This Article has been designed to provide at a glance, the various investment opportunities which are available to a Non-Resident Indians in shares/securities of Indian companies/firms, in immovable properties in India along with a few Frequently asked questions on the subject.

1. LEGAL LANDSCAPE FOR NRI’s IN INDIAROD
INTRODUCTION
India is the seventh largest country by area and the second-most populous country in the
world. It has a large and growing middle-class population with an increasing rate of domestic
consumption that makes it an important market. Additionally, it has strong fundamentals like
a stable westminster-style parliamentary democracy, cost-competitiveness and abundant
supply of well-qualified and well-trained human resources across functional areas that makes
it a preferred destination for investment, both as a source of manufacturing and delivery of
services and also as a market for the consumption of the goods and services generated as a
consequence of such investment. All in all, there is little doubt that India is one of the world’s
most attractive investment destinations and will continue to be so in the future. NRIs (as
defined hereinafter) play a crucial role in developing the Indian economy. They are not being
called the backbone of Indian economy but they are a part of whole nervous system of it.
NRIs are basically Indians but settled elsewhere in the world for one or another purpose.
India has enough natural resource, much required for the economic development but does not
have enough capital to exploit them and progress the economy. For this, India depends
largely, on foreign investments.
This Article has been designed to provide at a glance, the various investment opportunities,
which are available to a Non-Resident Indian.
MEANING OF NRI FROM A FEMA PERSPECTIVE
Previously the term Non-Resident Indian (“NRI”) was defined to mean a non-resident
individual who is a citizen of India or is a person of Indian origin (“PIO”). A PIO means a
citizen of any country, other than Bangladesh or Pakistan, who had (a) at any time held
Indian passport; or (b) he or either of his parents or any of his grandparents was a citizen of
India by virtue of the Constitution of India or the Citizenship Act, 1955; or (c) the person is a
spouse of an Indian citizen or a person referred to in (a) or (b).
The Citizenship Act, 1955 was amended in 2015 whereby the concept of registration as a PIO
cardholder was replaced with the concept of registration as an Overseas Citizen of India
(“OCI”) cardholder. The category of individuals (other than Bangladesh or Pakistan) entitled
to apply for registration as an OCI cardholder are as under:
a. a major who is a citizen of another country, but,
• was a citizen of India at or after the commencement of the Constitution of India;
• was eligible to become a citizen of India at the commencement of the Constitution of
India;
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2. • who belonged to a territory that became part of India after independence; or;
• who is a child or a grandchild or a great grandchild of such a citizen.
b. a minor child of a person mentioned in (a) above;
c. a person, who is a minor child, and whose both parents or one of the parents are citizens
of India; or;
d. spouse of any individual who is a citizen of India or a is an OCI cardholder falling within
the categories mentioned above. However, in case of individual applying for OCI
cardholder registration as a spouse of a citizen of OCI cardholder, their marriage should
have subsisted for a continuous period of at least two years immediately prior to the
application.
In order to align with the amendment in the Citizenship Act, 1955 the definition of NRI under
the Foreign Exchange Management Act, 1999 was also amended. Now the definition of NRI
means an individual resident outside India who is citizen of India or is an OCI cardholder
within the meaning of the Citizenship Act, 1955. PIO cardholders registered as such under
the PIO Card Scheme, 2002 are deemed to be the OCI cardholders.
FACILITIES AVAILABLE TO AN NRI
The following facilities are available to NRI:
a) Maintenance of bank accounts in India;
b) Investment in shares/securities of Indian companies/firms; and
c) Investment in immovable properties in India.
Each of the aforesaid has been detailed herein below:
Maintenance of bank accounts in India:
NRIs are permitted to open bank accounts in India with such banks specially authorised by
Reserve Bank of India (“RBI”) in this regard. There are mainly following 3 types of non-
resident accounts which can be opened:
• Non-Resident (External) Rupee Account (“NRE Account”);
• Foreign Currency Non-Resident (Bank) Account (“FCNR (B) Account”);
• Non-Resident (Ordinary) Deposit Account (“NRO Account”).
A. Key Features of NRE Account:
NRE Accounts are rupee denominated accounts which can be maintained in the form of
savings, current, recurring or fixed deposit accounts.
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3. The deposits can be used for all local disbursements, remittance outside India and
investments in India. Transfer to NRE/FCNR account of the account-holder or any other NRI
is permitted. The balance in the account (principal plus interest) is freely repatriable. Interest
lying to the credit of NRE Accounts is exempt from tax in the hands of the NRI.
