, sector allowed through
automatic route barring a few sectors.

H Facility to retain 100% foreign exchange
receipts in EEFC a/c
H Facility to realize and repatriate export
proceeds within 12 months
H 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
H Write off of unrealized export bills up
to 5%
H Commodity hedging by SEZ units
permitted
H Capitalisation of import payables.
H No Cap on foreign investment for SSI
reserved items
H Exemption from industrial licensing
requirement for items reserved for SSI
sectors
H Profits allowed to be repatriated freely
without any dividend balancing
requirement
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.
Special Economic Zones
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.
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.
165
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;
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.
166
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 non-
ferrous 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.
 List of Important Websites

List of Important Websites

Website addresses of Important Ministries/Departments

Ministry of Overseas Indian Affairs http://www.moia.gov.in

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

167
Compendium on Policies, Incentives and Opportunities for Overseas Indians

Ministry of Overseas Indian Affairs http://www.moia.gov.in

Ministry of Power http://powermin.nic.in

Ministry of Railways http://www.indianrailways.gov.in
Reserve Bank of India http://www.rbi.org.in
Ministry of Road Transport & Highways http://morth.nic.in
Department of Shipping http://shipping.nic.in
Ministry of Small Scale Industries & Agro and
Rural Industries http://ssi.nic.in
Ministry of Statistics and Programme Implementation http://mospi.nic.in
Department of Telecommunication http://www.dotindia.com
Ministry of Textile http://texmin.nic.in
Ministry of Tourism http://tourismofindia.com
Ministry of Urban Development http://urbanindia.nic.in
Ministry of Water Resource http://wrmin.nic.in

Website Addresses of States/Union Territories

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

168
 List of Important Websites

Ministry of Overseas Indian Affairs http://www.moia.gov.in

Jammu & Kashmir http://jammukashmir.nic.in

Jharkhand http://jharkhand.nic.in
Karnataka http://www.karnataka.nic.in
Kerala http://www.kerala.gov.in
Lakshdweep(UT) http://lakshadweep.nic.in
Madhya Prdesh http://www.mp.nic.in
Maharashtra http://maharashtra.gov.in
Manipur http://manipur.nic.in
Meghalaya http://meghalaya.nic.in
Mizoram http://mizoram.nic.in
Nagaland http://nagaland.nic.in
Orissa http://orissagov.nic.in
Pondicherry(UT) http://pondicherry.nic.in
Punjab http://punjabgovt.nic.in
Rajasthan http://www.rajasthan.gov.in
Sikkim http://sikkimgov.nic.in
Tamil Nadu http://www.tn.gov.in
Tripura http://tripura.nic.in
Uttar Pradesh http://upgov.nic.in
Uttranchal http://gov.ua.nic.in
West Bengal http://www.wbgov.com

169
Compendium on Policies, Incentives and Investment Opportunities for Overseas Indians

170
 Bank Accounts ofContact Details
Non-Residents

Contact Details
Ministry of Overseas Indian Affairs
9 th
Floor, Akbar Bhawan, Chanakya Puri, New Delhi - 110 021
Tel: +91-11-2419 7900 Fax: +91-11-2467 4140
Contact details of the Senior Officers of the Ministry
1. Mr. Nirmal Singh
Secretary
Ministry of Overseas Indian Affairs
Tele: 24674143/ 24674144
e-mail: secretary@moia.nic.in
2. Mr. Malay Mishra
Joint Secretary (Diaspora Services)
Ministry of Overseas Indian Affairs
Tele: 26874240
e-mail: jsds@moia.nic.in
3. Mr. G. Gurucharan
Joint Secretary (Financial Services)
Ministry of Overseas Indian Affairs
Tele: 24676210
e-mail: jsfs@moia.nic.in
4. Mr. Jagadananda Panda
Protector General of Emigrants
Ministry of Overseas Indian Affairs
Tele: 26874250
e-mail: pge@moia.nic.in

For further details about the book please contact

1. Ms. Sandhya Shukla
Director
Ministry of Overseas Indian Affairs
Tele: 26874231, 24197918
e-mail: dirss@moia.nic.in
2. Ms. Anupma Aggarwal
Partner
Peeyush Aggarwal & Co.
Chartered Accountants
B-132 Anand Vihar, Delhi-110092
Tel: 011-22164800, 22164700
Fax: 91-11-22164800
Mobile: +919312276731
e-mail: anupma@indialiaison.com
Website: www.indialiaison.com

171
 Feedback Form

Feedback Form

Kindly give us your feedback on the document as this will help us in making the revised edition
of this book more valuable. We will be obliged if any mistake, error or discrepancy is brought
to our notice for carrying out necessary corrections and modifications.

Suggestions

Please mail/fax/e-mail your suggestions to:

Ms. Sandhya Shukla Ms. Anupma Aggarwal
Director Partner
Ministry of Overseas Indian Affairs Peeyush Aggarwal & Co.
9th Floor, Akbar Bhawan Chartered Accountants
Chanakya Puri B-132 Anand Vihar
New Delhi Delhi-110092
Tel: +91 11 2419 7918, 2687 4231 Tel: +91 11 2216 4800, 2216 4700
E-Mail: dirss@moia.nic.in Fax: +91 11 22164800
Mobile: +9312276731
E-Mail: anupma@indialiaison.com
Website: www. indialiaison.com
 Investment oppor tunities for Overseas Indians
Compendium on Policies, Incentives and
C ompendium on
Policies,
Incentives and
Investment
Opportunities
for Overseas
www.cyberart.co.in

Ministry of Overseas Indian Affairs

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