Thursday, August 13, 2015

Demystifying FEMA - FDI by Non Resident Indian Citizen

Under FEMA NRIs are a special class. They have the rights of Residents as well as Non-residents.

Accordingly, NRIs can invest in the capital of Indian Companies as residents and also as Non-residents. However, the status of residence has to be decided upfront.

Investment by NRI as resident will be on non-repatriable basis. The funds will have to be remitted through normal banking channels or paid out of balances held in NRE / FCNR / NRO / NRSR / NRNR account maintained with an authorised dealer. Such investments are said to have been done in terms of Schedule 4 of FEMA 20.

The advantage of subscribing to capital under non-repatriable cateogry is that no reporting has to be done to RBI and the pricing guidelines as prescribed in FEMA 20 (as amended from time to time) is not applicable and also the sectoral caps are not applicable.

The sale proceeds of such shares, when investor decides to exit, will be credited to the NRSR or NRO account of the investor. thus the sale proceed is not free repatriable. The balances in NRSR or NRO account can be remitted abroad in terms of applicable Liberalised Remittance Scheme (LRS).

NRI resident of Nepal or Bhutan has to remit funds in foreign exchange only.

NRI  can also invest in capital of Indian company as Non-resident. All the terms and conditions as applicable to any foreigner will be applicable to NRIs. They have to follow the pricing guidelines, KYC requirements etc. Such investments are deemed to have been done in terms of Schedule 1 of FEMA 20.

The funds have to come from normal banking channel in foreign currency, or from debit to NRE or FCNR(B) account or by debit to a non-interest bearing Escrow account (in Indian Rupees) maintained in India with an AD bank .

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Vasant Vihar, New Delhi, India
A Central Banker with 22+ years of experience. Interested in latest developments in Indian Economy and Banking. Certified Trainer with 5+ years of experience in classroom training. VIEWS EXPRESSED ARE PURELY PERSONAL