Returning NRI should take steps to re-designate the NRE Account as resident
account or funds should be transferred to Resident Foreign Currency (“RFC
Account”) immediately upon return to India for taking up employment or on change in the
residential status.
B. Key Features of FCNR (B) Account:
FCNR (B) Accounts are deposits designated in such foreign currency as may be specified by
RBI. The account is maintained in foreign currency in the form of fixed deposits for a period
not less than 1 year and not more than 5 years. Account can be opened for inward remittance
from outside India, interest accruing on the account, interest on investment, transfer from
other NRE/ FCNR(B) accounts, maturity proceeds of investments (if such investments were
made from this account or through inward remittance).
The balance in the FCNR (B) Account (principal plus interest) is freely repatriable. Interest
lying to the credit of such account is exempt from tax in the hands of the NRI. The amount
lying in this account can be used for local disbursements, investment in shares/securities of
an Indian company or any other transaction if covered under general or special permission
granted by the RBI.
Returning NRI can continue to maintain the FCNR Account until maturity. Upon maturity,
this account should get converted into resident rupee deposit accounts or RFC account (if the
depositor is eligible to open RFC account), at the option of the account holder.
C. Key Features of NRO Account:
These are Rupee denominated non-repatriable accounts and can be in the form of savings,
current, recurring or fixed deposits. When some Indian National leaves for taking up
employment, etc. outside the country, other than Nepal or Bhutan, his bank account in India
gets designated as NRO Account. These accounts are non-convertible / non repatriable and
are maintained in Indian rupees.
This account can be used to make all legitimate payments in rupees. Interest income from
NRO Account is taxable. Interest income, net of taxes, is repatriable. Balance amount may be
repatriated up to US $1 million, per financial year.
Returning NRI is required to re-designate the NRO Account as resident account immediately
upon return.
Investment in shares/securities of Indian Companies:
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4. RBI has granted general permission to NRIs, for undertaking investments in Indian
companies under the automatic route, purchase of shares under PIS (defined hereinafter) and
investment in proprietorship/partnership concerns on non-repatriation basis.
Therefore, NRIs can directly invest in India in any of the following manner:
• Investment in shares/convertible debentures of Indian companies on repatriation
basis;
• Investment without repatriation benefits;
• Investment under Portfolio Investment Scheme (“PIS”);
• Other investments with or without repatriation benefits;
• Investment in partnership/proprietorship firms.
A. Investment in shares/convertible debentures of Indian companies on repatriation
basis:
NRI is permitted to freely invest in shares and / or convertible debentures of Indian
companies carrying on almost every kind of business in India under automatic route except
for few sectors (for eg, real estate business, agriculture, plantation business, etc.,) wherein
prior approval of the RBI is necessary or where the investment can be made only upto a
certain percentage of paid up capital of the Indian company or wherein the investment is
prohibited. The investment can be made from NRE or FCNR Account or from foreign
exchange remitted from abroad. The sale proceeds (after payment of taxes) can be repatriated
out of India or credited to NRE / FCNR/ NRO Account if the shares are purchased on
repatriation basis.
B. Investment without repatriation benefits:
NRIs have been granted general permission to subscribe to the shares/convertible debentures
of an Indian company on non-repatriation basis, and general permission is also available to an
Indian company to issue shares or convertible debentures by way of new/rights/bonus issue to
NRIs on non-repatriation basis provided that the investee company is not engaged in sectors
which are prohibited or require Government approval. If the shares are purchased on a non-
repatriation basis, the amount of consideration shall be paid by way of inward remittance
through normal banking channels from abroad or out of funds held in NRE/FCNR
/NRO/NRSR/NRNR account and the sale proceeds (after payment of taxes) can only be
credited to the NRSR account when purchased through funds held in such account or
NRO/NRSR account when purchased out of funds from inward remittance or funds held in
NRE/FCNR/NRO/NRNR account.
C. Investment under Portfolio Investment Scheme:
NRIs can purchase or sell FDI compliant instruments of Indian companies on the Stock
Exchanges under the PIS. For this purpose, the NRI has to apply to a designated branch of a
bank, which deals in portfolio investment. All sale/ purchase transactions are to be routed
through the designated branch.
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5. An NRI can purchase shares up to 5 percent of the paid-up capital of an Indian company on a
fully diluted basis. All NRIs taken together cannot purchase more than 10 percent of the paid-
up value of the company. The aggregate limit of 10 percent can be increased by the Indian
company concerned up to 24 percent, with the approval of its Board of Directors and its
General Body through a resolution and a special resolution, respectively.
