India has no separate foreign investment legislation. The Foreign Exchange Management Act 1999 (FEMA) also regulates the activities of foreign enterprises in India.
The Secretariat for Industrial Assistance (SIA), functioning within the Department of Industrial Policy and Promotion (DIPP), acts as a gateway to industrial investment in India. It provides a single window clearance for Entrepreneurial Assistance and notifies investors of all government policy relating to investment and technology.
SIA, in providing such functions, acts through its specialized divisions such as:
Foreign direct investment in activities that are not covered under the automatic route requires prior government approval. The FIPB is the agency which considers such proposals and it considers project proposals in totality, free from parameters, with a view to maximizing foreign direct investment into the country.
On 24 May 2017, the Union Cabinet gave its approval for the phasing-out of the FIPB. The work relating to the processing of applications for foreign direct investment (FDI) and approval of the government thereon under the extant FDI Policy and FEMA, will now be handled by the relevant ministries/departments in consultation with the DIPP.
Forms of business for foreign investment
A foreign company setting up operations in India can operate as an Indian company or as a foreign company.
If the foreign investor opts to operate as an Indian company, it can either form a wholly owned subsidiary or a joint venture (an incorporated joint venture or unincorporated joint venture) with an Indian partner, preferably with majority equity participation.
If the foreign investor chooses to operate as a foreign company, it can set up a liaison office, project office or a branch office, depending on its business requirements. Such unincorporated entities are regulated by the central bank.
Repatriation of income and capitalForeign capital invested in India is generally repatriable, along with any capital appreciation, after the payment of taxes due on them, provided the investment was on a repatriation basis.
In the case of royalties and technical know-how fees, Indian companies that enter into technology transfer agreements with foreign companies are permitted to remit payments under the terms of the foreign collaboration agreement under the automatic route, i.e. without any approval of the government. All such payments will be subject to the Foreign Exchange Management (Current Account Transactions) Rules 2000 as amended from time to time. Dividends are freely repatriable after the payment of dividend distribution tax by the Indian company declaring the dividend. The permission of the central bank is not necessary for effecting remittance, subject to specified compliances.
For remittances by a branch/project office, no prior approval is required for remitting profits earned, except for offices of foreign banks.
The remittance of winding-up proceeds of companies under liquidation, which are subject to tax, are permitted if an order is so issued by the court winding up the company (or the official liquidator in case of a voluntary winding-up) under the provisions of the Companies Act 2013. The following supporting documents need to be provided:
Exchange control is regulated under the Foreign Exchange Management Act 1999 (FEMA). The central bank is the Reserve Bank of India (RBI).
A foreign-invested Indian company is treated on par with other locally incorporated companies. Accordingly, the exchange control laws and regulations for residents apply to foreign-invested companies as well.
The Indian rupee is fully convertible for current account transactions, subject to a negative list of transactions that are prohibited or which require prior approval.
Capital account transactions can be undertaken only to the extent permitted. The RBI has prescribed a list of capital account transactions, which include the following:
Remittances of up to USD 250,000 per financial year (April-March) by a resident individual are allowed for any permitted current account or capital account transactions or a combination of both.
A foreign citizen resident in India and employed with a company incorporated in India may open, hold and maintain a foreign currency account with a bank outside India and remit the whole salary received in India (for the services rendered to the Indian company) in Indian Rupees to such account, provided that income tax chargeable under the Income-tax Act 1961 is paid. Similar treatment is accorded to a foreign citizen resident in India and employed by a foreign company, or an Indian citizen who is employed by a foreign company outside India. and assigned to the office/branch/subsidiary/joint venture/group company in India.
Prior approval of the RBI is required for acquiring foreign currency above certain limits in a few cases:
In addition, certain specified remittances are prohibited, such as winnings from lottery, racing, etc. and certain other payments.
Foreign ownership of land and property
Generally, foreigners are not permitted to acquire immovable property except in certain cases, where the property is required for the business of the Indian branch, office or subsidiary of the foreign entity (excluding a liaison office).
Non-resident Indian (NRI) and person of Indian origin (PIO)
A non-resident Indian (NRI) and a person of Indian origin (PIO) can purchase any immovable property (other than agricultural land, plantation property or a farm house) in India.
NRIs and PIOs may transfer any immovable property in India to a person resident in India. They may also transfer any immovable property (other than agricultural land, plantation property or a farm house) to Indian citizens resident outside India or PIOs resident outside India.
Further, a PIO may acquire any immovable property (other than agricultural land, plantation property or a farm house) in India by way of gift or inheritance from a person resident in India or an NRI or a PIO.
Foreign nationals of non-Indian origin
Foreign nationals of non-Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. However, they can acquire or transfer immovable property in India on lease, not exceeding 5 years, without the prior permission of the Reserve Bank of India.Foreign nationals of non-Indian origin, other than citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong, can acquire immovable property in India on becoming resident in India according to the terms of the FEMA. In this respect, they have to satisfy the condition of the period of stay. The type of visa granted should clearly indicate their intention to stay in India for an indefinite period to determine their residential status according to the provisions of section 2(v) of the FEMA.
Foreign nationals of non-Indian origin who have acquired immovable property in India by way of inheritance with the specific approval of the Reserve Bank of India or who have otherwise purchased immovable property with the specific approval of the Reserve Bank of India cannot transfer such property without the prior permission of the Reserve Bank of India.
