Q Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?+
A FDI is prohibited in the following sectors:
- Lottery Business (including government/private/online lotteries)
- Gambling and Betting (including casinos)
- Chit Funds
- Nidhi Company
- Trading in Transferable Development Rights (TDRs)
- Real Estate Business or Construction of Farm Houses (excluding integrated township development)
- Manufacturing of Cigars, Cheroots, Cigarillos, and Cigarettes
- Sectors not open to private sector investment (e.g., atomic energy, railway operations except permitted activities)
Q What is the procedure to be followed after investment is made under the Automatic Route or with Government approval?+
A The procedure involves:
- Reporting receipt of share application money within 30 days to the RBI Regional Office using Form ARF.
- Filing Form FC-GPR within 30 days of issuing shares to non-resident investors.
- If shares are not issued within 60 days of receiving funds, the amount must be refunded immediately.
- Filing the Annual Return of Foreign Liabilities and Assets (FLA Return) by July 15th each year.
Q What are the consequences of failure to comply with the above requirements?+
A Non-compliance with FEMA provisions can result in penalties up to three times the amount involved or up to Rs. 2 lakh if not quantifiable. Continuing contraventions can attract further penalties of up to Rs. 5,000 per day. Compounding of contraventions is possible by applying to the RBI's Directorate of Enforcement.
Q What are the guidelines for transfer of existing shares from non-residents to residents or residents to non-residents?+
A "Transfer" includes sale, purchase, gift, mortgage, pledge, loan, etc. Transfers by sale or gift are generally permitted, subject to pricing guidelines, documentation, sectoral limits, and reporting requirements. Some restrictions apply, such as for shares purchased under the Portfolio Investment Scheme.
Q Can a person resident in India transfer security by way of gift to a person resident outside India?+
A Yes, but the resident must apply to the RBI with details of the transfer, relationship, reasons, and valuation certificates. The gift may be permitted if the donee is eligible, sectoral caps are not breached, and other prescribed conditions are met.
Q What if the transfer of shares from resident to non-resident does not fall under the above categories?+
A The transferor or transferee must apply to the RBI for permission, along with FIPB approval (if required), consent letters, shareholding patterns, relevant approvals, and a fair valuation certificate from a SEBI-registered Merchant Banker or Chartered Accountant.
Q What are the reporting obligations in case of transfer of shares between resident and non-resident?+
A The transaction must be reported by submitting Form FC-TRS to the AD Category-I bank within 60 days of receipt/remittance of consideration. The resident party is responsible for filing the form.
Q What is the method of payment and remittance/credit of sale proceeds in case of transfer of shares between resident and non-resident?+
A The sale consideration must be remitted through normal banking channels. NRIs can use NRE/FCNR(B) accounts for repatriable shares, and NRO accounts for non-repatriable shares. Sale proceeds (net of taxes) can be remitted outside India or credited to the appropriate account.
Q Are the investments and profits earned in India repatriable?+
A All foreign investments are repatriable (net of taxes) unless made on a non-repatriation basis or subject to sectoral conditions. Dividends/profits (net of taxes) can be remitted outside India through an authorized dealer bank.
Q What are the guidelines on issue and valuation of shares in case of existing companies?+
A For listed companies, pricing must follow SEBI guidelines. For unlisted companies, valuation should be done by a CA or SEBI-registered Merchant Banker using internationally accepted methods. Convertible instruments' price/conversion formula must be determined upfront. Share swaps require valuation by a SEBI-registered Merchant Banker or equivalent foreign Investment Banker.
Q Can a foreign investor invest in Preference Shares? What are the regulations applicable in case of such investments?+
A Yes, but the preference shares must be fully and mandatorily convertible into equity within a specified time to be considered FDI. Other preference shares fall under ECB norms.
Q Can shares be issued against Lumpsum Fee, Royalty and ECB?+
A Yes, subject to pricing guidelines and sectoral caps, shares can be issued against royalty/lumpsum fees for technology/know-how and against External Commercial Borrowings (ECB).
Q What are the other modes of issues of shares for which general permission is available under RBI Notification No. FEMA 20 dated May 3, 2000?+
A Other permitted modes include ESOPs, sweat equity, bonus issues, rights issues, share swaps, mergers/demergers/amalgamations, and issues against other funds payable to a non-resident (no prior RBI/Government approval required).
Q Can a foreign investor invest in shares issued by an unlisted company in India?+
A Yes, investments are permitted in shares of unlisted Indian companies, as per RBI/Government regulations.
Q Can a foreigner set up a partnership/proprietorship concern in India?+
A Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India, and that too on a non-repatriation basis.
Q Is a non-resident permitted to acquire shares on stock exchange?+
A Yes, FPIs/FIIs registered with SEBI, NRIs, and other non-residents (subject to certain conditions like holding control as per SEBI regulations) can acquire shares on stock exchanges.
Q What will be the modes of payment for non-residents permitted to acquire shares on stock exchange?+
A Payment can be made through inward remittance, debit to NRE/FCNR accounts, debit to non-interest-bearing Escrow accounts, or from dividends payable by the investee company (credited to a designated account).
Q What is FDI and how does it work?+
A FDI is an investment made by a foreign entity into a business or asset in another country. It establishes a lasting interest and often involves some degree of control over the enterprise.
Q What are the benefits of FDI for India?+
A FDI can bring in capital, technology, expertise, and create jobs, boosting economic growth.
Q How can I attract FDI to my business?+
A Have a strong business plan, demonstrate growth potential, comply with regulations, and network with potential investors.
Q What is the difference between FDI and FII?+
A FDI involves a long-term investment and some control, while FII (Foreign Institutional Investment) is often shorter-term and involves portfolio investments in stocks, bonds, etc.
Q How do I get government approval for FDI in India?+
A Applications are submitted through the Foreign Investment Facilitation Portal (FIFP) for sectors requiring government approval.
Q What are the latest FDI policies in India?+
A Refer to the Department for Promotion of Industry and Internal Trade (DPIIT) website for the most up-to-date policies.
Q How can I find FDI investors for my project in India?+
A Through investment banks, online platforms, industry events, and networking.
Q What are the tax implications of FDI in India?+
A Contact us for specific advice on withholding taxes, capital gains tax, etc.
Q What is the role of the RBI in FDI regulations?+
A The RBI plays a key role in regulating FDI inflows and outflows, ensuring compliance with FEMA regulations.
Q What are the different entry routes for FDI in India?+
A Automatic route and government approval route, depending on the sector and investment amount.
Q What are the sectoral caps for FDI in India?+
A Certain sectors have limits on the percentage of foreign investment allowed.
Q How do I report FDI inflows to the RBI?+
A Through Form FC-GPR and other reporting mechanisms.
Q What are the penalties for non-compliance with FDI regulations?+
A Financial penalties and other legal actions.
Q How can I repatriate profits from FDI in India?+
A Profits can be repatriated after paying applicable taxes.
Q What is the process for setting up a wholly owned subsidiary in India by a foreign company?+
A It involves incorporating a company in India and complying with FDI regulations.