D. Other investments with or without repatriation benefits:
NRIs can also invest in the following securities:
With repatriation benefits:
• Government dated securities;
• Treasury bills;
• Units of domestic mutual funds;
• Bonds issued by Public sector undertaking bonds (PSU);
• Shares of public sector enterprise under dis-investment programme.
Without repatriation benefits:
• Government dated securities;
• Treasury bills;
• Units of domestic mutual funds;
• National Plan/Savings Certificate.
E. Investment by NRI in Partnership/Proprietorship firms:
NRIs can also invest by way of capital contribution in any proprietary or partnership concern
in India provided the partnership firm or the proprietary concern is not engaged in any
agricultural/plantation activities or real estate business i.e. dealing in land and immovable
property with a view to earning profit or earning income therefrom, on non-repatriation basis
provided that the amount is invested by inward remittance or out of NRE/FCNR/NRO
account maintained with an authorised dealer. Investment in sole proprietorship concerns/
partnership firms with repatriation benefits can only be done with prior approval of the
Government of India.
Investment in immovable properties in India:
An NRI can acquire by way of purchase any immovable property (other than agricultural
land/ plantation property / farm house) in India. The purchase price ought to be paid can be
paid out of funds received from abroad through normal banking channels or balance held in
NRE/FCNR/NRO Account maintained with a bank in India. NRIs can avail housing loan in
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6. Rupees from an authorized dealer or housing finance Institution in India subject to
conditions.
An NRI may transfer any immovable property in India to a person resident in India. An NRI
also does not require any permission to transfer any immovable property other than
agricultural or plantation property or farm house, to a person who is a NRI.
Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau
or Hong Kong cannot, without prior permission of the RBI, acquire or transfer immovable
property in India, other than lease, not exceeding five years.
Borrowings from NRI:
A person resident in India/companies may borrow in Indian currency from NRIs in the
following manner:
 Borrowing in INR by resident, other than companies in India;
 Borrowing in INR by companies in India.
A. Borrowing by Resident, not being a company:
A resident, may borrow in INR from NRIs after satisfying the following terms and
conditions:
i. Borrowing shall be only on a non-repatriation basis;
ii. The amount of loan should be received either by inward remittance from outside India
or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account;
iii. Period of loan shall not exceed 3 years;
iv. Rate of interest on the loan shall not be more than two per cent above bank rate
prevailing on the date of availment of loan;
v. Payment of interest and repayment of principal shall be made only to the NRO account
of the NRI.
B. Borrowing by a company:
A Indian company may borrow on repatriation or non-repatriation basis, from NRIs after
satisfying the following terms and conditions:
i. Indian company does not and shall not carry on agricultural/plantation/real estate
business; or trade in transferable development rights; or act as nidhi or chit fund
company.
ii. Borrowing is by issuance of non-convertible debentures (NCDs) made by public offer;
iii. The rate of interest is not more than the prime lending rate of SBI as on the date on
which the resolution approving the issue is passed by the shareholders of the company
plus three per cent;
iv. Period of loan shall not be less than three years;
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7. v. If the borrowing is on repatriation basis then the percentage of NCDs issued to NRIs to
the total paid up value of all NCDs issued shall not exceed the ceiling prescribed for
issue of equity shares/convertible debentures for foreign direct investment in India.
Further, the funds towards borrowing should be received through inward remittance
from outside India or by debit to NRE/FCNR (B) account of the NRI;
vi. If the borrowing is on non-repatriation basis then the amount of loan should be received
either by inward remittance from outside India or by debit to
NRE/NRO/FCNR(B)/NRNR account of NRI. Payment of interest and repayment of
principal shall be made only to the NRO account of the NRI.
Returning NRI:
India remains one of the fastest growing economies in the world. For those who are planning
to return and settle in India and wish to build a focussed investment portfolio, there's no
better time. However, adequate care must be taken to ensure that your hard-earned wealth is
properly diversified to minimise risk, is tax efficient and is compliant in all ways with the
extant legal framework.
If you have returned to India with the intention to stay back, inform your bank for a change in
your residential status in their records and re-designate your existing NRO Account to
resident Savings account. Also, your existing NRI demat account under the PIS cannot be
continued anymore and a separate resident demat account should be opened and shares/units
in that account should be transferred to the new account. Your FCNR deposits can run till
maturity but your earnings in NRE savings account will have to be transferred to resident
savings account, or you have an option to transfer it to RFC account.
