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FAQs on FDI - Foreign Direct Investment in India

What are the forms in which business can be conducted by a foreign company in India?
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 Joint Ventures; or Wholly Owned Subsidiaries
  • As an unincorporated entity through
    - Liaison Office/Representative Office, or
    - Project Office, or
    - Branch Office
Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000.

How does a foreign company invest in India? What are the regulations pertaining to issue of shares by Indian companies to foreign collaborators/investors?

A) Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government:

  • Activities/items that require an Industrial License;
  • Proposals in which the foreign collaborator has an existing financial / technical collaboration in India in the 'same' field,
  • Proposals for acquisition of shares in an existing Indian company in: Financial services sector and where Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers ) Regulations, 1997 is attracted;
  • All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors 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 issue of shares to foreign investors.

B) Government Route
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL; Plain paper applications carrying all relevant details are also accepted. No fee is payable.

General permission of RBI under FEMA
Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the 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 the foreign investors or NRIs.

Which are the sectors where FDI is not allowed in India, under the Automatic Route as well as Government Route?

FDI is prohibited under Government as well as Automatic Route for the following sectors:

  • Retail Trading
  • Atomic Energy
  • Lottery Business
  • Gambling and Betting
  • Housing and Real Estate business
  • Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors).
  • Plantations (Other than Tea plantations).

What should be done after investment is made under the Automatic Route or with Government approval?
A two-stage reporting procedure has been introduced for this purpose.

On receipt of money for investment:

  • Within 30 days of receipt of money from the foreign investor, the Indian company will report to the Regional Office of RBI under whose jurisdiction its Registered Office is located, a report containing details such as:
  • Name and address of the foreign investors
  • Date of receipt of funds and their rupee equivalent
  • Name and address of the authorised dealer through whom the funds have been received, and
  • Details of the Government approval, if any;

On issue of shares to foreign investor:

  • Within 30 days from the date of issue of shares, a report in Form FC-GPR together with the following documents should be filed with the Regional Office of RBI:
  • Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that - All the requirements of the Companies Act, 1956 have been complied with;
    - Terms and conditions of the Government approval, if any, have been complied with;
    - The company is eligible to issue shares under these Regulations; and
    - The company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration;

Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

 

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