Investment By NRI On Non-Repatriation Basis

Realising importance of Non Resident Indian (NRI) contribution, Government of India had provided special treatment to NRIs for providing flexibility to invest through different commercial feasible structures under consolidated FDI Policy of 2017 and in TISPRO Regulations, 2017, which are issued by RBI. For FDI Policy, Overseas citizen of India (OCI) is included in NRI.  

NRI is an Indian Citizen who resides in India for less than 182 days during the preceding financial year, or who is gone out of India or stays outside India for employment, vocation or whose intention to live outside India for uncertain period of time.

The NRIs are permitted to invest on both the repatriation and non-repatriation basis in the country

Repatriation basis and Non-Repatriation basis:

Investment on repatriation basis means an investment, the sale or maturity proceeds of which are eligible to be repatriated out of India after paying the applicable taxes. The expression investment on non-repatriation basis means the investment the sale or maturity proceeds thereof cannot be taken outside India and have to be retained in India.

The benefit of making investment on non-repatriation basis lies in the fact that the investments so made are considered as domestic investments and can be made without any limit, in contrast to the investment made on repatriation basis, where the investor has to adhere to the sector guidelines. 

The investments made by the NRIs and OCIs on repatriation basis are covered under Schedule 1 and the investments made on non-repatriation basis are covered under Schedule 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2017 (“TISPRO”).

Modes of investment for NRIs on Non Repatriation Basis:

NRI/OCI can invest directly or through any company, trust, partnership firm which are incorporated outside India which are owned and controlled by NRI/OCI in following ways:

- By capital instruments such as equity shares, compulsorily convertible debentures, compulsorily convertible preference shares and share warrants of Indian Company either on stock exchange or outside it;

- Units issued by REIT, INVIT or AIF without any limit can be from stock exchange or outside from it;

- Contributing into capital of LLPwithout limit; and

- Convertible notes issued by startups;

- Contribution to capital of a firm or a proprietary concern;

However it should be noted that the investments made on non repatriation basis are considered to be at par with the investments made by the residents. 

Prohibited sectors for investment

NRI or OCI are prohibited to make investments in units of following sectors:

- Nidhi Company

- Companies conducting agriculture and plantation activities (including capital contribution)

- Real Estate business (including capital contribution)

- Construction of farm houses

- Dealing in transfer of Development rights and

- Print Media (for investment in firms or propriety concerns)

Modes of payment

Consideration can be paid in following manners through:

- Direct Inward Remittance from abroad by proper banking channels

- Non-Resident Rupee (NRE) account 

- Foreign Currency Non-Repatriable (FCNR) account

- Non Resident Ordinary (NRO) account

Transfer of share held in Non-Repatriation basis

As the investment under this section is deemed to be a domestic investment therefore, most of the conditions, as are applicable for the sale of capital instruments by residents, would apply. The NRI holding capital instruments on non-repatriation basis may transfer the same to the following persons: 

Repatriation basis: The transfer can be made to any person resident outside India on repatriation basis. The transfer shall be made under schedule 1 of TISPRO and shall be subject to the sectoral caps and the filing requirements with RBI.

Non Repatriation basis: As sale to any other NRI or OCI  

As a gift to any other NRI or OCI who agrees to hold the instruments onnon repatriation basis.

Remittance of proceeds after maturity or sale of investment  

The proceeds (net of applicable taxes) of capital instruments purchased or disinvestment proceeds of a LLP shall be credited only to the NRO account of the investor, irrespective of the account from which the proceeds were received at the time of making investment. Amount invested in capital instruments of an Indian entity or the consideration for contribution to the capital of an LLP and the capital appreciation thereon shall not be allowed to be repatriated abroad.

The dividend and interest income on these instruments is however fully repatriable.

Therefore an NRI should before making an investment in India, should carefully go through the options available under both the repatriation and non repatriation mode and compare the same with his fund requirements as to whether the funds would be needed by him in India or abroad and the time frame of investment.

The author is the Managing Partner, Sameer Mittal & Associates LLP and Chairman, International Trade Council in India