As per the extant RBI regulations, you can open a RFC account and credit your foreign
exchange earnings and thus this account is a safe way to park your foreign exchange earnings
in India. Interest is taxable and there is a penalty on early foreclosure of RFC deposit.
Repatriation is allowed and both funds and interest thereon is free from all restrictions and
can be transferred to NRE/FCNR accounts or investment outside India.
As per the Indian income tax law, the moment you become a resident Indian (which given the
income tax rules generally happens a couple of years after you're back in India), you start
getting taxed on your 'global income'. Of course, the benefit of Double Taxation Avoidance
Agreements, or DTAA, may be availed if the overseas income is also getting taxed locally.
One good way you can hold the global tax liability as stated above is to plan your stay in
India in such a way as to try to maintain Resident and Not Ordinary Resident (RNOR) status
for the maximum possible time. In such a scenario, except for some incomes, rest of your
foreign incomes will remain exempt from tax.
As per RBI norms, you are free to hold, own or transfer assets outside India if such assets
were acquired by such person when he was resident outside India or inherited from a person
resident outside India. However, note that if you plan to sell those assets after becoming
resident Indian, there might be a capital gains tax liability under the Indian tax laws. To avoid
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8. that, it's wiser to explore the possibility of disposing off those assets before you earn Indian
resident status. Also, note that the Supreme Court has clarified in the case of Keshav Mills
Ltd. v. CIT [1953] 23 ITR 230 that income received outside India and remitted to India will
not be considered 'receipt' and shall not be taxed in India.
Permanent Account Number and Aadhaar Card requirements:
Permanent Account Number (“PAN”) card is a ten-digit alphanumeric number issued by the
Income Tax Department of India. NRIs have to file tax returns for their income earned in
India and having a PAN card is a requirement for filing such tax return. Hence, if an NRI has
a taxable income in India, PAN card should be applied for to file a tax return in India. Also,
having a PAN card is compulsory if NRIs intend to transact in shares/equities in India or
invest in mutual funds or for purchase of any land or other property in India.
As per the Indian Laws, only a resident individual is entitled to obtain Aadhaar Card.
Resident for this purpose means an individual who has resided in India for a period or periods
amounting in all to 182 days or more in the 12 months immediately preceding the date of
application for enrolment. The Government of India has made it mandatory to quote Aadhaar
number / Enrolment ID of Aadhaar application form, for filing of return of income. However,
subsequently press release was issued by which it was clarified that the requirement of
quoting Aadhaar Card number while filing income tax returns in India shall not apply to an
individual, who is not a resident.
Taxation:
NRI:
If any income is earned by an NRI or which accrues in India, the same is taxable in India. A
few examples are, salary received for any service provided in India, any income from a
residential property situated in India, capital gains on transfer of any asset situated in India,
interest from fixed deposits or savings bank account.
Income which is earned outside India is not taxable in India. Also, as mentioned earlier in this
Article, interest earned on an NRE Account and FCNR Account is not taxable. However,
interest on NRO Account is taxable for an NRI.
OCI:
Any income earned by an OCI card holder in India is taxable in India. Income from outside
India is not taxable in India, unless it is received directly in a bank account in India.
FREQUENTLY ASKED QUESTIONS:
a) What are the major accounts that can be opened in India by a non-resident?
1. NRE Account;
2. FCNR (B) Account; and
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9. 3. NRO Account.
b) Is a NRI permitted to acquire shares on stock exchange?
Yes, NRI can acquire shares on stock exchange under the Portfolio Investment Scheme.
c) How payments could be made by NRIs for shares purchased on stock exchange?
Payment for purchase of shares and/or debentures on repatriation basis has to be made by
way of inward remittance of foreign exchange through normal banking channels or out of
funds held in NRE/FCNR(B) Account maintained in India. If the shares are purchased on
non-repatriation basis, the NRIs can also utilize their funds in NRO Account in addition to
the above.
d) How NRIs can remit sale proceeds?
If the shares sold were held on repatriation basis, the sale proceeds (net of taxes) may be
credited to the NRE /FCNR(B)/NRO Accounts of the NRI, whereas sale proceeds of non-
repatriable investment can be credited only to NRO Account.
e) Are the investments and profits earned in India repatriable?
All foreign investments are repatriable (net of applicable taxes) except in cases where the
investment is made or held on non-repatriation basis or where the sectoral condition
specifically mentions non-repatriation. Further, dividends/ profits (net of applicable taxes), on
foreign investments, being current income can be remitted outside India through an
authorised dealer bank.
f) What are the regulations regarding Portfolio Investments by NRIs?
