Updated FDI Policy in India

Updated FDI Policy in India

4 March 2016 • Simratjeet Kaur

FAQ’s

Query No. 1:-

What is the sectoral cap in the sectors where FDI is allowed?

Reply:-

Permitted sectors are as follows:

Query No. 2:-

What are the different routes to enter into India?

Reply:-

An Indian company may receive Foreign Direct Investment under the two routes as given under:

• Automatic Route

FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

• Government Route

FDI in activities not covered under the automatic route requires prior approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB).

Application can be made in Form FC-IL, which can be downloaded from this link.

The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank.

Query No. 3:-

Which are the sectors where FDI is not allowed in India?

Reply:-

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

• Lottery Business
• Gambling and Betting
• Business of Chit Fund
• Nidhi Company
• Real Estate or construction of farm houses.
• Trading in Transferable Development Rights (TDRs).
• Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
• Services like legal, book keeping, accounting & auditing.
• Activities / sectors not open to private sector investment e.g Atomic energy and railway Transportation.

Query No. 4:-

What are the modes of payment allowed for receiving Foreign Direct Investment?

Reply:-

An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by:

• Inward remittance through normal banking channels.
• Other modes include debit to NRE/ FCNR account, conversion of Royalty or ECB, conversion of pre incorporation expenses etc.

Query No. 5:-

Is there any time limit to issue shares /convertible debentures under FDI Scheme?

Reply:-

Shares or convertible debentures are mandatorily required to be issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B). If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B), the amount shall be refunded.

Further, Reserve Bank may on an application made to it and for sufficient reasons permit an Indian Company to refund / allot shares for the amount of consideration received towards issue of security if such amount is outstanding beyond the period of 180 days from the date of receipt.

Query No. 6:-

What are the instruments for receiving FDI in an Indian Company?

Reply:-

Foreign investment will be treated as FDI only if the investment is made in equity shares, fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on  the formula that is decided upfront.

Query No. 7:-

What is the procedure to be followed after investment is made under the Automatic route             or with Government Approval?

Reply:-

A two-stage reporting procedure has to be followed:

1. On receipt of share application money:

• The Indian Company is required to report to the Foreign Exchange Department, Regional Office concerned of the RBI, under whose jurisdiction its RO is located, within 30 days of receipt of share application money.
• Reporting needs to be done in Advance Reporting Form which should contain the following details:
  • Name and address of the foreign investors
  • Date of receipt of funds and the rupee equivalent
  • Name and address of the Authorised Dealer, which shall receive the funds
  • Details of Government Approval, if any
  • KYC report on the Non-Resident Investor from the overseas bank remitting the amount of consideration
• The shares need to be issued within 180 days from the date of inward remittance so as to not violate existing FEMA regulations.

1. Upon issue of shares to Non-Resident Investors:

• A report in form FC-GPR – Part A, needs to be filed with Foreign Exchange Department, Regional Office concerned of the RBI, within 30 days from the date of issue of shares.
• Following documents should be filed along with FC-GPR – Part A;
  • Certificate from the CS of the Company accepting investment, certifying that the Company has complied with the procedure for issue as laid down under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time.
  • Document certifying the compliance of all the conditions laid down for investments under the Automatic Route and Approval Route where approval is required.
  • Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

Transfer

Query No. 8:-

What are the ways a person Resident in India can transfer securities to a person   Resident outside India? What are the reporting obligations?

Reply:-

A person resident in India can effectuate transfer of securities in the following manner:

• Transfer requiring government approval
• Transfer requiring approval of RBI in certain cases for acquisition / transfer of security.

 The transaction should be reported in the form FC-TRS to the AD Category – I Bank,     within 60 days from remitting the consideration. The onus of submission of such form would be on the person residing in India, transferor or transferee, as the case may be.

Query No. 9:-

What are the guidelines for transfer of existing shares from Non Resident to Residents     and vice versa where government approval is not required?