NRIs can purchase or sell FDI compliant instruments of Indian companies on the Stock
Exchanges under the Portfolio Investment Scheme. For this purpose, the NRI has to apply to
a designated branch of a bank, which deals in Portfolio Investment. All sale/ purchase
transactions are to be routed through the designated branch.
g) Are there any ceiling for purchase of shares by an NRI of an Indian Company?
An NRI can purchase shares up to 5 per cent of the paid-up capital of an Indian company on a
fully diluted basis. All NRIs taken together cannot purchase more than 10 per cent of the
paid- up value of the company. The aggregate limit of 10 percent can be increased by the
Indian company concerned up to 24 percent, with the approval of its Board of Directors and
its shareholders through a board resolution and a special resolution, respectively.
h) What are the other securities in which the NRIs may invest?
A Non-resident Indian may without limit, purchase on repatriation basis government dated
securities (other than bearer securities) or treasury bills or units of domestic mutual funds or
bonds issued by a public-sector undertaking in India, shares in Public Sector Enterprises
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10. being dis-invested by the Government of India, provided the purchase is in accordance with
the terms and conditions stipulated in the notice inviting bid. NRIs, may also invest in other
securities, on non-repatriation basis, in dated Government securities (other than bearer
securities), treasury bills, units of domestic mutual funds, units of Money Market Mutual
Funds in India, or National Plan/Savings Certificates.
i) Can a NRI set up a partnership/ proprietorship concern in India?
NRIs are allowed to set up partnership/ proprietorship concerns in India on non-repatriation
basis.
j) How can NRIs acquire immovable property in India?
k) Can a non-resident repatriate the sale proceeds of immovable property in India?
NRIs can remit the sale proceeds of immovable property (other than agricultural land/ farm
house/ plantation property) in India subject to the following conditions:
a. The immovable property was acquired in accordance with the provisions of the
foreign exchange law in force at the time of acquisition by him;
b. the amount to be repatriated does not exceed the amount paid for acquisition of the
immovable property received through normal banking channels or out of funds held in
FCNR(B) Account or NRE Account;
c. in the case of residential property, the repatriation of sale proceeds is restricted to not
more than two such properties.
l) Can a resident continue to hold immovable property outside India which was
acquired by him when he was a non-resident?
A person resident in India can hold, own, transfer or invest in any immovable property
situated outside India if such property was acquired, held or owned by him/ her when he/ she
was resident outside India or inherited from a person resident outside India.
******
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Particulars NRI
Purchase (other than agricultural land/ farmhouse/
plantation etc) from
Resident/ NRI
Acquire as gift (other than agricultural land/
farmhouse/ plantation etc) from
Resident / NRI/ PIO
Acquire (any IP) as inheritance from
Any person who has acquired it under
laws in force
(b) under section 6(5) of FEMA
Sell (other than agricultural land/ farmhouse/
plantation etc) to
Resident / NRI/ PIO
Sell (agricultural land) to Resident
Gift (other than agricultural land) to Resident / NRI/ PIO
Gift (agricultural land) to Resident
Gift residential/ commercial property to Resident / NRI/ PIO

11. Contributors to the Article
Mr. Raghu Babu Gunturu, Mentor and Advisor, Samisti Legal
Mr. Prashant Jain, Partner, Samisti Legal
Ms. Anita Dugar, Senior Associate, Samisti Legal.
Disclaimer: The content of this Article is intended to provide a general guide on the subject
matter. Specialist advice should be sought about your specific circumstances. For any
queries, the authors can be reached at raghu@rna-cs.com; prashant@samistilegal.in;
anitadugar@samistilegal.inT
HOR
S
ABOUT SAMISTI LEGAL
LEHORS
Samisti Legal is an emerging law firm in Hyderabad with specialization in Corporate Law
Advisory, Property & Real Estate, Contracting, Transaction Advisory, Foreign exchange
Advisory, Mergers and Acquisitions, Global Business Set-up and also provides India Entry
Services to Foreign Investors. Samisti Legal has worked with a large number of companies
and individuals and regularly advises foreign investors on structuring and compliance under
the exchange control regulations. To know more about us, please visit our website
http://samistilegal.in/
Sources:
a) https://rbi.org.in/scripts/FAQView.aspx?Id=117#Q5
b) https://www.rbi.org.in/scripts/FAQView.aspx?Id=52
c) https://www.rbi.org.in/scripts/FAQView.aspx?Id=26
d) http://dipp.nic.in/sites/default/files/pn7_2015.pdf
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