Reply:-

General permission has been granted to non residents for acquisition of shares by way     of transfer subject to the following conditions:

• A person resident outside India (other than NRI and erstwhile OCB) may transfer securities by way of sale, to any person resident outside India (including NRIs).
• NRIs may transfer securities by way of sale, held by them to another NRI.
• A person resident outside India can sell the securities of an Indian company on a recognized Stock Exchange in India through a stock broker registered with stock exchange or a merchant banker registered with SEBI.
• A person resident in India can transfer securities by way of sale, of an Indian company under private arrangement to a person resident outside India.
• General permission is also available for transfer of shares/convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India.

Query No. 10:-

Can a foreign investor invest in Preference Shares? What are the regulations applicable   in case of such investments??

Reply:-

Yes. Foreign investment through preference shares is treated as foreign direct   investment. However, the preference shares should be fully and mandatorily convertible    into equity shares within a specified time to be reckoned as part of share capital under   FDI. Investment in other forms of preference shares requires to comply with the ECB norms.

Query No. 11:-

Can a company issue debentures as part of FDI??

Reply:-

Yes. Debentures which are fully and mandatorily convertible into equity within a    specified time would be reckoned as part of share capital under the FDI Policy.

Query No. 12:-

Can shares be issued against Lump sum Fee, Royalty, ECB , Import of capital goods/machineries / equipments (excluding second-hand machine) and Pre-operative/pre- incorporation expenses (including payments of rent)?

Reply:-

An Indian company is eligible to issue shares under the FDI policy to a person resident  outside India against Lump Sum fee, Royalty, ECB , Import of capital goods / machineries / equipments and Pre-operative / pre-      incorporation expenses, provided that the foreign equity in the company, after such conversion, is within the sectoral cap.

Further, on a review in September 2014, it has been decided that an Indian investee company may issue equity shares against any other funds payable by them, remittance  of which does not require prior permission of the Government of India or Reserve Bank  of India under FEMA, 1999 or any rules/ regulations framed or directions issued  thereunder, provided that:

• The equity shares shall be issued in accordance with the extant FDI guidelines.
• the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes

Query No. 13:-

What are the other modes of issues of shares for which general permission is available  under RBI?

Reply:-

Other modes of issue of shares are as follows:

• Under ESOP by Indian company to its employees or employees of its JV or WOS abroad who are resident outside directly or through a trust.
• Under scheme of compromise and arrangement of Indian Companies.
• Under right issue by an Indian company to a person resident outside India.

eBIZ INITIATIVE

Besides simplifying the FDI Policy, the eBiz initiative, piloted by Department of Industrial Policy and Promotion on 19^th February, 2015, was launched by the Government of India to simplify the process of starting a business in India through eBiz portal. eBiz is India’s one-stop-shop of convenient and efficient online Government-to-Business (G2B) services. The core theme of eBiz lies in radical shift by Government in its service approach, from being department-centric to customer-centric, in providing services to the business community.

eBiz is a collaborative effort involving government at the Central, State and municipal levels. It will dramatically reduce the complexity in obtaining information and services related to starting and operating a business in India.

Using eBiz one will be able to:

• Obtain information about the various licenses, clearances and registrations required to establish a new business in India;
• Apply online for new or renewal of licenses, permissions, approvals, clearances and registrations
• File tax returns and other regulatory reports;
• Make electronic payments towards statutory (processing) fees, (stamp) duties, taxes, service fee etc.;
• Track status of the application online;
• Receive alerts via email and SMS on the progress of submitted application;
• Interact online with the various Government departments such as responding to queries/clarifications, submit additional documentary artifacts;
• Obtain electronic copies of approved licenses, registration certificates and other clearance letters

Below is the list of 11 services currently available on eBiz portal:

1. Ministry of Corporate Affairs

• Director Identification Number(DIN)
• Name Availability
• Certificate of Incorporation
• Commencement of Business (as per Companies Amendment Act, 2015)

2. Central Board of Direct Taxes

• Issue of Tax Collection and Deduction Account Number (TAN)
• Issue of Permanent Account Number (PAN)

3. Petroleum and Explosives Safety Organization

• Issue of explosive License

4. Directorate General of Foreign Trade

• Importer Exporter Code

5. Employees Provident Fund Organization

• Employer Registration

6. Reserve Bank India

• ARF (Advance Foreign remittance)
• FC-GPR (Foreign collaboration – General Permission Route)